Prime Venture Partners Podcast

Gaming & Venture Capital Funding in India

• Prime Venture Partners: Early Stage VC Fund • Season 1 • Episode 141

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In this special podcast episode, our in-house Gaming experts Shripati Acharya and Gaurav Ranjan (Investments @PrimeVenturePartners) share everything about the ‘Gaming’ sector in India. They share deep insights on the current state, the future, game categories and what kind of companies Prime is excited to invest in. 

Why is Prime bullish about the Gaming Market in India?

  • No. of Gamers in India - 500 Million (50 Crore)
  • No. of paying Gamers in India - 150 Million (15 Crore)
  • Expected size of Market - $3.5 Billion - $4 Billion

Watch the full episode to learn more about how today is the best time to be a ‘Gaming’ Entrepreneur in India and what kind of startup you should be building:

​​0:00 - Evolution and Future of Indian Gaming

4:12 - Evolution and Growth of Gaming Market

16:58 - Monetization Strategies in Mobile Gaming

25:09 - The Future of Gaming Investments

34:55 - Building Organic Distribution for Video Games

40:48 - Evolution of Web3 Gaming

52:53 - Gaming Entrepreneurship Opportunities in India


P.S: you’ll learn why we invested in our portfolio companies like Hitwicket and Glip. 


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Gaurav Ranjan:

It is one of the oldest forms of entertainment.

Shripati Acharya:

India today has got 500 million gamers.

Gaurav Ranjan:

Seeing a lot of global developers and publishers targeting Indian market.

Shripati Acharya:

We expect this to become a 3.5 to 4 billion dollar market Close to 150 million gamers who pay.

Gaurav Ranjan:

I mean, I pay for Netflix, where maybe I spend couple of hours a week, and here I'm spending like more than couple of hours a week, so why not pay for it?

Jerome Manuel:

It's mobile first mid-core games monetizing to.

Gaurav Ranjan:

IAPs. This is not just for India, but even globally.

Shripati Acharya:

Venture capital is the very recent phenomenon in gaming, maybe like 10 years, a lot of games which have blown up and become successful, actually had their success driven by youtube and the distribution around it there's no better time than now to be a gaming entrepreneur in India.

Jerome Manuel:

Hello and welcome to the Prime Venture Partners Podcast. This is your host, Jerome Manuel. Today we have a very special episode of Prime. We have with us Shripati Acharya and Gaurav Ranjan from the investments team. They will be talking about the gaming sector in India, how it's evolving, what the future looks like and why we at Prime are super excited. So over to Gaurav Ranjan, who will be giving us the basics and the 101 of gaming, and take the conversation from there Over to you, gaurav Ranjan, who will be giving us the basics and the 101 of gaming, and take the conversation from there Over to you, gaurav.

Gaurav Ranjan:

Thanks, jerome Pleasure to be hosting the session along with Sripati. If you think about gaming, it is one of the oldest forms of entertainment and, interestingly, has survived and thrived through all the technology and platform shifts that we have seen. It started off with arcade gaming, moved on to console gaming with the advent of mobile, with the advent of televisions, and then moved to PC, with PC becoming mainstream and then moved to mobile and so on. So if you think about the mobile, if you think about the gaming platforms, which is the first thing that anybody thinks about sitting in India, we may feel that mobile gaming is what it's all about. Gaming is all about, which is true to a large extent, and it's gradually changing. So today, if you think about different platforms, there are broadly three platforms mobile, pc and console. Mobile is about 50% of the overall gaming market. Console gaming, which is about 50% of the overall gaming market. Console gaming, which is about 30% of the market, largely dominated by PlayStation, xbox and Nintendo. And then you have, of course, pc gaming, which is about another 20% of the market. So that's more about the platform around gaming.

Gaurav Ranjan:

The next thing is, of course, I mean people play different types of games, different genre of games. So how do you classify the different categories of games there are also, broadly there are three categories, if you have to. The first is the casual and the hyper casual category, which is generally characterized by shorter gameplay loops. You don't require heavy skill to play those games, generally have shorter shelf life and attracts all user varieties, from a casual gamer, from an at-home mom to a hardcore gamer as well. The second category is of mid-core games, which is slightly more evolved than a casual game, have elements of strategy, have elements around team building, managing your assets and resources in the game, generally has deeper game loops, may have a very solid core loop and a meta loop and generally requires significant amount of time investment, meta loop and generally requires significant amount of time investment, time and skill investment from the user. And the third category is of hardcore games, which are generally characterized by high level of skill, high level of time requirement. Generally the game development times are too high as well and we're largely dominated across console and pc, but of course we're seeing a lot more of that on mobile as well of late. This is broadly the three categories of game. The third I mean the other, basic if you have to move about is more around the kind of monetization that you see in gaming, right? In India, of course, gaming has largely been dominated by RNG so far, which is real money gaming, but globally we see that there are other forms of monetization In-app purchases is a big one, followed by ad as a model within gaming and different types of ads within games. And of course, we do have a license fee structure as well in gaming, largely again prevalent in PC and console. Where, for example, I play FIFA, I buy a license for, say, fifa 23, fifa 24, and that license is valid for lifetime, right, and there's no avenue for in-app purchases within that game, right? So that's the other model.

