Q&A with Play Ventures, Deconstructor of Fun, Elite Game Developers, and Mail.Ru Game Ventures

What’s going on in the games investment and M&A space, Covid-19's impact, and the startups & categories we should be excited about

Reuben Lewis
ironSource LevelUp
Published in
8 min readJul 30, 2020

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This article was initially published on Luna Labs.

We’re back with the second instalment of a five-part analysis of the most noteworthy 2020 trends and developments in the business of gaming!

As mentioned last week, we teamed up with Luna Labs and interviewed 21 veterans from all corners of the industry — getting insights from the people who know best.

Here’s a breakdown of our grand analysis:

  1. Trends in Monetization Mechanics, Product Design, and Social Gaming with Snap, GameRefinery, Department of Play and Liquid & Grit. (Read here)
  2. Trends in Investment and Mergers & Acquisitions with Play Ventures, Deconstructor of Fun, Elite Game Developers, and Mail.Ru Game Ventures
  3. Trends on Gamer Behavior, Motivations, and App Download with Newzoo, Quantic Foundry and Adjust, Part One
  4. Trends in Gamer Behavior, Motivations, and App Download with App Annie, Game Refinery, Appsflyer and Appsumer, Part Two
  5. Trends in Creatives and Performance Marketing with N3twork, ironSource and Luna Labs

For this article, we spoke with Joakim Achren, Founder and CEO of Elite Game Developers, Michail Katkoff, entrepreneur-in-residence at Play Ventures, Joseph Kim of Deconstructor of Fun,, and Ilya Eremeev, Senior Executive Producer at Mailru Game Ventures.

Much has been said about the gaming industry being “recession proof”. To what extent do you agree with this?

Joakim: I think it is. People will not stop consuming entertainment and gaming is getting more and more popular with new consumer generations.

Michail: I believe this statement stems from the 2008 recession, which saw gaming companies reach record highs as people lost their jobs and spent extensive time at home playing games. Back then games for sure provided the best entertainment value per Dollar consumed. But, today, this might not be the case — at least not for all game monetization models.

Unlike in 2008, we now have various streaming services, which provide almost unlimited content for the whole family for a capped subscription price. Not to mention all the social networks from Instagram to Snapchat and TikTok that all take a meaningful chunk of potential players’ time.

Also, unlike in 2008, we now have a booming freemium games industry, which still largely depends on whale monetization to drive the majority of revenue. What I’m saying is that the landscape is meaningfully different than 12 years ago. I believe as recession — and even depression — hits, in-game spending will continue to get more conservative.

Games that rely on players spending money to speed up progress (most top-grossing F2P games) will have more trouble with their selling argument, as people increasingly have more time on their hands.

At the same time, games that offer unrivalled value through battle pass types of subscription systems will fare even better as players will have more time to play, more time to earn rewards, and a bigger fear-of-missing-out if they don’t convert to the battle pass.

Joseph: I agree. Video games still are the best value for the entertainment dollar. Also, the F2P model offers some notion of price discrimination to its customers, allowing spenders to buy in at different price points.

Ilya: I agree with the sentiment but not with the exact word “proof” — I’d say “resistant.” Entertainment, and video games, in particular, is the last bastion in giving up pleasures in life, right before food. Escapism (in a good way), demand for self-expression, and emotional stimulus are still high in tough times.

Also, games are a relatively cheap and accessible way to satisfy that need. When you can not travel, buy nice physical things, or have to tighten your belt — games are there to help.

Moreover, games are the number one media. They are far beyond a niche thing. There is no such term as a “gamer” anymore like there is no “movie watcher” term. Everyone is a gamer. So, I believe that the game industry has a great potential.

What have you seen change in the gaming investment landscape since the Covid pandemic started? Is it harder for games startups to get investment now?

Joakim: I think it hasn’t affected things yet that much. Pitching over video calls is definitely not optimal and can hurt the possibility of getting the second meeting with a VC, if the delivery wasn’t perfect.

Michail: Getting an investment is always tough. It gets even tougher without face-to-face opportunities and the conferences that drive those face-to-face meetings. So, in that sense, moving all the events online definitely has hurt those who didn’t have existing relationships with investors or a certain type of ‘name-value’ that would allow the startup to stand out from the crowd.

Joseph: I’m hearing it’s more difficult as it’s the case more generally. But, at the same time deals still seem to be getting done. Furthermore, there seemed to be a lot of greater relative interest in games as an investment category and as a hedge against future shelter-in-place or recessionary environments.

Ilya: First of all, the M&A market is still super active. New deals are happening every single day.

From our perspective, we’ve become more relaxed and confident about distributed teams. We’re okay to close a deal without physical contact. Although meeting in person is still the best way possible to understand the other human being and form the “chemistry,” we have to adapt to the new reality to survive and succeed.

Now, we can do deals with video calls.

Do you think these changes will have a long-lasting impact?

Joakim: I think that the level of engagement will go down but by not much. I think that the games industry took a big leap forward in terms of numbers increasing, and the reverse won’t really happen.

Michail: The impact is based on two things: how long the social distancing will last and how badly will the economy be impacted.

