Investment Landscape

Investment Landscape: A Few Reflections

Since January of 2020, there have been ~230 capital raises in video gaming that were not into studios or content (games themselves). These 230 deals were ~53% of all completed deals, showcasing that most of the deal flow in video gaming (and capital raised) is into tech, platforms, and infrastructure. As I’ve mentioned before, this 53% encompasses our investment focus here at Konvoy.

Additionally, it’s worth looking a few steps up in the capital markets to get a more robust picture of the investment climate around video gaming. Right now, I primarily look at the M&A, SPAC, and IPO dynamics at play around this industry.

In 2020, there were ~150 M&A transactions in video gaming. On the IPO side, quite a few IPOs have occurred over the past 9 months: Roblox ($38B), Unity ($29B), Skillz ($10B), Corsair ($3B), Kakao Games ($3B), Archosaur Games ($1.6B), and Nacon Gaming ($680M). Lastly, the SPAC industry has 405 active SPACs ($129B at the ready) that are publicly traded and actively seeking targets.

Here are a few reflections I had this evening:

• I think that the VC deal flow will remain robust yet increasingly competitive. This is a good thing for founders and forces investors to level-up. Being able to just write a check isn’t enough anymore.
• The low interest rates coupled with healthy balance sheets in gaming will certainly keep the M&A environment quite active this year and next.
• On the SPAC side, we’re getting more and more inbound from these SPACs who are asking two questions: 1) “who would you buy in gaming?”, and 2) “who is ready in your portfolio?”. I think SPACs will price-correct but they are here to stay for the long term.
• Lastly, the IPO market around video gaming will follow the macro climate (and appetite) around IPOs. Video gaming is a growth area yet it will follow the broader market climate (yet given its fundamentals, gaming companies are likely to trade at the top end of whatever the market range is).

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Facebook's Place in the Future of Gaming

To some, Facebook seems like one of the more unlikely powerhouses in gaming but in reality, Mark Zuckerberg has always viewed gaming as a large part of Facebook’s future. In 2014, Facebook took its first major step when it acquired Oculus VR for a total of $3B (Business Insider).

A year later in 2015, Zuckerberg sent a 2,500 word email outlining the reasons for potentially acquiring Unity Technologies. In 2018, Facebook Gaming was launched and in June of last year Mixer (Microsoft’s streaming platform) was absorbed into Facebook Gaming. This vision for making Facebook a powerhouse in video gaming will continue to unfold.

Now, according to The Information, nearly 10,000 employees (~20% of the global workforce of Facebook) are currently working in the division focusing on augmented reality and virtual reality devices.

Facebook clearly wants to be an integral part of the future of gaming and they are betting big on streaming, chat games, AR, and VR. One of their divisions to watch closely is called Reality Labs, which comprises hardware like Oculus, technology like Spark AR (UGC augmented reality tool) and CTRL-Labs (neural interface technology).

When looking at all of this activity within Facebook, it paints a clear picture of how important Facebook wants to be in the future of gaming. With the combination of hardware + technology on top of the largest social platform in the world, it’s hard not to be bullish on Facebook going forward. I might buy more stock.