Gaurav Ranjan:

One last bit which is very important to understand, to understand the nuances of gaming, is what the different stakeholders in the gaming ecosystem, right? So we hear a lot about gaming companies. But what are these gaming companies? So there are broadly two categories if you have to categorize them. One is more around the game developers, gaming studios, and their job is essentially to come up with game concepts, game stories and develop those games. And then the second category is that of publishers, whose job is to take this game and market it to the larger audience, monetize it and so on.

Gaurav Ranjan:

In the early days of gaming you had clear distinction between a game developer and a publisher. A game developer's job was to develop. A game publisher would finance the game up front and then take it to the market and take some cut out of the revenue. With time again, as the gaming ecosystem has evolved, a lot of developers today have become publishers and a lot of publishers are getting into development. Right, I mean, if you think about the large publishers I mean ea or activision were large publishers but also started developing games uh, tencent, which was a developer, has also started publishing games. Right, so there is, I mean, as you become large, uh, people do do both the things, which means they develop, they acquire studios or they set up in-house studios. They, they develop games and they publish games, and likewise, developers get into publishing business. So this is the basics of gaming. I thought it was important to set that context in the beginning so that the audience can relate to the discussion that we have going forward.

Jerome Manuel:

I mean, I don't know, there are so many nuances to gaming, but thank you so much, so much, gaurav, for setting it up beautifully for us and the viewers. So, having said that, right, so why are we excited about gaming? I mean, I think that's what is most interesting for us and the audience as well yeah.

Shripati Acharya:

So if you look globally, it is a 180 billion dollar market or so, as Gaurav had alluded to, and 50 percent of that is mobile, so that that's 90 billion. So not only is mobile a large part of this market, it is also rapidly growing from here on Globally. It's growing at 3 to 5% a year. But the fastest growing regions are in our part of the world, so India is one of the fastest growing regions in that. So India today has got 500 million gamers. So these 500 million gamers today would qualify for about 15% of the total gaming population right now. But from a spend standpoint we are only 2%, like 3 billion. But it's going to grow and it's going to grow very fast, as the population which was and the generation which really grew up with gaming during COVID now is employed and has disposable income really to spend on gaming.

Shripati Acharya:

And we need to really understand that games are a form of entertainment and they're becoming the primary form of entertainment for these people, for these people.

Shripati Acharya:

And it is not unusual actually for teenagers or Gen Zs to be watching television and playing a game at the same time, which might be an unusual thing for us to relate to, because there might be an ad, there might be something else going on and there is some part of the program which you're watching which you're not that interested in.

Shripati Acharya:

What have you? And you start playing a game. In the middle, as Gaurav mentioned, you have hyper-casual games, which is very well suited for these kind of things, and of course the long-form games, the mid-core and the hardcore games, which can be much longer duration engagement cycles. So just a very exciting time in India to be looking at gaming and not just looking at gaming from a gaming by India for India perspective. But we also think that games made in India and for the globe are very, very well suited because when it comes to mobile gaming, we are mobile first. We are thinking developers in India are thinking about optimizing the game for mobile first and that really sets them up very well to explore and expand overseas with their games. They're yet to see a first global franchise out of India in gaming, but I think the time is not too far when that's going to happen.

Gaurav Ranjan:

And, if I may just add to that, I mean there's more about Indian developers building for India and building from India for the world. We're also seeing a lot of global developers and publishers targeting Indian market. I mean we have the case studies of BGMI and Free Fire, each of them launched somewhere around COVID and are doing like north of 200 million per year just in India, and all through IAPs right, which tells us that I mean Indian gaming story is just getting started. What was largely dominated by real money gaming will gradually has created that user base which will gradually move towards mid-core, casual and hardcore games and there'll be enough and more monetization.

Shripati Acharya:

Correct. Yeah, and this is actually a pattern which is not dissimilar to what we have seen in China, because the first generation of games and the gamers really got understood gaming as RMG games and they participated in the ecosystem that way. But as the ecosystem developed, iap or in-app purchases became a lot more dominant form. So what we expect is that while 60% today in India is RMG of all the gaming markets, when you talk about 3 billion, 60% is really real money gaming. So currently IAP is only 15% of the total spend, but it's growing very fast. It's growing at 25% year over year. So we expect this to become a $3.5 to $4 billion market in a reasonably short order. So it's a very exciting time.

Jerome Manuel:

Got it. So I think I'm super excited that India is going to be having its biggest franchisee from the country. And then there are 500 million gamers. I hope at least a bunch of them are watching this particular episode and picking something exciting for themselves. So, having set the context and also understanding what the market looks like, so could you tell us what the gaming market looks like today and where do you think it's going and how is it going to evolve?

