Even as the start-up economy is struggling to raise fresh funds, it seems online gaming remains insulated from the current market scenario. Lumikai recently announced its Fund II amounting to $50 million which it plans to invest in gaming space. “We expect to see growth really across the board in casual, hyper casual, mid-core, hardcore, real-money gaming (RMG), esports, and streaming platforms, among others. What we’ve observed is that the more mature forms of monetisation are starting to dominate the market,” Justin Shriram Keeling, funding general partner, Lumikai told BrandWagon Online.
The VC fund has invested in gaming platforms including Loco, Elo Elo, Bombay Play. The VC fund is looking to invest across five broad categories – gaming content, platforms, technology and infrastructure, system and play bets, and frontier bets. “We’re seeing that the fastest growing monetisation format in the market is going to be in-app purchase that’s growing at around 35%. year-on-year. I think we’re bullish on the potential for both casual and mid core genres to monetise via in-app purchase. So in-app purchase, for us is definitely a growth lever in India,” Keeling added.
According to a report by the venture capitalist firm, the gaming sector is set to grow at a compound annual growth rate (CAGR) of 27% to reach $8.6 billion in FY27. The report suggests that there were 120 million paying users in FY22 while the total number of Indian gamers amounted to 507 million.
The fund claims that it plans to invest in studios which creates original intellectual properties (IP) for the Indian market or could be building for the global market out of India. Additionally it plans invest in platforms which hosts user-generated content (UGC), creator economy or streaming platforms. Furthermore, tools, technology and infrastructure are another area the fund wants to invest in while also keeping a close eye on systems or play bets. Systems or play bets are companies which apply game mechanics and interactive touchpoints across legacy value chains such as Fintech, Healthtech, Edtech companies disrupting those legacy media, with interactivity or intrinsic or extrinsic gamification. Lastly, frontier bets are also on the radar of the VC fund with areas like mixed reality, virtual identities, edge computing, generative AI, among others. According to Keeling India has claimed the top spot for gaming downloads with over 15 billion game downloads which is more than the numbers US and China registered combined. “The average revenue per paying user has grown about 10 times over the last five years. It used to be fairly low at about $2 but it has grown to about $20 in the last five years. The adoption of UPI has been huge,” added Keeling.
The Indian government has imposed regulations for real-money game companies in India with gambling and betting being declared illegal in the country. While the GST council is set to discuss the taxation rate on July 11, it currently sits at 18% on contest entry amount (CEA). Keeling highlighted that Lumikai does not invest in gambling as it only invests in entities within the legal purview of the games industry in India. Lumikai has invested in a real-money gaming platform called Buystars, a sports collectible trading card and fantasy platform, post the VC fund had regulatory clarity from the industry. “If you’re investing in the right kind of games companies, these companies often don’t need to raise the under Series A, because they become unit economic positive. Typically, we look at teams that have experience building in a particular sector and that is aligned with the pieces that the fund believes in. While monetisation is very important for Lumikai, 30-40% of its portfolio is revenue generation,” added Keeling.
According to industry estimates, VCs typically look to exit between four-five years, post-earning returns. However, Lumikai claims that it is a little bit early at the moment to be thinking about exits. “There’s more value unlocked within the portfolio and we’ve seen a 50% graduation rate in our Fund I portfolio already. The portfolios are on a healthy track to return, some of our companies have already raised at a valuation uplift of about six times,” he explained.