Gaming-focused Transcend has raised nearly $60 million for its second early-stage fund. The firm, which plans to lead all of the deals it makes, has backed video game studios like Thatgamecompany and Gardens.
Shanti Bergel, a managing director at Transcend, points to the blockbuster acquisitions and huge rounds for gaming startups as signs that the industry has evolved from a niche to a mainstream investment segment.
“We’ve done a lot of growing up,” Bergel said. “The surface area of games is so much larger than it used to be, and it’s not going to stop growing.” The firm’s first fund closed in 2020 on $50 million.
Mainstream investors have bulked up their gaming presence in recent years. Lightspeed hired former professional gamer Mortiz Baier-Lentz in January to head up its gaming unit. Several other big-name firms launched gaming-focused funds, like Andreessen Horowitz‘s $600 million vehicle in 2022. Other gaming-focused firms are also raising large amounts, such as Galaxy Interactive‘s $325 million fund in 2021.
Significant deals have followed. Inworld AI, which provides a generative AI game development tool, raised $50 million from Lightspeed earlier this year and recently announced a strategic partnership with Microsoft‘s Xbox Game Studios. Thatgamecompany, a studio startup behind acclaimed titles like Journey and Sky raised a blockbuster $160 million led by TPG and Sequoia and hired Pixar co-founder Ed Catmull as a principal advisor in 2022. The creator of the popular mobile game Marvel Snap, Second Dinner, raised a $90 million Series B at a $490 million valuation from investors including Griffin Gaming Partners, according to PitchBook data.
Bergel said the industry still has a long way to go.
“Games are such a bespoke category that non-endemic investors struggle to understand,” he said. “Isn’t this just a category for young boys and puzzle games? Those types of opinions are still around despite gaming having become this monstrous category.”
It has been a difficult area for investors to deploy cash. Game development has traditionally been a capital-intensive endeavor with thin profit margins controlled by the three big video game console distributors: Nintendo, Sony and Microsoft.
It has become more investable, Bergel said, thanks in part to mobile gaming opening up new distribution channels via smartphones and tablets, newer, more intuitive and cheaper ways to create games. As the hobby becomes more popular, consumer attitudes have in turn grown more positive.
Large exits have helped to change investor attitudes. Microsoft’s $68.7 billion purchase of Call of Duty and Candy Crush developer Activision-Blizzard recently closed despite regulatory hurdles. Sega, the Japanese company behind Sonic the Hedgehog, purchased the maker of Angry Birds, mobile gaming studio Rovio, for €706 million (about $767 million) in April. There have also been smaller M&A deals, like Israel-based Innplay Labs’ acquisition by Playtika for $80 million in September and Digital Eclipse‘s acquisition by Atari for $20 million in November.
Bergel said the process of raising a second fund helped open his eyes to how much VC funding for games has changed.
“We’re finding an affinity with a broad array of investors. The idea that games are uninvestable—those days are far behind us.”
Featured image by Flavia Morlachetti/Getty Images
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