Investors are pouring millions of dollars into the gaming sector, which is catching investors’ attention.
In the first 9 months of 2021, gaming companies in India received agreements worth $1.6 billion, eclipsing the entire number of investments in the industry over the previous five years.
Gaming and esports companies such as MPL, WinZO, OneTo11 and Rooter have recently received funding from global venture capital funds.
According to investment promotion agency Invest India, venture capital financing for Indian gaming businesses is estimated to reach $345 million by 2020, expanding at a CAGR of 21%.Well-known venture capitalists including Sequoia Capital, March Gaming, Accel, and Kalaari have made substantial investments in the industry. Goal Ventures and Blume are two more major investors.
Insights into the marketplace
Many people are unaware with the extent of the gaming business, yet it has grown into a monster that is more valuable than the music and video streaming sectors put together. Another way to look at it is that the $159bn+ amount is larger than the GDP of Kuwait. You’ve got consoles, mobile devices, and personal computers to choose from. The mobile game market has grown rapidly over the past few years, with a market share of 40% and a 15.6 percent year over year rise. In comparison, the PC game market has grown at a slower pace, with a market share of just 21%. At the present, console gaming is increasing at a YoY pace of 13.4 percent, and the new console cycles from Sony and Microsoft are expected to spur a flurry of new game developments. Gaming is shifting away from the PC market, according to the numbers.
During the past decade, the APAC region was largely responsible for driving the gaming industry to its current size and prominence. Nearly 2.7 billion people, or 34.5% of the world’s population, will be engaged in some form of video gaming by the year 2020. There were less participants in every other area combined than in APAC, but with just a 4.9% YoY growth rate, Asia has reached a mature stage. Instead, growth is shifting to Africa, where it is growing at an annual rate of 8.8 percent. In terms of game revenue, Africa is the fastest-growing market, growing at a rate of 14.5 percent annually, far outpacing APAC’s 4.9 percent growth rate. A mature investment environment where game developers have a wide audience and service providers like Twitch can collect even larger fees is provided by high view numbers and strong growth metrics.
Over the past few years, Venture Capital funding in the gaming industry has fluctuated, with a distinct peak in the mid/late 2010s. The funding amount in 2018 was $4.7 billion, more than five times the funding amount in 2014. However, the rise was short-lived, and funding fell back to $1.1bn in 2019, from which it has since seen steady growth. However, as the market matures, the number of deals is decreasing, but the total amount of funding is increasing. This trend can be observed. On the other hand, only 900 million dollars were raised in 2014 through more than twice as many deals (268) as were funded in 2019 ($1.1 billion).
The seed and early stages of Venture Capital are where the majority of funding deals are found. It’s no different in the gaming industry. From 2014 to 2020, 1,103 deals were made, with 239 in the stealth phase and 596 in the seed stage. Final stages see a significant drop-off in deal volume.
Get to know your industry better
Prior to approaching venture capitalists, it’s important to know what type of video game your startup is in, as each VC has their own preferred sub-sector. However, there are many that are more interested in investing in real game content rather than in game studios and platforms (i.e., game studios). Investing in publishers, on the other hand, is more popular. It’s not uncommon for game studios to create ‘content’ that spans multiple genres and platforms. This is especially true when it comes to emerging technologies like virtual reality and augmented reality (VR).
Video games and electronic sports are often lumped together, but they are more like adjacent spaces—eSports is all about competition and league play; video games are all about software development. Both Twitch and other live-streaming platforms, as well as broadcasting and monetization infrastructure, assist in bridging this divide.
In addition to companies like Unity, the gaming infrastructure also includes data analytics, the cloud, and 3D rendering tools. Many startups are creating gaming communities and communication tools to find other players of similar skill to compete against, to find coaches/training, or to find partners to work on new projects with them. A subcategory of monetization tools for gaming includes customised ads within games and real-money gaming.
According to common assumption, gaming Venture Capitalists have made very few investments in blockchain projects so far (that is, before 2021), and many of them told me last year (in early 2020, before the recent crypto boom) that they didn’t understand blockchain and didn’t feel comfortable investing in blockchain gaming companies. As a result of NFT’s rising popularity and their obvious utility in gaming and the Metaverse, this is no longer the case. To some degree, every venture capital fund has at least one person on its team who is more familiar with blockchain gaming than traditional triple AAA games (usually a principal or a venture partner).
Finding the Right Fit Between Founder and Investor
Entrepreneurs in the video game industry are naturally drawn to these gaming-focused funds. That being said, it isn’t impossible to secure funding for your gaming-related startup from a venture capitalist who has never invested in the industry.
Why? In part because of the pandemic driving up gaming usage, the space has become so hot. When it comes to gaming infrastructure, Venture Capitalists have a better understanding of platforms and technology than real gaming.
As important as finding product/market fit is for a startup, finding a good fit for the founders and investors is equally important. This includes the size and stage of the check, as well as the industry sub-sector in which it was issued. In contrast to a non-gaming VC fund, a gaming VC funding might only place one bet on each “subsector” of gaming. Examples include real-money gaming, eSports matchmaking, advertising, casual mobile games, or blockchain games/NFT marketplaces.
Online gaming monetization strategies
Free-to-play: In this case, the game can be downloaded for free. While the game itself does not generate revenue, in-game add-ons, such as virtual currency and other premium features, do. In some well-known online action games, players have free access to the game’s core functionality, but they must pay to unlock additional features, such as character customization options.
Users may find advertisements in a game annoying, but they are a viable source of revenue for developers. When a user completes a level and moves on to the next, some puzzle games display advertisements. Some games allow players to earn battle coins or rewards by watching advertisements. These can then be used to make in-game purchases.
Gaming companies often offer a free demo or trial version of a game before releasing the full version. Customers will be lured into purchasing the full version if they are given a taste of what to expect.
Players who pay for premium items or features have an advantage over free-to-play gamers in this model. This means that free gamers may have to put in a lot of effort to get their hands on the game’s most sought-after items.
To play a game, players must first purchase coins or tokens in-game using real money. Users may purchase chips with real money in certain popular casino-themed games, allowing them to participate in paid tournaments.
Co-branding and selling game merchandise are two other ways to make money from a game. Keychains, clothing, posters, and other trinkets fall into this category.
India’s burgeoning video game sector attracts the attention of investors because of its outstanding numbers and many profit-making opportunities. Even if it isn’t a surprise, large corporations and venture investors are showing an interest in online gaming companies. Investors (Venture Capitalists/Angel Investors) are eager to cash in on these new chances and maximise earnings in the online gaming business.