Asia’s fast-growing online gaming sector can do with more early-stage investors, said Play Ventures’s founding partner Henric Suuronen. The Singapore-based venture capital (VC) firm is currently the only gaming-focused VC in town – and pretty much all of Southeast Asia.
Beyond Southeast Asia, other active gaming investors in Asia include the likes of Korea Investment Partners (KIP), GGV Capital, Alibaba, and Tencent.
“I do wish there are more (investors) and early-stage capital,” said Suuronen. “We have a $40-million fund which is small, so we just don’t have the capacity to do every deal. The concern is that if the capital comes from someone else like an angel [investor] who has no clue about gaming, you can also put the company on a bad path.”
Suuronen said he has seen at least 150 startups since the beginning of 2019 but has invested in just 10 companies from its $40-million debut fund which closed last month. Play Ventures invests globally but has chosen to situate itself in Asia to capture the high growth potential it expects to see in this region.
According to Newzoo, the Asia Pacific region is on track to produce $72.2 billion worth of game revenues this year to account for 47% of the global total. China, Japan, and South Korea are some of the biggest contributors while Southeast Asian markets are the fastest-growing.
Gaming is new turf for SEA investors
While online gaming is still a relatively new field for Southeast Asian investors, Suuronen noted that it has begun to attract the interest of regional VCs in recent months. Several are actively seeking information about the industry, or open to playing a passive investor role as a limited partner (LP) in funds like his.
Asian family offices are also displaying greater curiosity for the sector.
“I’ve been really impressed by the Asian family offices here, how well-run they are, and how up-to-date they are on current trends,” said Suuronen. “From my experience, Asian family offices are very analytical. They see gaming or eSports as a fast-growing opportunity they can diversify their wealth into.”
Play Ventures’s LP base comprises a mix of gaming industry heavyweights, VCs and family offices from Asia, the US and Europe. Some of its fund backers include Rovio, the maker of Angry Birds; Modern Times Group, a global eSports and gaming entertainment company; Anton Gauffin, CEO of social gaming giant Huuuge Games.
Picking which games to win
When it comes to picking startups, Play Ventures looks for strong founding teams with well-rounded strengths (eg: creative, technical and business abilities). Great gaming startups also display a willingness to pivot quickly when things are not working out due to the high competitiveness and speed of the sector.
Play Ventures also favours startups with a social element.
“I don’t usually invest in single-player games,” said Suuronen. “I almost always favour the social version for a few reasons. One is that multiplayer versions usually perform better. The second is that we want to back games that bring people together rather than isolate them. It’s one of the core pillars in our fund today.”
Suuronen added that while it’s generally not difficult for gaming startups to be profitable on a small scale, it tends to get significantly more challenging to do so as they scale. Similar to the marketplace and B2C platforms, gaming business models are asset-light, but also tend to accrue high marketing costs.
According to Suuronen, about 30-60% of a gaming startup’s total costs tend to get channelled into performance marketing to acquire new customers. As such, many free-to-play games usually rely on in-app purchases and advertisements to monetise.
Setting the bar
Play Ventures, which targets early-stage, free-to-play mobile and PC games globally, has deployed about one-quarter of its $40-million fund. It plans to invest in about 30 companies split across three geographies – 40% in Europe (Northern Europe & Spain), 30% in Asia, and 30% in the US.
Its ticket sizes range from $500,000-$750,000 for the first cheque in exchange for 20% equity, with room for follow-on funding. Some of its portfolio companies include Redhill Games, Redworks and Starform.
While Play Ventures’s fund is still new, the VC is already seeing some level of success within its portfolio. Two out of its 10 portfolio startups have secured follow-on rounds, with another 2 to 3 to come by the end of 2019. The Singapore-based VC is targeting over 5x returns over 10 years and has set an IRR target of 15-17%.
Play Ventures is also considering a larger follow-on fund to invest in successful companies from its portfolio. The VC will begin fundraising for a $60-100 million fund in the end of 2020.