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EGD News #116 — 2022 predictions for gaming startups

EGD News #116 — 2022 predictions for gaming startups

Sent on January 7th, 2022.

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Gaming startups will have a great time in 2022. There have never been more opportunities for new games companies to be started and built, in a time where more and more people are spending time in games. Many reports post that we reached 3 billion gamers in 2021 or will reach this number in 2022.

I wanted to spend some time during the first week of 2022 to think about my predictions for how things will shape up for gaming startups in 2022. I discovered three distinct areas with the most important developments.

1. Multistage venture funds emerge

Multistage venture funds are a commonality from Silicon Valley, where VC firms like a16z, Sequoia, and others don’t just operate in a single stage of investment, like early or late stage. Instead, they believe that they can add value in all stages of the startup’s life, through the early to the late-stages. For example, they might be investing in pre-seed, seed, Series A, B and beyond.

In 2022, I predict gaming entrepreneurs will hear less of the “this is too early for us” in the sense that it would mean that they can’t invest because they don’t focus on early.

In 2021, many gaming-specific venture firms raised new funds to increase their possibilities of investing. I predict that this activity will continue during 2022, and more funds in gaming will want to expose themselves from pre-seed to Series B.

A recent example of such fundraising, albeit outside of gaming, was 20VC podcast host Harry Stebbings, who raised two funds at the same time to invest in both early stage and Series B. I predict that similar fund structures will emerge in gaming during 2022.

2. Blockchain will see its first wave of consolidation

The last quarter of 2021 saw several blockchain gaming projects announced by new companies and older ones who’d pivoted to blockchain. Their activity follows a similar pattern: game content being minted as NFTs and then sold for thousands of USD worth in SOL, ETH, etc. As more entrepreneurs and players enter this space, the heating up continues.

We already saw the first mergers and acquisitions happen in 2021 when Swedish firm Fragbite acquired Panzerdogs developer Lucky Kat Games. More hot acquisition targets can be viewed on NTF marketplace OpenSea, or on Fractal, the NFT auction site created by Twitch co-founder Justin Kan.

I predict that an increasing number of blockchain entrants will come through acquisitions: more prominent, existing companies enter blockchain by acquiring existing blockchain companies. The M&A activity was strong throughout 2021 for many gaming conglomerates, who’ve been entrenched in M&A activity during the pandemic.

The one big question for blockchain entrepreneurs is the added value of getting acquired by a larger company from a legacy industry. It could be that the added value of joining a more prominent company will be limited. These blockchain startups are at the point where they will need to evaluate the possibility of staying independent, raising more from the crypto community, and playing the long game.

3. Amount of new game startups doubles

I predict that in 2022, we will see a doubled number of new startups in the games industry compared to 2021.

From my perspective, the most significant change from pre-pandemic to post-pandemic for startups has been the role of startups picking VC firms. We had three or four gaming VC funds in the pre-pandemic, but now the number has at least increased fourfold. Just look at InvestGame’s list of gaming VCs. Most of them weren’t around in 2019.

Fundraising for gaming startups has changed so that founders will be able to pick the terms they want, and most importantly, the people they want to work with. It’s also much easier for founders to do reference checks on the VCs since many firms have already deployed their first funds into dozens of companies.

Besides the optionality of funding, I predict that ever more experienced teams will emerge to found companies. The proliferation of blockchain gaming is making people say “now or never” at jumping into something new, risky but adventurous.

Few extras

I’ll add a few that I’ve been thinking about:

The failure rate of startups will go down. The VC fund sizes are larger than ever, so more capital will be available for bridge financing (money in to get to the next stage before an actual round can happen). On the one hand, this is good, as startups will get another chance to become successful. On the other, it remains to be seen if a policy of keeping the lights on in each dwindling VC-backed startup is the way to go. As I mentioned in a previous EGD News, there is always the chance that companies go back to zero employees to figure things out with a skeleton crew before raising to keep the lights on with a high-cost structure.

Blockchain financing will become an even more robust option for seed-stage companies. Selling crypto assets to the community is becoming a solid option, which is non-dilutive, and the terms are very different from what a VC term sheet would include. But, as I’ve often said, founders shouldn’t look for money but for the right partners. No token sale to the community can replace what the right investor can do to help a startup in navigating all the startup-related landmines out there.

That’s it. Best of luck to you all in 2022!

(Photo by Isabela Kronemberger on Unsplash)

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🎙 Alon Grinshpoon — Building for the metaverse

In this week’s podcast episode, I’m talking with Alon Grinshpoon, who is the founder and CEO of Echo, a cloud platform for 3D, AR, and VR assets. After realizing that the metaverse and other platforms were going to become huge, Alon and his brother started the company a few years ago, and now they’ve just raised a VC round for the top gaming investors.

In this discussion with Alon, we talk about his founder journey, how they validated the 3D platform as a business idea, how Alon approaches founder/investor fit and how first-time founders should approach problems with their companies.

Listen to the full episode by going here.

🧠  In Case You Missed It

📃 Articles worth reading

Tech questions for 2022 — “The more layers, abstractions, building blocks and primitives are created, the harder it is to know which will resolve into things normal people can use, and, paradoxically, the more likely gatekeepers become. We’re imagining the metaverse while arguing about how TCP/IP should work and whether this new ‘WWW’ thing is just a crippled Hypertext, but when can we tell our friends to ‘install Netscape’, and without giving them an op-sec lecture?”

Insert Quarter: How the Hell to Play Blockchain Games — “Once you find a crypto game that seems interesting to try, it’s really quite a pain to get started. I’ve found precious few beginner’s guides in this space. Folks used to juggling dozens of Discords and arbitraging Dogecoin won’t have a problem… but for normies, the crypto game world can seem impenetrable. There are so many blockchains and options and every game has its own hazards – wasting not just your time, but potentially losing you money.”

Evaluating Blockchain Game Investments — “Do players contribute to the ecosystem willingly — through giveaways, streaming, developing extensions — or is it all just price talk, and conversations of distant moons, with no action to realize that?”

💬  Quote that I’ve been thinking about

“Most events in life can be categorised in one of two ways: a good time, or a good story.”

— Margot Leitman

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I hope you have a great weekend!