Gaurav Ranjan:

I think that'll be really interesting to hear. So I've been looking at I mean should be and I've been looking at gaming, uh, since the time I joined prime, which is back in 2018, and the early set of games that we used to look at were mostly rmg, and somehow we're never, we're never able to build that conviction to invest into rmg because of the regulatory overhang around it. But over time, as we started talking to more gaming companies, uh, we saw that we are I mean, india is producing, coming up with good quality games that appeals not only to the indian audience but the global audience as well. I mean, they did touch upon some numbers. So today, if we talk about the India market, we have about 550 million gamers, right, and that number is growing at 12% CAGR. We have close to 150 million gamers who pay, have paid, have made an online transaction in gaming, and that number is growing at 18 to 20% CAGR, right. If you talk about game downloads in Indiaia, which was in single digits billion maybe five years back, we are at about 16 17 billion game downloads every year, which is second only to china. We had more than what a us or a korea or japan, which are like old gaming markets. We do more than that, uh, and it's only time and it's only time before this download, I mean before the monetization will catch up with these downloads. Um, and we've talked about the gaming revenue that has been growing at, I mean gaming market size. It's at three billion, uh, as of today, expected to be at eight to ten billion over the next five, seven years, and large part of that would be from iaps. I mean, rmg will be there, but IAP will be driving that, and within IAP as well, like mid-core games, is what we believe will be the core drivers.

Gaurav Ranjan:

And if we talk about what are the drivers for this growth in the gaming sector, right, like everything else in India, mobile and internet penetration did play a big role, because of which, as I said, we had mobile-first gaming market, because of which gaming did increase. The second was UPI, enabling microtransactions. That kind of propelled the whole monetization wave within gaming. With microtransactions, you could monetize through IPs within the game. Right. Then, of course, rng, as it became popular, that brought a lot of users in the gaming fold who got used to gaming and now are exploring things outside of RMG.

Gaurav Ranjan:

Right, and recently, as I was speaking before, we have had, like, some high quality games developed by publishers and developers from outside India who have come into India and that have I'm talking about BGMI and Free Fire, which brought in a lot of new users young users, essentially into the gaming fold, and these users got used to this gaming, maybe during their school or college time.

Gaurav Ranjan:

And these users got used to this gaming maybe during their school or college time. And we believe that as these users graduate and move to a formal workforce, a lot of them will continue playing games but, more importantly, a lot of them will also start spending on games, which will be a big driver for the gaming sector going forward. And, last but not least, I mean we always had officers of large gaming publishers and gaming gaming studios in India, but they are serving to the global MNCs. Now we're seeing a lot of that talent coming out and setting up gaming studios and gaming companies, and we have some very successful bootstrapped success stories from India, which we'll talk about later, right, which means there's a lot of talent available which can develop high quality games as well, right? So these are things. These, I believe, are the drivers of this. I mean this accelerated path of the gaming industry in india got it.

Jerome Manuel:

So I was just thinking from a non-gamer perspective. Right, if you can kind of give me a few examples of rmg and also iaps, I think that will kind of set context and be valuable yeah, so talk, so talk about RMG.

Gaurav Ranjan:

I mean, of course, you have Dream11. Everyone would have heard about them. They're more on the fantasy gaming side. Then you have players like Winzo, zoopy and MPL. They also have a fantasy element, but they largely monetize to RMG on top of casual games. So you, for example, zoopy, ludo is a large part of their like RNG-driven monetization. Winzo has a bunch of casual games where you can play against each other by putting in some money as rake right. So that's where RMG monetizes In terms of IAP when you think about it.

Gaurav Ranjan:

I mean, bjmi and Free Fire are great examples. In our portfolio I have HitWicket, which monetizes through IAP. So IAP stands for in-app purchases. So as you play a game, you may want to upgrade your character, you may want to buy new skins for your character, you may want to buy a season pass and for that you pay within the game, which is IAP. And the third is, of course, the ad-driven monetization, where where either you are shown some ads or there are rewarded videos, which means you watch a video, a short video, of some other game or some other product and at the end of it you get some rewards in terms of in-game currencies. So these are like different modes in which people monetize. Got it.

Jerome Manuel:

So considering gaming is a huge exciting area for us at Prime. So how do we see it Like? Are there subsectors? How do you classify and how do you go about your research and just tell us a little more about that? How do you look at it?

Shripati Acharya:

What are we excited about?

Shripati Acharya:

Games in Prime? We are not that interested in the hyper-casual games. The hyper-casual games is an important segment of gaming. The chief monetization of hyper-casual games is via ads and, as Gaurav mentioned, there are ads which you can just see while you're playing the game. There are also rewarded videos wherein you watch a video which is an ad it could be an ad for some other game, for instance and then as a result of watching it, you get some in-game currency. It could be coins or some gift boxes or whatever it is.

Shripati Acharya:

So we are not too keen on hyper-casual games simply because the ad monetization and the CPMs for that in India are considerably lower than in the developed markets, and that's not unusual. That is true across the board in the developed markets. And that's not unusual, that is true across the board. If you have ads on mobile, if you have ads on desktop, what have you? Web ads, everything else. The India monetization is considerably lower than developed countries, as much as one-fifth or sometimes one-tenth, which dramatically reduces the size of the opportunity. That is one. The second thing about hyper-casual games is that you need a full stable of these games as a gaming studio to do it. So again, it is not like this segment is not attractive at all for all kinds of investors. Just from our perspective. It makes it a much more unpredictable in terms of repeatability of success of the games. So you have to continuously use one game to get distribution for the next game. So one game might last a year or maybe two, but the next game has to sort of take over as it starts declining and in all cases you're looking for ads. Now, in order to be successful here, you have to definitely monetize outside India to get scale on the ads, so it requires acquisition and the ability to distribute consume. To get scale on the ads, so it requires acquisition and the ability to distribute consume to get to the gamers outside India. So that's probably the thesis on why hypercasual games are not something we are interested in.

