MPL’s fundraise, Nazara’s IPO debut portends the future of Indian gaming startups

The Indian gaming industry is at an inflection point with increasing funding activity on the back of growing international interest in a sector that's demonstrating better room of monetisation, experts say.

Online gaming has seen significant activity in recent months. With people working from home, social distancing becoming the norm, and limited physical sporting events due to the COVID-19 pandemic, e-sports and mobile gaming have seen rapid growth. 

As per Google-KPMG, India is now the world’s fastest-growing mobile gaming market, growing at 22 percent annually, poised to be worth $1.1 billion by 2021. 

Last week, esports platform Mobile Premier League (MPL) raised $95 million investment. With over six crore users, the Bengaluru-based gaming startup raised $90 million in September 2020. Apart from this, Teen Patti creator Moonfrog Labs was acquired by Sweden-based Stillfront Group for approximately $90 million, earlier this month.

Nazara Technologies, backed by billionaire-investor Rakesh Jhunjhunwala, also filed for an IPO in January this year. It gave its early investor, WestBridge Capital, an exit. The investment firm got over a 40x return on its $3 million investment. The company has also invested in other gaming startups like Halaplay and has acquired sports content platform Sportskeeda.

Mumbai-headquartered Nazara has invested $50 million in 13 startups in the last two years and is looking to act as a catalyst to expedite the growth of gaming, esports, and sports content across emerging markets. 

And late last year, Lumikai, India’s first gaming-focused VC fund, was launched.

Increased funding activity 

From funding and acquisitions to seeing market debut – the Indian gaming industry is on a growth path, and the list is simply unending. 

However, investments in gaming companies have been asymmetrically low — less than $380 million since 2011, with maximum deals happening in the last two years. 

According to YourStory Research data, $52.552 million was pumped in across 17 deals in 2019, and this shot up to $356.080 million across 20 deals in 2020. Within the first two months of 2021, over $106 million has been pumped across three deals. While MPL’s $95 million contributes a significant chunk of this $106 million, the other deals cannot be ignored. 

Salone Sehgal, Co-founder and General Partner, Lumikai Fund, says: “While there are big deals in larger startups, there is significant activity in the seed and early funding stages as well. This just means well for all gaming startups.” Lumikai recently invested in gaming startup Bombay Play along with Zynga Co-founder Justin Waldron. 

“The last 24 months has been interesting for the Indian gaming market. In the last 17 months, over $750 million has been poured into Indian startups across the board. There are blockbuster deals like Dream11 and Mobile Premier League, there are seed deals, and sports content is increasing significantly. It is a mix of domestic investors, but predominantly newer investors coming in,” adds Salone.

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Increased international interest 

Salone says Lumikai is eyeing another 15 more deals in the Indian market soon. The fund is also bringing in new investors who haven’t invested in the Indian market before. 

“It is a larger trend that goes around with what is happening with the global markets. In 2020 alone, there were $33 billion worth of gaming activity, which included investments, acquisitions, exits, and IPO. Also, gaming as a sector has been counter cyclical. Even during the global financial crisis, when other sectors have been hit, gaming and interaction particularly is on an upward rise,” says Salone. 

This activity has further put the spotlight on the Indian gaming segment. Moonfrog Labs’ acquisition by Stillfront will establish a strong platform to expand organically and through M&A into the fast-growing Indian subcontinent. 

Jurgen Larsson, CEO, Stillfront, had earlier said in a press statement, “With the acquisition of Moonfrog, Stillfront adds a highly profitable and successful studio to the group and expands our geographic footprint to the Indian subcontinent, a strategic move into one of the fastest growing mobile game markets worldwide.”

Better room for monetisation 

Talking about the increasing interest in the Indian market, Kartikeya Shekar, Associate, Blume Venture Partners, says, there is demography in India that is tech-savvy and is open to consuming online content. However, gaming isn’t new in India. There have been many games that have been consumed by Indians, but the problem has been about monetisation. Kartikeya says that is now changing. 

“COVID pushed people to spend more time on games. And UPI has made the in-game payment simpler. As more people start playing games online, the base of monetisation and the number of people who pay will increase. Also, gaming as a business model can be capital efficient unless you’re spending a large amount on acquiring users. Typically, everything is digital and doesn't need feet-on-street, and the teams can be lean. The all-digital models make it interesting,” he says.  

He adds that money is also flowing into different gaming segments - from fantasy sports to more casual or more serious hardcore games coming in. People are willing to spend more than they were willing to spend historically. 

A growing ecosystem 

Kartikeya says, more homegrown studios will build games for Indian users, making them more localised. There is a growing ecosystem being setup around games. 

Manish Agarwal, CEO of Nazara Technologies, has earlier said, “India is a large domestic market, which can grow massively for any global gaming company. While most western markets have plateaued at 10 percent growth rate, India, on the other hand, showed an opportunity to grow at close to 40 percent, doubling every few years. We should be able to create infrastructure, incentives, benefits, and jobs.”  

According to him, the current set of gaming entrepreneurs have been gamers for close to a decade. They understand the nuances of consumer psychology and leverage its insights into gaming, and know-how to ensure retention and engagement. Even the large global players are looking at India as a big market. 

“India and Indian talent can build a global brand. It is a great opportunity to pick up local cultural sensibilities to the gamers in India, and we are looking at the evolution of thinking and opportunity,” Manish said. 

Salone, who earlier founded a gaming company called Truly Social, says, “When we were building for the India market a few years back, we didn’t see the kind of app usage and infrastructure usage converged for gaming in a manner that is there now.” 

She says today India is the largest global consumer of games in the world and an increase in the average revenue per user increase. “Today India is among the top 10 grossing tracks of game publishers globally,” she adds. 

What is important now is that the market needs to show depth and breadth. Salone adds the ecosystem around content plays where companies were building, actually, they will give developers, the RNG eSports or fantasy. 

“Previously, the Indian gaming ecosystem was very undercapitalised. So you had developers who would go for the low hanging fruit - either they do publishing deals, which were very predatory in nature, or they build copycat titles. You know when you see capital entering the market, it attracts talent automatically,” adds Salone.

Manish believes gamification will become an important aspect of most segments. There is a big connection between e-learning and gaming, with almost everyone trying to learn something online. And the easiest way for people to learn is through gamification. 

He believes India can also be a great servicing hub for gaming companies globally as the country can provide localisation, customer support, and payment infrastructure. In fact, it is well endowed to provide an opportunity to build a great e-sports ecosystem — from coaching classes, casters, players, and live streaming, among others. 

With the gaming ecosystem opening up to funding activity, M&A, and IPO, it will be interesting to see how Indian startups in the segment will perform.