Gaming Industry Becoming Investors' Darling

Last year's investments in existing and new gaming companies have stirred the gaze of investors on the gaming industry this year. The gaming sector in India attracted $544 million in investments during the August 2020-January 2021 period, and this is set to double over the next 12-18 months, anticipating a huge growth of the gaming industry in the immediate future. The neoteric curiosity among the investors is deciphered through the recent investments which include $225 million investment in Dream11 (September 2020), $90 million in the Mobile Premier League (November 2020), and $68 million in Nazara Technologies (January 2021). 

Besides, Nazara’s subsidiaries Nodwin Gaming and HalaPlay raised fundings from Krafton and Milan Ganatra respectively. Adman Sajan Raj Kurup, Creativeland Asia’s founder, acquires a 40 per cent stake in a start-up Revenant Esports. Kwalee, a UK-based game developer and publisher, is all set to pump $30 million investment in its India operations over the next five years. There has been an increased cross-border interest in mergers and acquisitions and there are indications that multiple companies could achieve unicorn status in the next one to two years, as per the recent report on Indian gaming by Maple Capital Advisors Private Limited.

Numbers Speaking The Industry’s Fate

Madhur Singhal, Practice Director, Technology and Internet, Praxis Global Alliance says, “India is one of the top five online gaming markets in the world growing at more than double the growth rate of other comparable economies. There is a huge potential to invest in the fastest-growing segment in Indian media and entertainment that is estimated to reach a market size of USD 2.2 billion by 2022.”

With India’s start-up ecosystem brimming with one-unicorn-a-day energy, the team at Praxis has been closely tracking the developments to come up with the second edition of soon-to-be unicorns a.k.a. soonicorns list across the technology and internet sector in India. And as per the PGA Labs analysis, below mentioned start-ups in the online gaming space are expected to become unicorns shortly:

Piquing Investors’ Interest

India’s gaming industry which was estimated at Rs 9000 crore in FY 20 is seeing galloping growth on the back of rapidly growing internet consumers now 570 million. The other big factor driving this growth is that over 50 per cent of India’s population is under 25 years and these constitute the core gaming audience. KPMG’s Media & Entertainment report estimated the gaming userbase at 365 million Indians.

“For investors, this is the perfect scenario to invest looking at a big market, rapid growth, and increasing mobile and internet penetration on the back of low data tariffs.  Together with the increasing popularity of mobile games, this will remain a sweet spot for a long time to come,” avers Lloyd Mathias, Investor and Business Strategist.

“Investors need to be watchful to identify gaming companies that are focused on innovation, own IP, and build mobile-first games based on consumer insight.  They also need to keep an eye on fast growth sectors within gaming like Esports, where subscribers are willing to pay for the experience. Another emerging sector is fantasy sports though there are potential legal hurdles that may hinder its growth,” adds Mathias.

Naresh Naik, who invested in Mobius – a start-up with a focus on gaming and technology, says, “Gaming is in a very nascent stage in India with massive growth potential. Size of the Indian market, population with rapidly increasing access to the internet. Indians are sports crazy and very competitive. There is a lot of advantage for early movers in this stage.” He thinks that investors can identify high-potential investments in gaming by identifying a good team, which is the most valuable asset in a start-up. “We need to look at the quality and experience of the founders and identify which part of the gaming universe they're targeting and what it means for the Indian market,” Naik opines.

Sreeram Reddy, Founder - Openplay Technologies, believes that India’s gaming industry is growing and attracting investors too. He thinks the valuations are reasonable now considering the uncertainty and the industry is still at a nascent stage. “Therefore, it's a great time for investors to enter. We already have some of the marquee investors in the industry. As the market continues to grow and regulatory hurdles are overcome, investors will see a good return,” the expert adds.

To figure out the potential gaming start-ups, look for founders with relevant experience and their pedigree. Also, study the business model to ensure the unit mechanics are solid and sustainable. Indiscriminately burning cash in the hope to capture the market and critical mass is not sustainable in the long run is my opinion, Reddy suggests.

A Favourable Future

The venture money has recently begun pouring into the gaming ecosystem especially in India. Investors obviously recognize India as a billion-plus nation. Nazara’s founder Nitish Mittersain has confidence in investors. He says, “Investors also see that this is an early stage in the country. It’s their job to spot the trends early. I think the sign of investors coming in is just the tip of the iceberg. You will see a lot more investments happening in the gaming industry, a lot more gaming businesses and giants coming into the Indian industry. You saw Krafton, a big South Korean gaming company enter India recently through investment in Nodwin. I think it is just a start. This is the decade of gaming in India which has just started.”

Additionally, Singhal shares key insights from a recent analysis by PGA Labs, the market intelligence business unit of Praxis Global Alliance. Real money gaming (RMG) is expected to grow at a CAGR of 38 per cent to reach a US$ 1.6 billion market size by 2022. Also, RMG is the biggest segment and is almost 68 per cent of the online gaming industry today. The segment continues to lead the growth of online gaming and is growing at a CAGR of 34 per cent today. Casual gaming, which includes trivia games, board/puzzle games, is a close second-runner up growing at a CAGR of 21 per cent. The total online gamers in India in 2020 were 440 million and expected to reach 582 million by 2022, which grew by a CAGR of 26 per cent between 2016-20. The Indian gamers on average spend 1.5 hours per gaming session.