Shripati Acharya:

What we are interested in is mid-core games. So mid-core games are those games which are slightly more nuanced, have deeper gameplay. Games which are slightly more nuanced have deeper gameplay and require a longer time as part of each session when you're engaging with the game. They also are deeper in the sense that the person's engagement with the game can go over months and years. Some of the games that earlier Gaurav was mentioning, like Free Fire, bgmi and so forth, you're actually going one session after another session by having collected and grown your profile etc. And leveraging that in the next session and so forth. So that's what is a characteristic of a mid-core game.

Shripati Acharya:

Mid-core games to us are very exciting both for India and for global markets, which are optimized for mobile To be successful. In India, we expect developers to have created games which can handle a lower-end phone as well as certain inconsistent internet connections. I think that's important. So being able to manage that also sets it up very well for expanding to markets outside India. So that's really about the Mitcore games. The monetization of Mitcore games is primarily through IAPs or in-app purchases. We think that's the way to develop and get engagement and retention and create a business model with assets which the user can both purchase and they can develop and hold and maybe even trade are down the road.

Jerome Manuel:

So that's what makes mid-core games very exciting got it, so it's mobile first mid-core games monetizing through IAPs. So that's the yeah, just to add to that.

Gaurav Ranjan:

I mean what Shubhidi spoke about game depth right. So I play a game called clash of clans. A lot of the users here, uh, would be familiar with it. I first started playing when I was in b school in 2014 and 10 years hence I'm still like playing that game. Of course I've like dropped off some time because I was taking too much time, but then so attractive that you hear about in some social circle and again you download and start playing it. Uh, right, so that's the kind of longevity of a game like clash of clans.

Gaurav Ranjan:

In our portfolio itself, we have hit wicket. I first started playing hit wicket in 2020 and it's almost four years now. I still play it and every day I still look forward to that. Like half an hour, 45 minutes that I play the game. Okay, that I've upgraded my player, I have to make a great team combo, I have to win this tournament and so on and so forth, right.

Gaurav Ranjan:

So there's a lot going on with mid-core games because the game depth, the core loop and the meta loop that keeps the user constantly engaged and the shelf life is long and as you spend more and more time, either you grind your way up through the game or you eventually start paying because you're so attached to the game and you're so involved that you don't mind spending in the game, right? I mean, just think of when I started playing I would have thought I'll never pay for a game mobile game but then over time you realize, okay, fine, I mean this is a form of entertainment I watch. I mean I pay for Netflix, where maybe I spend a couple of hours a week, and here I'm spending like more than a couple of hours a week, so why not pay for it? So that also kind of enables a lot of monetization, right? No-transcript. It's also very different for a casual and a mid-core game, right? I mean a mid-core game with maybe 50,000 DAOs half a million mouths could be doing north of $2 million of revenue. For a casual game, you may need to be at 10x scale to do similar number in terms of revenue. And to reach that scale you'll have to spend equivalent amount of dollars in marketing and increasingly, with all the privacy regulation, id etc. Marketing is becoming increasingly challenging. So you have to.

Gaurav Ranjan:

It's hard to acquire new users, whereas in case of mid-core games, once you acquire a user, the game is good. If the game is deep, you're able to retain that user for a longer time, right. Hence the LTV is very high and you're able to monetize. So the LTV to CAC ratio makes a lot of sense. Uh, there, right, and those are the reasons why you believe that mid-core is where, uh, I mean, the opportunity lies. Now the question may be why not hardcore? That's even like for hardcore gamers, and uh, well, that could be interesting, uh, but the thing there is that hardcore games typically require a lot of upfront capital just to develop and take the game to the market. It may take a few million dollars and a couple of years of just the game development time before you get to the market, right. So for some investors that model could make sense, but for us, I mean, mid-core takes the best of casual and hardcore genre and hence we believe that that is an interesting segment to operate in.

Shripati Acharya:

There's another aspect to that which you got I was mentioning about mid-core games which is if you look at from an investment standpoint or in the founder standpoint, which is what is the ultimate enterprise value you are creating. So what we would have seen if you look at games which have gotten acquired and exited by acquisition, the typical multiples can be between 4 to 5x of their revenue. And that is true because the casual games, or a gaming studio with a stable of casual games, will see the revenues growth tapering off. And when revenue growth tapers off, with a set of users who have a lower LTV and which need to be reacquired in order to continue the revenue traction, obviously the multiples will be lower, whereas if you're looking at mid-core games which might have really a very high longevity they could even be the way we are looking at hit wicket, for instance, is it's a forever franchise, it is not a, it's not a single game which stops after two years, three years, five years of gameplay, but the user can continue to engage with it, like, as gaurav mentioned, with supercell even after 10 years. So when you have that kind of engagement and that kind of monetization and retention of the user, the multiples can be 10x 20x of your revenues.

Shripati Acharya:

For instance, roblox, which is a public company, today trades at 20x its annual revenues, right? So it's not true. Typically, you know, some gaming investors who are new to gaming might think that all games trade at 4 to 5x of revenue, which is not the case. The logic behind is very simple. Like all SaaS companies don't trade at the same multiple. Some companies trade at 20x, maybe 40x multiple even, because that is the growth rate and future profitability and the ease with which they can acquire the users. So that's how we also think about mid-core games which have long longevity, which actually can command an enterprise value which is very attractive for both the founders as well as the investors Got it.

