The State of Gaming VC in 2024

[Music] welcome to the navi gaming podcast where it is our mission to explore the business and future of video games we bring together the industry's brightest Builders investors and thinkers to keep a pulse on current events dissect emerging Trends and games share Lessons Learned and have a great time this podcast is also part of novic growing ecosystem which ranges from free and premium research to Consulting and advice services for more information visit [Music] www.nic.edu or marketing expertise doing so can be a challenge nexus's Creator program in a box makes it easy for game Debs to build and manage world class class Creator

programs driving significant growth in conversion arpo retention and LTV Nexus has partnered with Incredible live service Publishers like Capcom grinding gear games highres ninjak kiwi and more and would love to help you our novic gaming podcast listeners do the same if interested in learning more simply head to nexus. g/ novic there you can learn more about the efficacy of support of Creator programs and discover how to easily build your own again that's nexus. g/ novic or check out the link in the show notes and with that let's jump into the episode hi everyone I'm your host Aaron Bush and today I am super excited to be joined Again by morit Bayer lent partner and head of gaming at light speed Venture Partners I'm losing track of how many times morit has been on the podcast I think this is number three or number four but we're always happy to have him on like last year one

of our most popular episodes was with Morts in which we broke down the state of gaming Venture markets and talked about the brand new launch of light speed gaming which also became one of novik's open gaming research initiative Partners but now that it's 2024 I figured it's a great time to hear Morris's updated thoughts on how gaming VC continues to change how the first year of light speed gaming is gone and of course share some thoughts about the future so with all of that said Moritz welcome back to the novic gaming podcast thanks so much for having me again yeah this is this is going to be a fun hour or so and I figur we can kick things off with an update on light speed gaming itself which as I mentioned you've now been plugging away for almost exactly a year now um at this new uh new Venture of yours what can you tell us about the the first year so far maybe we can start with the investment side of the equation

yeah sure I think um you know in hindsight we we packed a lot into 2023 I'm very happy with how it turned out I'm glad we're starting with investment since ultimately even with all the other things we do like marketing events syndication writing Etc like ultimately like our our job is really um building High performing Venture Capital funds and partnering with what we think are the most extraordinary Founders in gaming and in interactive media and so um my job and really everything's in service of that job is to make sure that we Remain the number one choice for those Founders and so the best measure for us uh whether we we did this you know obviously running up on on actual returns and realized gains is where we able to partner with who we think were the most extraordinary picks uh in 2023 and I think you know looking at the three Deals we did we very proud uh of who we were able to uh partner up with here um the first first one that we

announced was in March of 2023 um that's a game studio called believer uh very ambitious uh Mission very ambitious fundraise too with a 55 million seat that we technically labeled a series a because seat and a money was raised in one go it's an x- rot team um you know former producer executive producer of wild Rift Michael cha and then the former and the first producer actually of League of Legends um snow and the two of them um started a new Venture not just bringing in a lot of great folks from Riot games but also really across the industry um they're building an MMO we wrote about it extensively as well so people can look up what they're up to and then um the second uh investment which was also Studio investment was Gardens interactive uh we announced that in July I think and this is a this a really unique team that I think Blends creativity with AAA Ambitions like we have haven't really seen anything like

that or I had personally not seen anything like this team I I do think it really stands out in what and how they're building what we also think will be a very popular forever game fingers crossed um both of these games probably going to launch around 25 26 time frames so still a lot to build out and then um the last one that we announced in August of 23 was in World this is a company that I've actually had some shared history with from my bit craft days um let this seed in late 2021 and then we preempted the series B this was just one company looking at everything that was going on at the intersection of gaming and AI coming into light speed that I want to make sure we have exposure to um and so we're trying to work something out with them they didn't really me the capital but I'm super glad we got to partner up in this new capacity as well and um you know if I'd have to pick one company to have the best shot at being

that next generational company in gaming the next Unity the next Roblox I think in world is a really strong pick yeah and all three of those companies are exciting and we actually have had two out of the three on our podcast um and discussed in depth you know what they're working on how they they think about building out the future of AI or AAA gaming or or what have you we talked to the founders of gardens uh and so if you just type in novic gardens and and Google or on our website you can find that uh conversation and we had a couple episodes with the leadership of of inor AI talking both about the company but also just the future of AI and gaming too so if you're interested in learning more about those companies definitely go go check those those out those are both really informative and interesting episodes um I guess second for you Mor obviously you spend most of your time on the investing work the the diligence the meeting with teams um how have you been spending your time when not in the

