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A total of 65 investors with £589 million, or $816 million, to invest in game startups are showing up this week at the Game Finance Market event at the London Games Festival.
That’s the most money ever represented for possible investments at the event, said Michael French, director of the festival, in an interview with GamesBeat.
“There’s a real appetite out there for games, French said. “The overall quality is rising. So it just genuinely feels like a good moment. There are more investors attending this year.”
And that’s a sign of the health of the game industry in the United Kingdom as the London Games Festival continues this weekend. The United Kingdom video game market generated £7 billion, or $9.7 billion, in sales in 2020, according to data released this week by the trade group Ukie. Spending on video game hardware, software, and related products grew 30% in 2020.
A strong market
The previous record for the industry was $1 billion less in 2018, and the launches of the PlayStation 5 and Xbox Series X|S helped boost the numbers. But the biggest factor was the pandemic and lockdown that led more people to play games. Software sales were $6.3 billion, up 18% in 2020. Game hardware rose 60.8% to saw the biggest growth, up 60.8% to $3.1 billion, a new record. The Nintendo Switch was the biggest winner, according to Dorian Bloch, senior client director at GfK Entertainment.
The London Games Festival is run in partnership with Film London and Ukie, and it runs from 19 March to 28 March as an online event. There are 40 games on display at the event. Ukie represents nearly 500 game companies across the U.K.
Investors at the Game Finance Market event (running Monday through Thursday) include Games London Accelerator developers and UK Games Fund companies, as well as delegations from Switzerland, Sweden, and South Korea.
French said that developers have to apply to attend the event, as that helps filter the crowd and turn up the best companies for investments. Last year, some deals involving $16.6 million to $20.8 million were done at the event.
“It’s bringing our attention to companies we might not know I’ve had the chance to speak to before and it’s not just about London,” said Ian Livingstone, cofounder of Hiro Capital, in an interview. “It’s the convenience of looking at them all under one roof, even though it’s a digital roof. It would be madness not to be there.”
Richard Kim, general partner at Galaxy Interactive, is also attending the Games Finance Market event.
“For me, the curation is important,” Kim said. “It’s a more manageable set of presentations.”
The investors and startups can engage in speed-dataing meetings or set up one-on-ones. The event is also a way for investors to learn more about the gaming market. Hilmar Veigar Petursson, CEO of Eve Online maker CCP Games, will give a keynote talk.
Livingstone and Kim represent a good contrast between the types of investors. Livingstone focuses on gameplay and great teams, with a focus on getting more money to European game studios so they don’t always have to seek capital from outside the region. Within that context, Livingstone sees lots of opportunities across console, PC, free-to-play, and mobile games.
“The most amazing thing about games is is constantly being transformed by advances in technology,” Livingstone said. “And it’s hard to look towards the end of the year, let alone five years in advance. However, you can see trends emerging and, clearly, massively social games are the thing of today. It’s talk about the metaverse. If we don’t mention the word metaverse these days people think something is wrong with you.”
He added, “Obviously, it’s been overused, but is quite obvious that the more connected people are, the better the experience will be as in life. You don’t enjoy the best meal in the world on your own. So shared experiences always enhance the basic experience. So I think you’re going to see a lot more of that. How that will metamorphose over time, we’ll only have to wait and see.”
The NFT debate
But Kim is more open to new parts of the market, such as non-fungible tokens (NFTs), which use the security and transparency of blockchain ledgers to guarantee authenticity and uniqueness for digital items. NFTs have taken off in the art world and game studios are adopting them as well as a new path for monetization.
“One of the things we are interested in is the collision between Web 3.0 and creative culture,” Kim said. “It’s more than just NFTs. My background is in market businesses, where in the last decade I saw retail investors consistently getting screwed by smart money. I think we’re in the early stages of this multi-decade super cycle of retail power, driven by consumption, culture and community now for the first time being tradable. So that collision between open markets and finance on one hand, and gaming and great content and community experiences on the other, is driving growth.”
The GameStop trading phenomenon, driven by retail investors, is an example of the power of consumers, but Kim noted that the flaw is that it was driven by belief, rather than underlying financial health of the company.
Kim believes the days are coming when enterprises are run as community collectives and employees will get paid in tokens. That’s not mainstream yet, but startups are pursuing these pitches, and it will likely lead to more community-owned games.
“The user experience is still a bit rough, primarily because you have to interact with all these crazy things, but it’s only going to get better,” Kim said. “And once you kind of go down that rabbit hole, it’s very difficult to get out. So making consumption for the first time collectible is a theme I’m obsessed with these days.”
He said he believes the blockchain gaming total available market (TAM) has become sufficiently large to support game studios, even without mainstream adoption from most games, just as indie games monetize micro audiences on Steam. Kim believes that triple-A game companies will eventually become interested in NFT monetization options, such as collectibles. He said Mythical Games could have a mainstream hit with its Blankos Block Party game, where the NFTs are integrated into the fundamental design of the game.
Livingstone said we don’t have enough information yet to know if NFTs will go mainstream in games. He said we should make sure that the NFT assets have some intrinsic value, much like the Mona Lisa has value whether it’s in token form or not.
“The interesting observation is how badly equipped VCs are to participate in this new generation of games,” Kim said. “Some of this new technology is not just going to go out of fashion.”
French said the NFT hype is a lot like the hype a few years ago around virtual reality, and some investors held off from participating. Livingstone said the recent Roblox public offering is bring more people into the market who weren’t even aware of games. But he hopes that it doesn’t create a bubble in the market, as he said investors should always stay grounded in sound financials and market realities.
“I’ve never seen a public-private spread this drastic in my life,” Kim said. “I don’t even know what to say at some of these valuations.”
Livingstone added, “We’ve got to stay grounded and the VC community should not start overpaying for opportunities.”
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