We last polled our network of investors on the topic of gaming infrastructure startups back in May just as it was becoming clear what pandemic opportunities were in store for gaming startups.
Accel’s Amit Kumar told us at the time that “social and interactivity layers spanning across these games” were poised to be the big winners, highlighting his firm’s investments in startups like Discord and Mayhem. In December, Discord announced it was raising at a valuation of $7 billion and this month Pokémon Go creator Niantic announced it was buying Mayhem.
Following my story this week digging into investor sentiment around evolved opportunities in social gaming, I dug into gaming tools and rising platforms and pinged a handful of VCs to hear their thoughts on that market.
The broader market moves of the past several months have defied expectations with startups in the gaming world picking up substantial steam as well. This week, Roblox announced it had raised at a $29.5 billion valuation — up from $4 billion in February of last year. Game makers across the board, including Roblox, have been acquiring gaming infrastructure startups as of late.
I talked to investors about what they wanted to see more of in the space.
“We’d love to see more innovation around gaming infrastructure, which has the potential to democratize game development and allow clever indies to compete with Riot and Epic,” Bessemer’s Ethan Kurzweil and Sakib Dadi told TechCrunch.
They highlighted numerous areas for new opportunity including specialized engines, next-gen content creation platforms, and tools to port desktop experiences to mobile. The VCs we chatted with were also intrigued by latent opportunities presented by major platforms’ adopting of cloud gaming tech. The overall trend was one promoting accessibility, a desire to provide more casual experiences for platforms that may have typically catered to “hardcore” audiences.
It was also apparent from conversations that Roblox is significantly shaping investor attitudes toward the potential growth opportunities and pitfalls in the entire gaming industry, with VCs who didn’t get in on Roblox eager to dissect its success and bet on an adjacent player or one that could follow a similar recipe for success.
Responses have been edited for length and clarity. We spoke with:
- Hope Cochran, Madrona Venture Group
- Daniel Li, Madrona Venture Group
- Ethan Kurzweil, Bessemer Venture Partners
- Sakib Dadi, Bessemer Venture Partners
- Alice Lloyd George, Rogue VC
- Gigi Levy-Weiss, NFX
Hope Cochran and Daniel Li, Madrona Venture Group
Cloud game-streaming networks are exciting but don’t seem like a sure bet quite yet, how do you feel about them?
DL: I think the real story behind cloud gaming is “play anywhere” and the cross-platform nature of it. Gaming is just different than Netflix, it’s not like you want to have an endless library of content. When I’m playing a game, I want to play Overwatch all the time and I don’t need to have access to 1,000 other games. I think the approach that the cloud companies have taken has been more around the thinking of, what do we have and what can we build for gamers with it? More so than what do gamers want and what can we give them? It’s definitely trended toward that direction with things like giving away two free games per month, but really I think the thing that will be exciting in the longer term for cloud gaming is to play your game anywhere and play with your friends anywhere.
If users embrace desktop-class cloud gaming on mobile and there’s a broader cross-platform unification, does that spell trouble for today’s mobile gaming industry?
DL: The audiences between a Candy Crush and a Warzone are probably a little different, though I like to play both. So maybe it gets into eating some people’s lunch but I don’t think it’s anything where the number one problem for a Candy Crush is people hopping over to play desktop Call of Duty.
Are there any clear infrastructure gaps where you’d like to see new startups rise up and fill the void?
DL: Honestly just tools for building games, like next-gen Roblox Studio, next-gen Unity and Unreal type stuff — I’ve seen a couple interesting companies there. I think we’ve seen a few smaller companies focused on making sure that a network is safe for children, but I feel like a lot of the infrastructure stuff is really driven by what type of new content is coming out. So as the social games became really popular, securing that and making sure that the chats were safe became really important.
HC: I would love to see something built for helping games that were created for the triple-A environment to port over better to mobile environments. Every time I work with a gaming company on that, they seem to have to rebuild the game so it’d be really interesting to see something like that really helps them adopt to the mobile form.
Ethan Kurzweil and Sakib Dadi, Bessemer Venture Partners
The incumbents seem to loom large in the gaming infrastructure vertical, what opportunities do you think feel more open to startups?
Given how games such as Fortnite and Roblox have built platforms, there is a massive opportunity to componentize the features that made them succeed, such as UGC and season passes, and make them available for game developers at every stage. The tricky question is will those companies be able to scale to larger studios such as Epic or Riot? We believe there is an opportunity to do so by allowing newer studios to focus on the core content rather than ancillary, but important content. For example, no company offering matchmaking infrastructure will ever be purchased by Riot Games but enabling the next Riot while developing novel features to attract players will become more valuable than ever in a more crowded gaming landscape. We’d love to see more innovation around gaming infrastructure, which has the potential to democratize game development and allow clever indies to compete with Riot and Epic.
Roblox raises at $29.5 billion valuation, readies for direct listing
If users embrace desktop-class cloud gaming on mobile and there’s a broader cross-platform unification, does that spell trouble for today’s mobile gaming industry?
Not so fast! It’s actually a massive opportunity. Not all users will want to play more involved, “hardcore” games and will continue to gravitate toward casual games such as Candy Crush, Zooba or Toy Blast. It is just as possible that the more hardcore, console player base will end up spending more time on mobile platforms and gradually becoming exposed to games that have gameplay mechanics that are just as high quality as AAA titles with maybe a slight downgrade on the graphical intensity.
Alice Lloyd George, Rogue VC
What opportunities, if any, do you think a new console generation will bring to gaming startups?
I think with increasing quality and photorealism, the experiences become more magical. You know, it’s hard to say between like the iterative jumps of one generation to another and what the differences are for game creators versus the advent of a whole new platform where you can create a new type of game around that platform. But I’m generally very bullish, everything is accelerating and it’s a sector where people love to build.
More often, the people that tend to make games are gamers themselves so there’s a different catalyst to it. I feel like the content world just has to get bigger because you can’t exhaust these things. It’s still amazing to me. Yes, we’re still watching Netflix and TV shows, but it’s really this infinite entertainment and I’m really interested to see Unreal penetrate film and cinema and I think that we’ll see a lot more in terms of gaming leading technology … and I think we’ll see spillover effects.
VCs see opportunities for gaming infrastructure startups and incumbents
Gigi Levy-Weiss, NFX
If users embrace desktop-class cloud gaming on mobile and there’s a broader cross-platform unification, does that spell trouble for today’s mobile gaming industry?
No, if eventually streaming will be the willing tech for mobile, the top developers will simply migrate to use this tech. I can’t see it change the identity of top developers/publishers. We have to remember that the users don’t care about the tech … they care about how fun the game is and what’s the playing experience.
What opportunities, if any, do you think a new console generation will bring to gaming startups?
With even further hyperrealistic graphics, the line between a movie and a game are blurring more than ever. Some of the big studios will of course take advantage of these new capacities, but potentially a new generation of more creative game developers, not limited in their thinking to “what is a game” can use the infrastructure for totally new game experiences. Coupled with AI advancement like GPT 3 that can create unbelievably intelligent interactive game characters gaming could become a totally new experience.
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