investing weeds as you build out this light speed gaming practice yeah it's it's a great question I I would say 2third or three4 of the time is always directly spent on either finding new relevant Investments or supporting existing Investments and then the question is how do you spend that extra third or quarter um in service of of that main goal and I think the clear answer for us in 2023 was really getting the word out about light speed being very serious about gaming um light speed is by no means new to gaming or was not uh 12 months ago they've been investing in this space since 2006 um even all the way back to playm congregate uh snap if you count that into the interactive media umbrella um and epic games and triple dot are also recent breakouts but I think you know especially for a generalist fund um in today's landscape ape where and we'll talk about this

later maybe you'll find a lot of active investors Specialists generalists and also strategics looking at gaming and interactive media I think it's really important to stand out and you know there's no there's no other way to get especially seed and to some extent serious a deal Flow by being a lighthouse that attracts Founders because there's no one to Chase or track for a seed investment um these Investments need to come to you so um with that in mind you know some of the things we did we were pretty pretty open around us doubling down on gaming in January I think when we announced the practice we pushed that across uh 30 40 media Outlets um including forbs xus information we um started q1 with targeted events in February we hosted about 200 gaming and interactive media Founders in La for a Founder focused event and then in March uh we organized

a CEO reception at GDC inviting and bringing together 250 CEOs from public companies private companies and then the most promising startups we did that in partnership with Goldman uh Microsoft Sony and Niantic we're planning something similar again for the upcoming GDC in March so this is uh this has already established itself as somewhat of a staple event I guess um and then I'd say apart from the deal announcements and deal PR for believer for Gardens for inworld um launching a separate light speed Gaming website was probably one of the the key um activities on the marketing front last year I think really setting up a home for Founders where they can learn about our existing portfolio um what we focus on the way we work and support Founders and learn more about that and then I'd say in terms of initiatives game changers was was clearly a highlight for us and and I think for many others um we

did that in partnership with games speed essentially we were looking at the the landscape and um while there are many lists in in gaming for example you know Forbes as a category for gaming or games now um where actually help them out as a as a judge um but they focus on individuals um and unlike many other sectors and industries there isn't actually a list that puts a spotlight on the most exciting startups in gaming and interactive media adjacent technology Innovations and so we thought it was a gap uh we wanted to fill it and um did that in partnership not only with game speed but also I think 15 20 Executives from the industry all sea- level Executives including you know Activision Blizzard Amazon by Dan Disney Roblox you name it um and I think while most people think this was a big deal flow hack for us because we allowed people to nominate others friends or nominate themselves

and we did a lot more applications uh receive a lot more applications than we expected but uh you know a lot of these companies were already close with or tracking and so really this is a celebration of all the amazing things that are happening and and also the increasingly diverse uh set of Founders that are pursuing those interesting opportunities um slush was a highlight for me in in Q4 we had a across light speed and especially with the European team a big present including a few um mainstage slots um hosted um the CEO of believer there as well and yeah I think there was we we really packed a lot in terms of marketing and events into 20123 so the way I look at it for 2024 is I would say we're almost in in in maintenance mode rather than um uh getting the word out there because I I would like to think that everyone who is of a certain caliber and is starting in

in gaming whether that's a game Studio or a gaming platform or um adjacent technology and 3D or interactive AI um would hopefully reach out to us and and that's that's how we P um that's how we perceive it at least currently right well you've certainly had a a busy year of building this this practice up from the ground and it seems like it's been uh an early success for you too which is great one one last question on this before we can move on to some other stuff um when when I first heard about uh your move to light speed it it sounded very much like Mor on a mission it was uh you know it was you a very small team um building this this practice up how over the past year how how has the team changed at all have you built it up at all what's been the the focus on the people side yeah um I think maybe starting with a bit of light speed's philosophy I you know and and I like it quite a bit um is we're always pursuing different

strategies and trying to keep teams as Nimble as possible um we also just um I think it's important to highlight organizationally or in terms of organizational culture there's no there's technically speaking no gaming team um there's no gaming fund all the work we do across all of FL speeds across all sectors across all geographies is not siloed um and uh all Partners draw from the same investment pool and carry pool and come together dynamically to um you know best assess to source to assess and then ultimately support companies independent of what formal sector so to speak the company Falls in but really based on a um topical assessment of what's most relevant in terms of our skills and expertise um for every company we partner with and in world is a great example which is a company that was

