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VCs have been betting big in the gaming industry for a very long time, globally. Some examples include Andreessen Horowitz, which invested in Roblox, an online gaming platform that went public in March 2021 and currently has a market valuation of over $45 billion. Similarly, Sequoia Capital had invested in Unity Technologies, a company that provides a game development platform and went public in September 2020 with a market valuation of over $26 billion.
Accel Capital Partners has invested in Supercell, the creator of the popular mobile game Clash of Clans. The game was acquired by Tencent for $8.6 billion in 2016, making it one of the most expensive acquisitions in the gaming industry.
GV, also known as Google Ventures, had invested in Discord, a chat app for gamers that recently went public through a direct listing. Bessemer Venture Partners has invested in Twitch, a live-streaming platform for gamers that was acquired by Amazon in 2014 for $970 million.
Generative AI Gaming
But now with generative AI coming into the picture, the investment is only going to get more intense.
Scenario, an AI startup received $6 million seed funding from Anorak Ventures, Founders Inc, The VR Fund, Brendan Iribe from Oculus, Justin Kan from Twitch, Hugging Face founder Clem Delangue and Julien Chaumont, with Play Ventures leading the round. The company with just eight team members during the funding, are enabling game developers to create hundreds of custom generators for creating entirely new game assets that are within a specific style.
More startups like Poly, which is backed by Y Combinator, Hotpot, and Pixela.ai are also major players in the AI-based game asset generation field. The application of generative AI has the potential to revolutionise the game development process for studios. Although existing game projects may not immediately reap the benefits of this technology, future games currently in development are likely to leverage the power of generative AI. This implies that the upcoming generation of games could be produced in conjunction with AI, and VCs are definitely on the lookout.
The gaming industry is one of the fastest adopters of technology with the former evolving as fast as the technological developments happening around it. The high adoption of Web3 in gaming is one of the recent examples.
Pearl Agarwal from Eximius Ventures, a gaming-focused VC firm, told AIM that the idea of Web3 in gaming is not just a buzzword. “Minecraft and Roblox are very close to the idea of the metaverse. With Web3, AR, and VR in the picture, the gaming industry can head to another level.”
However, the Web3 phase looks a bit dim right now with generative AI with the likes of ChatGPT and DALL-E taking centre stage. The gaming industry requires a high volume of content, much of which is artwork. So naturally, generative AI definitely presents a disruptive opportunity in the industry, and the VCs are ready for it.
Meanwhile, in India
The Indian gaming industry witnessed an unprecedented boom during the pandemic. And the introduction of multiplayer games like PUBG took it a notch up giving a major fillip to the community. As a result, in FY 22, India became the largest consumer of mobile games with 15 billion downloads. The time was ripe – the sudden growth spurt captured the attention of venture capitalists, who had been biding their time watching it from afar.
And now, riding the demand wave, VCs are increasingly showing interest in the gaming industry. According to a report by Lumikai, a venture fund focused on gaming, in FY22, the Indian gaming market was valued at $2.6 billion and gaming startups raised $349 million throughout the year. With a CAGR of 27 percent, the market that already boasts of 900 gaming companies, will be worth $8.6 billion by 2027.
One of the major reasons why VCs are drawn to the gaming industry in India is because of the huge youth base that is focused on online gaming. Roland Landers, CEO of All India Gaming Federation, told AIM, that the consistency with which the industry is growing in India is actively attracting a wide range of investors.
The Lumikai report stated that there were around 507 million gamers in India, out of which 120 million were paying users. The same report says that this number will touch 700 million by 2025. The only thing missing in India is turning the online gaming industry into eSports. This can be blamed on the missing infrastructure, but to be fair, it’s a work in-progress. FPS games like Call of Duty, after the ban of PUBG, have been the driving force behind this. According to the Federation of Electronic Sports Association of India (FEAI), the eSports segment in India has the potential to hit INR 1,100 crore by 2025.
The Indian VC ecosystem, and the gaming ecosystem as well, is still blind towards the potential of generative AI in games. Most of the money goes towards mobile games, as that has been the market so far. Hopefully, the trend of generative AI catches on soon.
[Update 14:23 | February 23, 2023 : The story has been updated to reflect the focus of investments in generative AI gaming]