Jerome Manuel:

So, based on what you're saying, mid-core seems to be the pot of gold and for all listeners, you have to go after that, right? I mean I had a bunch of questions as you'll be speaking. I mean you spoke about exits in the gaming sector, right? I mean, could you touch upon a few examples?

Shripati Acharya:

shripati, like something which comes top of mind to you well, on the largest side, we just had activision, which was already a public company, get acquired finally by microsoft, after quite a long battle with the European regulators on the antitrust side, but that's happened. So the very large. There have been a number of acquisitions on the very large sites. For example, take-two acquired Zynga, which was another public company, which is again a fairly large acquisition, not as large as Activision, not as large as Activision. But on the private side, actually, acquisition is the more regular path to exit, I would say, and these continuously keep occurring at levels which we might not have actually even noticed, because there are some players which are aggregators, which keep acquiring games. Turkey, for instance, is a fairly large player in the gaming ecosystem. So there is a company called Embracer which has gone ahead and acquired a bunch of smaller companies. In India there was an acquisition of PlaySimple, again by a Turkish entity, and that was again a bunch of casual games which were acquired.

Shripati Acharya:

So the acquisition is the more nominal or the likely path for a game to exit, because for the very large public markets the revenue have really has to be that large. Right, you are talking, are talking now about, you know, $800, $900 billion of revenue. At that time, you can actually exit there. Also, remember that many of the most valuable gaming franchises are currently actually privately held. So, for example, valve, which is a distributor it's like really a publisher in the, the nomenclature that gara was using earlier which is a distributor of more of desktop games, is an entirely, uh, private entity.

Shripati Acharya:

Discord, which is more of a, again, an infrastructure for all gaming conversations and really like a twitter, but, uh, you know all of that happens on discord, for gaming isn't is private, with four to five hundred million dollars of their revenue, so we don't hear of many of these really large success stories. Uh, fortnight, again, is private, uh, with over a billion dollars of revenue. So it is, uh, it's very possible that gaming companies tend to have very, very good economics. The collection is frictionless, it's all digital, the distribution is all digital and, of course, uh, the development is it's all, uh, you know, a digital product, from from soup to nuts. So I would say that companies remain private. They uh and can go to a very large heft. They also typically will exit on the private markets got it.

Jerome Manuel:

That's excellent. Thank you for kind of sharing that yeah, got one point.

Gaurav Ranjan:

I mean shabidi, you touched upon roblox earlier and the trade at 20x. Uh, the revenue multiples and, in the context of what we were talking about, what could be what? What are the characteristics of like a good game or what we like at prime? Uh, right, we have discussed this before that. Uh, I mean games should not be looked at like individual games or like content and entertainment businesses. Right, in that context we have touched upon roblox. Why roblox trades at 20x versus some other game studios trading at 5 to 7x, if you could like yeah.

Shripati Acharya:

So, um, maybe I'll unpack it a little bit and say that in order to develop a game, it actually takes a lot of time, because you need to understand that game is about engagement and deeply involving the user in, and so gameplay. The gaming loop, the meta loop, etc. Need to designed very, very thoughtfully and require a lot of iterations. So frequently we hear entrepreneurs who are new to gaming talk about gaming and kind of approaching it like okay, look, you know, let's look at SaaS or something like that, where you have seen a product and you feel like building it. It really doesn't work that way. Gaming is a much, much more nuanced product because fundamentally, you need to have an emotional connect with the gamer. It is not a utility in which you do A, b, c and D and then you get out of there. Right, that's what a SaaS plays. We just need to fundamentally understand that.

Shripati Acharya:

The thing which we look for in gaming is that we don't look at it as pure content plays.

Shripati Acharya:

Content does take a lot of time to create and is important for games, but if it is just a content play, then it is not something which we would be particularly excited about, because distribution is where all the difficulty and innovation and the X factor really resides, and that's where a lot of enterprise value is captured.

Shripati Acharya:

Now, if you think about what roblox has built, roblox has is really a platform in which other people come and build games within it, so it's really like an app store or a play store, but much, much more than that, because not only are the users coming there, but they're also providing the entire environment and the toolkit and the APIs for you to build within it, and so that is what Roblox is, and, in many ways, roblox is more of a software company than a gaming company, and, from our perspective, the X factor that a game needs to bring needs to be in an area which is beyond content, so it needs to have an X factor about the way they are doing distribution, and it should, in our opinion, look more like a software company in terms of how it is approached. Of course, you need to have the thinking and the gaming mechanics, which is really a necessary condition to be a successful game, but really to be an enduring game and talking about forever, franchises and so forth you need to have all of these other elements to it as well.

Gaurav Ranjan:

Yep, definitely, and we're seeing more games moving in that direction. I mean, minecraft is like a great example of that, epic with its Fortnite game. They have I mean, they have opened up, they have come up with a UEFN program similar to Roblox, where developers can come and build mods on top of Fortnite and then monetize themselves.