primarily uh diligen and and ultimately also got the approval from a team that was probably more heavily weighed on the Enterprise side than it was on the gaming and consumer side and so when you look at um and we have the we have the full team we have everyone who looks at gaming across all of light speed also listed on on the gaming um on the light speed Gaming website you'll see it's actually quite a big team that stretches across consumer that stretches across Enterprise um we have fintech team members looking at it occasionally we've looked at um applied game mechanics in healthcare even with our Healthcare team uh it's not something where we've pulled a trigger today but I think for us the core team uh the core gaming team uh which includes uh Paul and Sean and faras and myself that's probably at its um final size with around you know for for dedicated investors who all at the

same time also pursue um other sub sectors at light speed you know Paul's very active on climate Sean's looking at uh growth opportunities outside of gaming and across consumer foras is uh an early stage consumer investor for us more broadly and so it's a very Dynamic model um and it's basically always driven by expertise and um unique contributions that every team member brings in the diligence process uh well moris we we always have a bunch of Founders that listen to these episodes and are always interested in learning um from you and others like you um and so I think it would be helpful just to talk briefly about what light speed offers Founders what have you set up to support Founders over the past year and what are you looking to do more of in the future yeah and then by the way I think that that extra third or extra quarter that we men mention for marketing since that's in maintenance mode now a lot of

that will probably go into building that value at platform out even further um the most important thing I'll say in terms of company support is that because we consider ourselves conviction based investors we only make about two to three Investments per partner per year it's very different uh from a lot of other investors and gaming investors out there and so what that means for um portfolio companies they'll always work with the partner directly on on everything that matters um you know not obviously only will We join uh all the board meetings but there are many companies that I have uh including my own Investments and those that I have inherited at light speed that I'm probably in touch with daily in including on the weekends and so what are what are those tangible areas of support you know executive and design and Engineering Talent hiring is probably a big one we have um three in-house experts at light speed for that

across sectors and then also we have gaming specific Partnerships um that help us especially for Studio hiring um you know I think people get a kick out of the fundraising and syndication support uh that that I provide and this is probably an area where um I'm sometimes having a bit too much fun uh but if if folks look at uh the syndicates we put together for yeah really all all of them like believer guard in World um I think just those uh this year covered investors from Amazon Disney bman Google Intel meta Microsoft Nintendo which was the first for Nintendo actually right gam standord it I mean we can people people can can Google and go through a list themselves but I I do genuinely think that um every time every time there's an opportunity to raise a new round like

who that money comes from matters quite a bit and in rounds where we lead and we we tend to lead we lead about like 80% of of the deals those rounds are are always I think over subscribed and and Founders could just close the round they you know hopefully select us to lead the round um and then they also already have investors who are interested in filling it up I typically start with a blank sheet with these Founders and say okay you know we sign the term sheet we have four five six weeks to sign the long form in that time why don't we really start again from first principles from scratch and think about what would be the absolute dream setup and forget about whether you know these parties forget about if I know these parties and I know a lot of interesting parties but I also don't know everyone who comes up and we'll just we'll just try and there's sometimes very exotic picks in there when it comes to Angel ideas you know celebr and and involvement to heck

distribution and I think the crazy part is we probably usually get about 70 80% even of of kind of like a a stretch list and then um social proof builds up as you build out this Syndicate and I think it also helps massively in PR and marketing of the round and and just overall attention um but yeah I mean we we help quite a bit on operations and execution obviously an area where we've been helping companies for 20 years like over 200 exits at at at light speed like this is a machine that actually really knows how to drive to to outcomes um marketing and Publishing the same fun we've had I think for light speed gaming we've had with our uh portfolio companies and announcements last year including you know securing the NASDAQ tower for for a whole day of of celebrating the game changers winners and that kind of stuff and then introductions is probably an area also where uh we shine quite a bit for inward we made I think over 700

introductions and 200 are now in the the customer pipeline um with the gardens team we went to Japan and Korea in November to meet with 17 Publishers uh this was at a time where they had just raised the series a so like they needed money the least nevertheless we thought there's never uh an excuse to be had to get closer to um especially also Regional Publishers in in in the region and so you know very handson I uh I walk my butt off uh just as I would expect my my Founders to do it and I think making Founders happy and um just going above and beyond on value at Beyond just Capital that's also truly how you win competitive rounds because I can talk all day long about how great of a pick light speed would be um but if you find yourself in a situation against other for itable VC funds the single

