Silicon Valley venture capital firm Andreessen Horowitz (a16z) has debuted a $600-million fund called Games Fund One dedicated to gaming startups, as the sector witnessed an unprecedented growth on the back of pandemic-induced home confinement in the past couple of years.
a16z has been a big investor in gaming and gaming-focused startups for several years now, having previously backed companies like Zynga, Oculus, Epic Games, Sky Mavis, and Roblox. However, Games Fund One is its first fund dedicated to the games industry. The firm said this fund has been nearly a decade in the making.
"Games Fund One is founded on the belief that games will play a pivotal role in defining how we socialize, play, and work over the next century. Having been investors in this space for more than a decade, it's clear to us the industry has entered a new era," a16z general partners Andrew Chen, Jonathan Lai, and James Gwertzman said in a blogpost.
"Games require a specialized focus–not just in dedicated investing capital, but also in operational prowess that’s as unique and forward-thinking as the games industry itself," they said.
In the blogpost, they also noted that most successful games such as Fortnite, League of Legends, and Minecraft are communities that retain loyal, long-term users and generate billions of dollars in annual revenue. Further, games are now driving innovation across the entire consumer ecosystem, with "best-in-class mechanisms for user engagement, retention, and monetization, such as microtransactions, battle passes, and web3 tokens"
"Long term, we believe games infrastructure and technologies will be key building blocks of the Metaverse, an opportunity that dwarfs the current $300 billion game industry itself," they noted.
Where will they invest?
The fund will invest in three key areas - game studios, gaming-focused consumer companies (like Discord or Twitch) and infrastructure.
"The best games today are continually updated online services whose players form an integral part of the game through multiplayer and user-generated content. These “games-as-a-service” have become rich, interactive social networks, with players making in-game friendships that are just as meaningful as those made in-person," the A16z partners said.
"As games become the dominant way people spend time, we believe some of the most innovative consumer companies will be built around player communities," they added.
a16z said its games portfolio companies are currently supported by a cross-functional team of experts across the firm as well as industry veterans from companies such as Riot Games, Twitch, EA, Tencent, and Oculus, who help them across various functions such as go-to-market, marketing, talent, people practices, and financing among others.
With this dedicated fund, they will add more functions and develop "deeper networks" that are tailored to the games ecosystem ranging from building digital communities, managing their virtual economies, IP licensing best practices, and helping build their development teams.
The partners said the fund will also include several games industry leaders including Roblox founder David Baszucki, Discord founder Jason Citron, Riot Games founder Marc Merrill, Blizzard co-founder Mike Morhaime, Sky Mavis cofounders Aleks Larsen and Jeffrey Zirlin, Twitch cofounder Kevin Lin, Zynga founder Mark Pincus, and King founder Riccardo Zacconi.
This fund comes a few months after a16z raised $9 billion for its latest venture, growth and biotech funds in January 2022 and a $2.2 billion cryptocurrency fund in June 2021, which was the company's largest sector-specific fund to date. It currently has over $28 billion in assets under management.
The firm made its maiden India investment in Bengaluru-based cryptocurrency exchange CoinSwitch Kuber last year.
Among other gaming-focused funds that raised fresh funds in the past year include Griffin Gaming Partners that raised $750 million in its second fund in March 2022 and Makers Fund that raised $500 million for its third fund in the same month.
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