Shripati Acharya:

So that also creates that community and virality which brings in more people, which creates more content right In turn brings in more people, which creates more content right in turn brings in more people and leads to more monetization, and so on and so forth I would say that you know, the reason why you need to have that really deep tech dna also in gaming is that gaming is changing with generative ai in a very fundamental way, which is that creating assets now can be a lot easier and faster, because creation generated the generative, and generative ai is about creating content right.

Shripati Acharya:

So now, animations, 3d art, variations of the current assets you already have all of those things can be done very effectively generative ai. But in order to leverage all of these things, you need to have a deep tech dna within the firm, and that's why what I mean by saying that these need to look increasingly like software companies now when, when gaurav talked about you know what minecraft or roblox provides it provides modifications by gamers themselves to be able to create the assets within it. So so imagine the architecture required to create that. So what we see as the new and next-gen games will have is a core of game design, which is very good, but also a software architecture which enables the new versions of the games to be put together very quickly and which also leverages these fairly new paradigms like generative AI to develop the next generation of games and also modify those games. Correct.

Gaurav Ranjan:

And one important thing right I mean, which is in addition to what Shripati spoke about, like what makes a gaming company really exciting is beyond. What Shripati spoke about is how do you have an x-factor or differentiated distribution strategy right, with play store and app store and steam and epic game store, distribution is democratized right today. Any game developer, indie developer or gaming studio can develop a game and put that on an app store, play store, if you're a PC game on Steam. But that also comes with the challenge that there are hundreds of other and thousands of other people doing the same thing, right. So how do you differentiate? How do you acquire users? How do you win the user's attention to try and download your game?

Gaurav Ranjan:

And that's where I think distribution advantages have to be built over time. You can't just rely on performance marketing. We have one interesting company in our portfolio Glip. Right, they're building a mid-core game, but they also have a very a different product, not exactly a game product, but a product built for gamers to do in, to do recording of gameplays right, and that has generated maybe like 5 million organic downloads for them. I'm just giving that as an example. So you need to have some differentiated distribution strategy that gives you an edge over somebody else who is building something in a similar genre going after the same set of audience, so that is equally important. Just doing performance marketing will not help in the long run for you to build like a large, sustainable gaming company.

Shripati Acharya:

Absolutely. I think just to further expand on that, agar in the case of Glypt, the recording product which enables a user to record both audio and video of their game, is a free product. So it's basically think of it as a tool for gamers, but it is a fairly sophisticated product. It's a leading product in that category for mobile. As a result, users come there, then they get exposed to the game which is BTX, which Glip is building, and are able to download that. So that provides free, organic distribution to Glyph and makes it differentiate from all thousands of other games which are sitting in the App Store.

Shripati Acharya:

So you're really not going to get a distribution edge by putting it on App Store. It is just a way in which people will get access to that game. But you have to think distribution on a very first principles basis, otherwise you'll get into the treadmill of having to pay for performance marketing and then that becomes really a difficult game to play because over a period of time as you scale, as we all know, in B2C performance marketing the customer acquisition costs don't decrease with scale. They actually increase with scale, and that is the challenge. And so for game developers I think it's very important to think about distribution right up front if they are thinking about creating a large franchise. Otherwise, you get essentially a ceiling to the size of the game you can deliver.

Jerome Manuel:

As I understand, distribution is the game changer, right. So what are some other literature on the types of distribution, or some thinking, or some frameworks, possibly for the ones who are building games? These are different types of distributions you can do or the ones that work. Anything on those lines, I think performance is where everybody starts.

Gaurav Ranjan:

Performance types of distributions you can do or the ones that work, anything, anything on those lines, I think. Uh, I mean, performance is where everybody starts. Performance marketing, right, but how do you drive organic? And organic to a large extent depends on how are you able to build a community around the game and like the social, the social element around the game, uh, right, that becomes very interesting. I mean there is a I mean ludo became very popular uh, during COVID and has continued to be popular after that because of the social element, the social layer on top of that game, that drove a lot of organic distribution for them.

Gaurav Ranjan:

So that is definitely one thing that can help in getting that low cost distribution advantage. Second is what and that may not happen immediately what I'm going to talk about is enabling mods on top of your game. That'll help a lot of game creators come and build content and that will enable a lot more community-led distribution. Uh, so that is the other angle through which it can happen and, yeah, I mean more content around game does help in more distribution there are some games which I have just lent themselves more to content.

Shripati Acharya:

So YouTube is probably the single largest distribution channel if you want to do for organic acquisition of users, and if you think about it, youtube is also crowded with videos. However, if you actually have an interesting game, then users themselves will record their gameplay, they'll post on YouTube, which will drive engagement. So influencers who are very much into gaming will get involved in there, and so a lot of games which have blown up and become successful actually had their success driven by YouTube and the distribution around there. The other distribution channel, of course, is Discord, where gaming communities reside, and so encouraging, you know, managing that community becomes very critical in all of these channels, which is, in one sense, no different than what we call a, a CEO in the SaaS or any other world right, where you're driving users, but here it just is so much more critical because it's basically B2C, it's direct to consumer, which is what you're driving, got it?

Jerome Manuel:

So, and then, what does a gaming community look like? Maybe any insights on that? How are gaming communities formed, and do they always keep chatting about a particular feature or something like considering you've been a part of some communities?