best thing I think you can do is just um make introductions to the companies you already work with and let those Founders speak on your behalf and ideally let them give references that just so off the charts that that they simply don't get those kind of references from anyone else they they should be over the moon and putting their hand in the fire for you and that's that's kind of the model and it works when you do it works when you partner up with two or three per year it it works when you sit on like five or six boards it doesn't work when you invest in 20 or 30 it doesn't work when you sit on 10 boards um and so that's like a big big part of our organizational philosophy and strategy there awesome well I want to switch gears to start talking about the the state of venture capital and specifically gaming VC uh but maybe as a a bridge question um to that one topic that we've talked about offline is the fact that

much of gaming entrepreneurship is not actually that venture investable today um and part of it is due to the market having changed uh part of it is due to the state of the Venture market and kind of who you are as an investor and what your goals are um but I wanted to get your thoughts on you know as we we look at the beginning of 2024 what are the corners of the the gaming world that you think are most Venture investable yeah I um I segment to work for us into four domains and you know played around with the nomenclature even during the bit craft days and I guess as long as you're uh you know M mutually exclusive collectively exhaustive at least to some extent it works um the first one probably not a surprise to folks is Studios um we are actively investing into um those creating new

content in IP I think we do it quite differently from almost all funds pursuing this category um it's it's still a category where really Venture is trying to wrap their head around and that is because it's a very binary um you know investment category by and large even with all the business model Innovations we've seen over the last I guess at this point you know five five plus years um that have helped Venture um warm up to it a little bit more I mean if you look at the sheer amount of funding um that has gone into the space and this the amount of Studios that are funded I think it's aggressively pursued because historically it's the category in gaming that has produced the most um exits um yeah I think I think it's very easy to look to Unity and Roblox it's like The Shining examples but um you know there's more content IP and game

studios that have crossed a$2 and a half billion dollar exit Mark than there is for you know related platforms and technology and even if that's where most that's where most of the revenue in the industry is yeah it's true and so so how do you how do you ignore that as a generalist that's in in its other sectors or domains drawn to something that probably resembles more the platform and Tech Investments and and at least my take is you don't you try you try to catch generational companies in gaming and I think it'd be crazy to assume that that doesn't include also new providers of content and IP and so it is a focus for us but in part due to and I like that uh you know owed to the size of our fund we're working we're working with A7 billion doll fund across some early in growth stage for us to really um turn the needle in terms of uh fund return turns and putting you know putting a um a turn

on the fund you really need to get to outliers TK is get as close as possible to like even a $50 billion valuation right like a um you know7 billion fund if if we want to build and continue to build High performing funds for our LPS you need to put three Forex plus funds together um so let's call that you know roughly 25 billion returned to LPS from this vintage um and you own on average 5 to 10% at point of exit you actually have to get to a Consolidated 250 billion or $500 billion do in aggregate exit value now again that's across sectors and geographies but contributing a 1 billion outcome or $2 billion doll outcome to that it might get you a tab on the back but you're not you know you're not really carrying the firment the fund and so I think on the studios there's a ruthless focus on on what are actually the projects that can become you know

everything that's such a venture cliche you know like the the on IP um life Ops crossplatform forever games and I think you know if if you look and obviously we're not disclosing too much but if you if you if you read through the lines of what believer and Gardens are building it it fits that Vision very well and it lends itself at least to the possibility of an outcome to that scale where I think the overwhelming projects I see do not and it's fine right that that those personally I love playing Indie Games the most I spent actually most of my play if it's not rocket League you know I just played through dredge through all of December like loved it um and if I'm bored if I want to find a new game it's typically an indie game but personal interest and and commercial interest couldn't be further apart here and so that's kind of how we play the the

studio category and then um the other categories interactive platforms and and interactive technology thing on the platform side obviously AI assisted um you know ugc World creation like what is the next Roblox and and how does it look different like that's something we we spend a lot of time thinking about um are there other form factors including XR that might drive new types of social platforms um the new ugc paradigms like even obviously everything that's going on in the Roblox and ufn publisher universe and then interactive technology I mean this this an area where we're spending quite a bit of time um it won't surprise people to hear that Ai and AI applications in gaming and there are many you know from NPCs to generative 2D 3D assets uh moderation and modulation um new forms of 3D asset creation whether that's actually generative or um

