VC & The Gaming Industry

Gaming has entered a new era — in the past decade, the industry has not only penetrated the mobile market, but also cross-platform gaming, in-game socializing environments (notably in metaverse), and subscription-based cloud gaming services from the likes of PlayStation, Google, Amazon, and others In many ways, the industry finds itself today at the center of social media, e-commerce and entertainment trends. In this report, we will assess and map the gaming and e-sports sector, from a global, generalist venture investor perspective.

• The gaming market will grow with a CAGR (2019 to 2024) of +8.7% to reach $218.7 billion in 2024.
• 2.8 billion of the world’s 3.0 billion gamers will play on a mobile device this year. This is compared to 1.4 billion gamers on PC and 0.9 billion on console.
• More player growth is imminent, and player growth rates from 2020 to 2021 are already impressive (+5.4%).
• The metaverse trend, rapidly accelerated by COVID-19, is powerful enough to persist beyond COVID-19.

Advances in technology, new social formats and monetization methods are bringing an activity once considered to be fringe more deeply into the mainstream. Video gaming is now arguably on its way to becoming the world’s new favorite pastime, creating a new realm of virtual property, currency and entertainment. Like the early days of Internet advertising, the attention shift towards gaming has yet to be fully monetized, and many AAA games earn only a fraction of what cable TV and live sports earn on a per hour basis.

1. Why to Take Video Games Seriously:

With $177.8 billion in annual revenue in 2020, gaming is already bigger than the music and film industries combined but with much faster growth. The rise of gaming can be seen as a structural shift in the entertainment industry.

2. A Growing Industry: New Ways to Pay, Play & Engage

Current and future growth drivers include new ways to play (multi/cross platform, streaming), pay (full price, free-to-play, and subscription) and engage (esports and live streaming), which investors believe will result into double-digit industry sales growth globally through 2025.

3. New Technology is Making a Significant Difference

The global adoption of smartphones, coupled with increasingly powerful 5G networks and cloud-based infrastructure, has fueled rapid growth in mobile gaming, allowing the industry to scale rapidly at a low marginal cost. Mobility represents the key driver for growth in the emerging and frontier markets. As connectivity improves new and traditional industries are experiencing rapid growth. Consumer spending on games is expected to grow to $218.7 billion in 2024.

A Global Market with Increasing VC Participation

Historically, the gaming industry has primarily seen funding come through large incumbents’ corporate development initiatives, and through specialized venture funds such as Play Ventures, Makers Fund or London Venture Partners. This is mostly because backing game developers and publishers has often fallen outside of the scope of generalist venture capital funds given the binary nature of outcomes in backing specific gaming/content titles, in the scheme of broader VC portfolio construction. However, in recent years, the sector has seen increasing interest from traditional venture funds such as Andreessen Horowitz, NfX, Bessemer, Khosla, and more. While VC investments in gaming dipped from $4.7bn in 2018 to $1.1bn in 2019, a total of $13.3bn of traditional venture capital has poured into the space since 2014.

Top Investors in the Video Gaming space:

1. Jim Goetz, Sequoia Capital:

Jim Goetz is no stranger to investing in the video game industry. He invested $19M in Chartboost, a company that helps game developers monetize through advertising, as well as $5M in Pocket Gems, the mobile developer that created the games Episode and War Dragons.

2. Rich Wong, Accel Partners:

Rich Wong invested $12M in Osmo, which makes hardware that integrates with educational iPad games, as well as Rovio, creators of Angry Birds.

3. Jeff Horing, Insight Venture Partners

Jeff Horing invested $17.5M in 6waves, which publishes games specifically for Facebook. He’s also involved with Jagex Ltd, a developer and publisher of online games.

Beyond fundraising figures, the sector is maturing in terms of mega-rounds and exits, beyond gaming developers and publishers, and in areas such as infrastructure, developer tools, distribution and communications platforms, although the bulk of financing rounds remain clustered around the seed stage:

Gaming Startups to Watch:

1. Affectiva:

Affectiva has developed an innovative emotion recognition software that can detect specific human emotions and analyze their state of mind. This emotion-sensing AI has made its way to the gaming industry to help personalize games by analyzing the player’s reactions and sensations. The startup can capture real-time data about player reactions and provide game developers with accurate information about how their game really works. Total Funding: $62.6M

2. Manticore Games

Manticore Games is a gaming developer that offers highquality fantasy games with insights that take advantage of user-generated content, to provide users with enhanced multiplayer gaming experiences. Manticore Games developed Core, a free platform for game development that allows gamers and aspiring game-creators to try their hand at creating their own games and sharing them with the world. Total Funding: $60M

By Ibrahim Hafeez, Member of the RBL1 Network