Gaurav Ranjan:

yeah, so I mean I can talk about hit wicket and talk about, uh, clash, royal and clash. Let me talk about hit wicket, right. So they built a cricket game uh, uh, right, and they had they seeded an organic, I mean they seeded a community on discord, uh, and people got talking about. They started by talking about game features, uh, right. And as the game becomes popular, people start talking about in-game contests that are happening. People start talking about trading players, trading assets, and that brings in more player into that, uh, community, uh. So the discussion is more around game gameplays how do you improve your gameplay, what new features could be launched, etc. But again, a lot of this has to be anchored by the game but driven by the community. That's the way we think about community.

Gaurav Ranjan:

Before we move ahead, I had one thing to talk about, and I think any discussion around gaming would have been completed without touching upon the Web3 aspect of gaming. I mean, at one point a couple of years back, it was quite popular with the likes of Axie, play to Earn, axie, pioneering the Play to Earn model, and then a lot of gaming guilds et cetera coming in and Shubhithi. You spent a lot of time on both, like web3 crypto and you've spent a lot of time on gaming, so how do you see the web3 gaming evolving, uh, and where do you see that going?

Shripati Acharya:

so, uh, the thing in web3 gaming which is more important is actually the gaming part, not the web3 part, and I feel that that narrative was lost in a lot of the web3 uh hype which we had a couple of years back, and you'd see these games coming out and developers coming out of these games, which is very simple gameplay, but they would say, hey look, we are doing Web3. And hence it's going to be successful. But if you think about it, you know what made each of these platform transitions so successful was that when you had consoles, you had probably millions of consoles, right. When you went to PCs, you had hundreds of millions of PCs. When you went to mobile, you had billion plus mobile platform, and then when you go to Web3, you have 100,000 wallets. I mean, if you just think about it, that Web3 was a technology but it was not going to drive you a huge amount of gamers into it.

Shripati Acharya:

That's like the first point, and the second point, as a result, was that there was no focus on the gameplay itself. To fundamentally understand that gaming is about gameplay was, I believe, completely lost in that bubble for lack of a better word and all the noise which came around it. As a result, we had this huge tsunami of Web3 games which came and which went, and so gaming without gameplay understanding, the nuanced understanding of that is just not bound is bound to be unsuccessful. And when we talk about play to earn and the reason I'm not a big fan of play to earn is that the person it is an investment product, because the person who is financing the game is different than the person who is playing the game, and the person who is playing the game and the person who is playing the game is really doing it for a return as well. So there is no focus on the gameplay itself, whereas if you look at all the really really successful games out there Grand Theft Auto, call of Duty, free Fire, vgmi, everything else right you will see that the gamers interested in it for gameplay, they are spending money for gameplay because they are really enjoying it and it's yeah, there is a benefit and the assets get sold for tens of thousands and sometimes hundreds of thousands of dollars in this, but it's really a transaction between gamers who are interested in acquiring that asset. So that has to be the core and I feel that that particular piece was missing and hence we had seen really no Web3 game breakout right, but I feel that after the hype and then the bust, the way in which Web3 becomes meaningful and relevant for gaming.

Shripati Acharya:

I think the Web3 technology is very relevant, and where it is relevant is using Web3 as rails and the way we talk about it is Web2 games with Web3 rails, right, just to distinguish between the two. And what Web3 provides is, just as India has seamless microtransactions Gaurav, you talked about UPI earlier in this talk, which enables gamers to have very small transactions in a frictionless fashion, and that is really core, and that's why we are so excited about the IAP segment in India. I think it's going to be very, very good, very massive, because we have solved this very tough payments problem which is micropayments, and Web3 provides micropayments infrastructure for all these other gamers in other parts of the world where they don't have it. So now you can have frictionless cross-border collections. There could be an Indian company with gamers in Australia, or aian company with gamers in australia, or a us company with gamers in uh, you know, brazil, and you could actually be getting micro payments in web3, in stable coins and so forth.

Shripati Acharya:

That is one aspect of web3 which is very relevant and important, and the second piece is that the open chains in which you can store your assets.

Shripati Acharya:

So games have had marketplaces for a very long time where you can trade assets.

Shripati Acharya:

But these marketplaces are captive to the game.

Shripati Acharya:

So if you are talking about trading assets in a particular game the swords and the guns and skins and whatever have you will actually be captive to that particular game inside that game environment.

Shripati Acharya:

But web3 allows you to have these things stored in an independent, open, verifiable chain and when they're sitting in this chain the trade can actually happen on the chain and it just gives a larger level of credibility and trust with the gamer that these things won't vanish, right, that you won't make gamer, that these things won't vanish right. That you won't make that the game developer won't make some small change in the game rules and suddenly all those assets have vanished or worth one-tenth right. So those are the places where we think Web3 Rails can be very relevant in gaming and I think will become important. So I would say over the next few years we're going to start seeing a lot of these elements being incorporated in games themselves, so much so that these Web3 elements will be quite invisible to the user. They won't even realize that they're actually using that and they are coming in for what they should, which is gameplay.

Jerome Manuel:

Got it. So, just coming back to the overall startup landscape and the vc angle, right, uh, so what does it take out? What does the gaming landscape look like in terms of funding and vcs and pitches today, and how many entrepreneurs are building in the gaming space in india and what kind of games they're building. Any? Any insight on that piece?