closer to reality capture we're we're looking at XR again and we can talk about it a bit maybe later um is one of those areas where maybe there's a consensus opinion that's wrong and maybe this anara where with a bit of a Twist on it there's actually a way to be uh contrarian and right um and then also through our partners at faction we look at web 3 and blockchain implement ations in in gaming and so you know it's a it's a broad range of things um where we will pull the trigger all of these opportunities have one thing that unites them which is do we see a path for this to be a multi-billion Dollar Plus company and it's oftentimes a little bit easier to see that on the studio side takes a lot of hard work and thinking to discern which platforms and Technologies within the life cycle of a fund can lend

themselves to such Venture outcomes but um you know I'm not not pretending that our life's easy too right well let's go ahead and and zoom out a little bit and just look at Venture more holistically for for a moment um and I think it would help the the audience especially those who aren't in the weeds Adventure every day like like you are uh to to kind of start with with a like a just a brief Market overview of where we're at so Morris maybe could you provide a quick view of how Venture markets as a whole shifted in 2023 and whether there's anything notable about the state of venture capital generally today as we we kick off 2024 yeah I so you know I think most people will have followed markets and Market commentary in in 2023 there is all this is also an area where there is a lot of you know consensus discussion and debate around

certain topics like oh valuations are coming down or resetting um oh it's so much harder to raise Venture Capital now and to some of it it's reflected in the graphs right like just just to be fair uh numbers wise I think we're down almost 2third from the peak uh the peak being I think Q4 2021 we've seen about 180 billion in global venture activ this is not just gaming this is across all sectors and um I think the most recent numbers of Q3 are are around 6070 billion dollars so that's that's down significantly right and so we need to be fair here um in terms of valuations I mean I think I I think it's interesting to look at the um public indices the S&P right now as of the time of recording this podcast is actually at an all-time high the NASDAQ is pretty close to it but it's somewhat misleading because it's

carried by just a few stocks you I think like 7 or8 stocks so it also backs the question where where is value actually acre in this world and um who will reap most of the benefits that probably over the next two three five plus years are driven by Innovations around generative AI where strategics and existing large company are already heavily investing for that very reason um but I think and this is this is true I know or I feel strongly about uh in gaming but also think beyond the gaming sector is it's often times not the full story to just look at the graph say oh everything's down 2/3 so it's like three times as hard to get a round done right now the way I would look at it is 2020 and 21

and 22 has seen an influx of startups and also investors you know there's there's been an an never unprecedented amount of new solo investors entering the market like right now I'm tracking around a 100 gaming investors um that's that's generalist specialist and strategics and so then the the question becomes also who should really receive Venture funding and who should really give out Venture funding um in a time of low interest rates it's easy to make things look good and it's easy to portray an early win um but coming back to really arguing from first principles and looking at every project um and maybe also looking at the quality of of some investing professionals who hadn't previously

demonstrated um their capabilities with with a sufficient track record but nevertheless were able to you know bring another 50 million fund or so into the game this is not a gaming specific comment I think we've we've actually specifically seen that outside of gaming um there's a lot of tourist capital and there's a lot of tourist startups um and in gaming I would say those were primarily in in the metaverse and web 3 category this is not a comment commentary against web 3 but I think people will understand or most listeners here will not be surprised to hear that that's probably the area where we saw most non-gaming native Founders dress up something as as gaming related and we never really equipped with the skills the tools the talent to produce what ultimately matters most in gaming which is producing and engaging enduring retaining experience um and everything

else is is second to that so is it harder now to raise Venture Capital are valuations a little depressed yes is it as bad as it looks like when you look at the graphs I think no because quality teams are still out there they're coming to Market they're still demanding attractive valuations um there's still a lot of capital on the fund site that's undeployed that's looking for good opportunities and if you would just draw graphs for top talent and top firms I think the charts would look extremely different is there anything different about the state of venture in gaming uh that maybe is Divergent from the state of venture more broadly across Tech right now yeah I I think it's pretty similar um at least looking at deal counts for example so on from an activity perspective I think we're at about 130 deals a quarter the peak was 400 again you know the peak being being

