In the second of TheGamingEconomy's 2021 Predictions series, we take a look at some of the key statistics from the TGE Index on venture investment in gaming, and hear from Justin Keeling, General Partner of recently-launched Lumikai Fund, on what next year will bring for VC investment in gaming.
VC Investment: April-December 2020
Many in the video games industry have believed for some time that the sector is under-explored by venture capital and private equity investors, heightening the tenacious and competitive environment for independent developers. However, when industry events return in 2021 (with hope!), there will be no reason for the rhetoric of "gaming is the largest entertainment medium, why are we still seeing underinvestment?" to rejoin. While we are experiencing a monumental spike of consolidatory M&A activity, so too are we seeing a significant climb in VC and PE investment. Since its inception in April, the TGE Index has been closely monitoring VC & PE funding in the industry, here are the key findings:
- Since April 2020, the 150 investment rounds led by venture capital and private equity firms in which the transaction details were disclosed have totalled USD$4.230bn (£3.168bn) in value at an average of USD$28.198m, while the 21 rounds jointly led by VC/PE and corporations have totalled USD$3.069bn (£2.298bn) at an average of USD$146.14m (£109.45m). A total of 16 rounds either led or jointly led by VC and PE firms were for undisclosed sums.
- The combined figure of USD$7.298bn (£5.466bn) represents 19.60% of total investment recorded over the nine month period, surpassing IPO and secondary public share issuances and second only to corporate-led injections.
- The most substantial investments by VC & PE firms include the accumulation of 2% of Nintendo share capital, valued in excess of USD$1.1bn (£824m) at the time by ValueAct; the USD$535.1m (£400.8m) acquisition of Runescape developer Jagex by Macarthur Fortune Holding; and Epic Games' USD$1.78bn (£1.33bn) round supported by a host of VCs.
The year VC investment came of age
Mobile; console; PC, and the broader connective ecosystem of esports; streamers; game streamers; and social platforms, are all set to continue to thrive, rather than cannibalise. Instant gaming, social gaming networks, and cloud subscription gaming, are creating new access points and expanding the total gaming audience size to unprecedented scale. Newer technologies like VR, AR, and refreshed console and graphics cards cycles are deepening engagement, time spent, and concurrency, for existing gamers. All of these inflection points have the potential to create investable new market incumbents across content, tools, technology and infrastructure.
We are also seeing multiple new gaming geographies reaching maturation, creating opportunities for a whole new set of domestic gaming incumbents. This year India overtook the US as the world's second largest gaming download market, and is expected to grow 40% year on year from an already massive base of 360 million gamers. Turkey, Indonesia and Vietnam continue to be hubs for gaming innovation.
On the back of this, 2020 was the year gaming VC investment came of age. Multiple sector focused funds launched targeting various stages of the capital supply chain, and in Lumikai's example, specifically the massive untapped upside of India's gaming ecosystem. The response has been overwhelming - the best founders understand the value of partnering with sector focused funds that understand the journey and can support them with patient, strategic capital.
There has never been a better time in the history of the industry to start a gaming company, and to invest in gaming. The aggregate gaming market is expected to cross a quarter of a trillion dollars in annualised revenue by 2025, up from USD$150bn (£111bn) last year. It's truly a market to be approached by investors in the spirit of abundance.