Gaurav Ranjan:

so i'd'd say that I mean post the. I mean at one point we're seeing a lot of games, mostly RMG, when RMG was on the rise, and post the new tax regulations. Of course, rmg is kind of we're not seeing too many new RMG players coming in. At times we do get a couple of pitches on RMG, but you're seeing a lot more game studios trying to build casual games and mid-core games. Uh, last year I was at gdc, igdc in hyderabad and there, as I mean, the kind of gaming developer talent that we have uh is, uh, I would say, at par with any other sector that I can think of in india. It's just that, uh, a lot of them need the I'd say, for lack of better word mentorship and guidance to develop the right set of games, right set of products. I mean I met gaming, I mean gaming developers like two, two person studio develop a game as good as gta, uh, right, uh, but had struggled in distributing that game right. So I think we are getting pitches across game categories, across game genres, lot of as I spoke about before as well, a lot of people from large gaming companies, established gaming companies, coming out and starting new ventures. It could be around. I mean mean, recently we did speak to someone which was trying to build more like a Thrasher model, which is predominantly e-commerce for gaming. We have seen, of course, casual games coming up, casual gaming studios coming up, we have seen e-sports companies coming up in gaming and that we didn't cover that. That's a very small and niche market anyways. So, yeah, I mean, you're seeing teams and developers across game genres coming up with variety of experience coming up these days.

Gaurav Ranjan:

And one thing to note here is and this is not just for india, but even globally venture capital is a very recent phenomenon in gaming, maybe like 10 years, right, I was talking about it earlier. Uh, large part of funding within the gaming either was bootstrapped, self-funded or it was driven by publishers. Uh, only after a few successful like gaming outcomes have vcs come into the space. Now, uh, and I mean now, we have globally about 30 gaming specific funds. In india we have a couple of funds which just focus on gaming. So, even from a capital side of point of view, we are seeing more and more capital getting into gaming. But, as it happens with like every sector, you have the hype or the boom and the bust cycle. So I mean, sometimes I also feel that like a lot of capital has gone into gaming in the last couple of years, so I will take some time for that to kind of settle down.

Shripati Acharya:

But nevertheless gaming as a market is always going to grow and going to be exciting maybe we can probably give some, you know, some representative numbers in terms of what you know makes for interesting metrics in gaming, right? So there some. When we look at retention, retention is sort of like the key really key metric, which is how many users, after they have downloaded the game, are actually continuing to come and play the game. So it is not unusual to see games wherein they just falls off a cliff. You know, a hundred people might download a game, but maybe two people are playing it after 30 days. It's not unusual to see those metrics.

Shripati Acharya:

So if I could actually suggest to new and potential founders in gaming the good numbers, the kind of numbers to shoot for, are a day one retention, which is after you have downloaded the next day, of around 30 percent and above.

Shripati Acharya:

A day seven retention of around 15 percent and above.

Shripati Acharya:

And the last metric is probably the most important, is day 30 retention of over 10 percent, and only then you'll actually have a process and a community, be able to do other things, like build a community, like get enough engagement to start monetization and I and in app purchases and so on and so forth. So that probably is the single most important metric and the second uh element I would say is that you know shooting for about 40 minutes of gameplay, you know for a for the user in a day. Uh, would probably be a good metric to have, because I'm talking now about mid-core games, not talking about Hapocasual. But that gives that forces you as a game developer to have the depth in the game to accommodate that we talk about easy to learn but hard to master as the maxim here. So making it easier for users to master as the maxim here. So making it easier for users to start playing the game and start enjoying it, but at the same time having a depth so that they don't get bored and they feel like coming back again and again.

Gaurav Ranjan:

And just one more metric, which is people measure it through payback and different genres will it through payback? I mean different genres will have different payback period. In casual games it could go up to over a year.

Gaurav Ranjan:

Payback from ad spend, payback from ad spend. Yeah, that's what I meant, like return on ad spend when you recoup your ad spend For casual games it could go over a year and that is considered decent. What we have seen, at least in a lot of successful games globally and in some in our portfolio uh, I mean in our portfolio, of course, we have games which have payback period of 60 days, but I mean that is exceptional. But anything about six month, five to six months, is a good payback period, uh, right, uh, for mid-core games uh, so I think with that we are coming to the end of the podcast.

Jerome Manuel:

I've learned a lot about gaming. I'm not a gamer, so it's been a very interesting conversation. Thank you so much for sharing all your insights. I might actually just go and pick up a game based on your recommendations today and I'm super excited to you know here and possibly get some gaming entrepreneurs in our office to get a test and possibly a demo of the game. So looking forward to that, entrepreneurs.

Gaurav Ranjan:

There's no better time to be a gaming entrepreneur in India, for all the reasons that we spoke about. So if you are doing anything within gaming, whether you're building a game, whether you're building a game studio, or even if you're building infrastructure around gaming, feel free to reach out to us. We are happy to have open conversations, we're happy to brainstorm and happy to get inputs from people within the gaming community. For us, Great.

Jerome Manuel:

Thank you so much for listening in viewers, and that's the end of our special podcast episode.

Prime Venture Partners:

Thank you, spotify, castbox or however you get your podcasts, then hit subscribe and if you have enjoyed the show, we would be really grateful if you leave us a review on Apple Podcast. To read the full transcript, find the link in the show notes.