If you are an investor, where are you going to invest your money? It is always the question that every investor needs to consider. Actually, in the market there are many areas for your options, such as education, food services, transportation, healthcare service, etc. Which field it is depends on its potential to gain more benefit for you in the future and how it is familiar to you. If you have some experience doing business in the IT area, or at least have interest in this industry, then game development must be your wisest choice. As we can see this industry has developed with a constant and great speed in the past few decades, and apparently it has high potential to develop even more in the future. Therefore, investing your budget into this area will make you wise. Now let’s take a look at some kinds of investment and the trending of this year.
First of all, we couldn’t forget to mention VC in the list as it big success in recent years:
Venture capital (VC) is the kind of investment that Private individuals or business entities like to invest their capital in different ways, e.g., in bonds, publicly offered companies (stocks), and startups. In the latter case, the invested money is called venture capital, and the investors are called venture capitalists. In return for their capital, the venture capitalists receive an equity stake in the company, e.g., they invest 1 million Euros for 20% of the startup’s ownership. (That means the startup is worth 5 million euros before the investment. This is the so-called “pre-money” valuation).
Such investments are by design very risky because investors have little protection if the young company fails, and the failure rate is very high. However, in case of success, those investments are capable of giving impressive returns. The returns to the venture capitalists naturally depend upon the growth of the company. To help you get better understanding about this let’s see some successful investments in game areas recent years: During the first year of the pandemic, when the stock market crashed in April of 2020, most anticipated that funding activity would slow down amidst the uncertainty of lockdowns, social distancing, and strains on the healthcare system. However, 2020 proved to be a record year for venture in the U.S., with $156B invested in startups and $74B raised by VC funds. In comparison to 2019 investors increased capital allocations and deal volume to the gaming sector, with $4.7B invested across 237 transactions in 218 unique companies. With the gaming industry recently surpassing the market size for both music and video entertainment combined, generalist venture capital firms such as Andreessen Horowitz, Index Ventures, and NfX are becoming increasingly active in the space.
The second type of investment which is also prominent compared to others is CVC.
As a subset of Venture Capital, Corporate Venture Capital (CVC) was started due to the vast emergence of startup companies in the technology field. The main goal of CVC is to gain a competitive advantage and access to new, innovative companies that may become potential competitors in the future.
CVC does not use third-party investment firms and does not own the startup companies it is investing in – as compared to pure Venture Capital investments. Unlike Venture Capital, Corporate Venture Capital strives to achieve goals both strategically and financially. A strategically driven CVC primarily aims to directly or indirectly increase the sales and profits of the venturing company by making deals with startups that use new technologies, entering new markets, identifying acquisition targets, and accessing new resources, while financially driven CVCs invest in new companies for leverage. This is often achieved through investment exits, such as initial public offerings or the sale of a company’s stakes to interested parties. Both strategic and financial objectives are often combined to bring higher financial returns to investors. Now, let’s take a look at CVC in game industry over the last few years:
In CVC, corporate funds deployed 48% by dollar value and participated in 26% of deals in the U.S. in 2020. The $68B invested by corporations was nearly $10B more than 2019, which suggests CVCs stayed in the market despite economic uncertainty. CVCs are an important source of capital for gaming startups, particularly in game development and publishing. For startups in this part of the gaming ecosystem, the resources, expertise, and marketing reach of big corporations can help significantly with distribution and scale. Here, the following CVCs were some of the most active in 2020:
Tencent made 31 gaming investments, primarily in mobile game developers, from its Win-Win Fund and other vehicles.
Riot Games participated in four gaming investments in 2020, mostly focused on game studios and mobile gaming applications.
HP Tech Ventures invested in three gaming deals in 2020, including the Series A and Series B of Parsec, a low-latency game streaming platform.