As said, social distancing will lead to fewer opportunities for early startups to stand out as conferences are now moved online. This especially hurts the ones in the early phase of financing.

The impact of an economic crisis will, on the other hand, hurt startups at later stages as their rounds will be considerably smaller or unsuccessful altogether and as LPs (limited partners) will be hit by the economic downturn. As a result, the funds will be forced to focus on even safer bets.

Joseph: The current pandemic seems to have broadened the audience for mobile and F2P gaming which I think will have positive long-lasting effects.

Ilya: Investors and teams could become more international and more cross-border, which leads to a higher competition: they are in the low-tier for money, and in the top-tier for talent and opportunity. Developers are tending to adopt a hybrid office-remote work style. It opens the global talent market for companies from underdeveloped regions. And it eliminates the advantage of some companies that were offering the remote work option as a USP. I think this crisis will give a boost to remote collaboration tools and instruments, bringing new methods and new talent.

I’m optimistic about the future.

What are the most interesting M&A developments you’ve seen so far in 2020, and why?

Joakim: All the investments that are going into building the “metaverse.” I believe that we aren’t ready for that yet and the startups will develop games that fail because they aren’t fun games. Pitching a “metaverse” is the hot thing that everybody does, but it will come done to having a great game. The “metaverse” stamp doesn’t matter to the consumers, you’ll need to prove it with a great game.

Michail: The deals made by public or soon-to-be-public companies have been getting massive. The positive impact each of these larger M&As has on the company’s stock price has definitely fueled this behaviour.

This, of course, has skewed M&A towards companies that generate a sustainable amount of revenue through legacy titles. These often somewhat outdated games are populated by players who have been playing the game for years. Yet, despite impressive KPIs, these games are often nearly impossible to grow due to them being anything but welcoming towards new players.

In other words, M&A in 2020 has focused on cash cows, which is, in a lot of sense, smart during the times of ever-increasing uncertainty.

Joseph: I believe that we will continue to see M&A throughout 2020 but I believe, more mid to long-term, we’ll see a slowdown. This is more of a supply and demand problem. There is greater urgency and demand on the buy side, as game companies seek additional growth through M&A.

However, on the supply side, given the hollowing out of the mid-tier, we should see fewer deals as targets become increasingly scarce. We’ll need the ecosystem of smaller companies to achieve greater scale before M&A picks up again in the longer term.

Ilya: Peak-Zynga, Saber-Embracer, and Discord’s $100m round have been the most interesting developments. I think that the market is drifting towards global consolidation. Big players are concentrating power in their hands and building global empires.

At some point, the majority of now independent companies will pick a side.

For regular updates on games and M&As, I recommend following my friend and colleague, Sergei Evdokimov on Telegram and Medium.

And lastly, what are the most exciting mobile games startups, categories or developments to look out for in 2020?

Joakim: Look out for Traplight and Reworks from Finland!

Michail: If we’re looking at something new, it’s the cloud gaming space as well as more and more gaming startups making mid-core games choosing Unreal over Unity.

Joseph: Although it’s not as flashy, there are lots of exciting developments on the back-end and technology infrastructure side for F2P live-ops. Significant investment is currently underway that I believe will drive competitive advantage for the companies that get it right.

We’re at the very early stages of adapting not only machine learning but new techniques to F2P games from other industries in novel ways.

Ilya: My top ten bets are…

  1. Co-creation and user-generated content: creative spaces, games as toys with freedom of self-expression, shared experiences, virtual chat rooms 2.0 (Roblox, Avakin Life, Second Life, AnimalJam)
  2. Arcade Racing with extended meta (Mario Kart, QQ Racing)
  3. Games that combine proven core concepts with modern meta: Golf, Tennis, Racing, Fighting, Fishing (Golf Clash, Tennis Clash, Fishing Clash)
  4. The reinvention of real-time strategy on mobile
  5. Hypercore/hybrid-casual: sticky bitesize gameplay with deep meta (Archero, Random Dice)
  6. Hypercasual games with high long term retention: minimalistic or even zero gameplay with meta and social features or even MMO. (idlers, incremental games)
  7. Word Games
  8. Co-Op PvP and non-zero-sum competitive games. Multiplayer games with common team goals, and MVP reward distribution, similar to raids in MMO games.
  9. Casual Casino, based around the Coin Master idea
  10. Focus on IP — creating and nurturing original IPs in multi-genre universes. And I also expect to see big franchises continuing their foray into mobile, like Fortnite, PUBG, and CoD have done.

TLDR;

  • Deals and funding rounds are still happening despite Covid-19.
  • Lots of investments are going into startups building for the “metaverse.”
  • However, there will likely be smaller rounds for startups at later stages of funding, as Limited Partners feel the impact of the economic downturn and focus more on sure bets.
  • M&A in 2020 has focused on cash cows.
  • Smaller companies need to achieve greater scale before M&A picks up again in the longer term, as the mid-tier is hollowing out.
  • Look out for Traplight Games, cloud gaming, platforms that encourage user-generated content, and games building virtual worlds that allow for self-expression and shared experiences.

Up next, we have trends on gamer behaviour, motivations, and app download with Newzoo, Quantic Foundry and Adjust — Part One!

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