um Q4 21 q122 so just numbers wise or or or from a bird side perspective it looks very similar to the general VC landscape uh Dynamics and I think this like when you drill one layer down the same Dynamic holds where quality teams still race successful rounds or you know there's a lot of quality teams out there so let me rephrase it I'd say the the best teams still um demand attractive valuations and get their rounds done um the there's a bit of a dynamic on the gaming side where this was in addition to venture Tailwinds also a category that has seen so much interest in the 2020 21 and 22 time frame that there were even over proportion amount of new Venture funds including

bitc which you know was not formed in in 2020 but really scaled massively in 2020 and 21 and now there's a there's a handful of funds out there already that reach this almost you know institutional or like clo close to generalist uh size in gaming with um a billion dollars around a billion dollars plus in assets under management I think they're now fiveish funds or so um that really really weren't on the radar in 2019 as much and you C at that point with with those scaled assets under management to raise new funds and to keep the music going you need to increasingly attract institutional funders so the first funds you typically raise from um you know family and friends family offices uh maybe strategic investors and you know this is a is a pluck for maybe some sympathy with um with investors here that were

also heavily fundraising all the time or most of the time right this is not our Capital that that we're investing so we're exposed to the same market dynamics in in that sense and I think specifically to gaming one thing that I've been thinking about is there are funds now that have many hundred million or a billion under management they need to attract institutional investors institutional investors look really at one thing and one thing only which is performance of historical returns and you know stability of returns like really what's your proven ability to to generate outcomes for LPS and there's an additional difficulty here for gaming funds on top of all the the macro things that are going on where the more game Studio heavy they are the more projects they'll be exposed to that are effectively in incubation for let's say 3 to four years at least on on the AAA PC console side of things and so it's

very it's very hard to um to show any crazy outliers on that front because even if you raise the next round and maybe the following round you're still not public um you may have recorded a 3X 5x maybe even a 10x markup but you're compared to funds who are investing in SAS biotech like areas where within 3 to four years a company can actually completely knock it out of the Park Drive massive multiples um and you know it's a very it's a very um outlier driven game like those can really Drive fund returns favorably and by over overweighing on Studios you almost exclude yourself from the ability to have these outliers in in in the portfolio which is by Design to some extent but it it does make fundraising I think a little bit harder if only those funds had another year or two to kind of like show where these Studios go and can go post launch

um but yeah then on the other hand I don't think anyone really expected to to be a 500 million or a billion fund you know two years three years four years in so it's you have to choose your battles yeah well let's go ahead and play forward what might happen to certain corners of the Venture market and gaming this year then and maybe we can start on like the the earliest stage corner of the market so preed and Seed uh which of course as you mentioned like everything has seen a decrease in the number of deals and the valuation of these deals over the past couple years um what do you think is going to happen in 2024 is it going to rebound Hold Steady any guesses yeah I I would say it's probably gonna be similar to what we've seen in Q3 Q4 um if again we're using the graphs as a as an indicator we're basically stabilizing right now at this new normal

which is 2third of the peak so I I don't see any strong indicator for why q1 Q2 would look very different from Q3 or Q4 this year or last year um I think Studios because I think folks are waking up to the realization that maybe too many studios had seen fund over the last three years might probably scale down a little bit on the early stage side and um we'll see more things that look a little bit more similar to what has historically been a focus Adventure which is platforms and technology and by the way maybe these Studios will also find a new home and increased publishing activity or publisher investing activity or go back to the traditional publisher model because again Venture Venture looks for um Investments that have a small chance to be a billion or ideally

multi-billion dollar companies I I just don't think that's the right approach for a lot of great ideas that studio Founders have and so maybe we see a bit of a natural return to um to the publisher funded model for those um that'll probably be my my biggest prediction is that there's going to be a shift from Studios to platforms and and Tech adjacent you know gaming adjacent platforms and Tech yeah that makes sense to me um I I buy that line of reasoning uh but how about the the later stage side of venture and this is of course an area that light speed plays heavily into as well given the the amount of money you're investing and generating as you needing to generate as you mentioned 250 500 billion dollars in and in market cap at exit in a sense you have to put pretty meaningful amounts of money in but as we've seen over the past year or so uh later stage markets kind

of across the board have dried up as there have been those valuation resets and uh you know investors and and companies not wanting to to you know create rounds that are heavily dilutive or blow up cap tables from from the past and just all the messiness that that comes with that and that naturally takes time to to to work itself out but how do you think that side of venture and gaming is going to play out in 2024 yeah I mean so just just maybe on a um on a uh light speed firm white level among our peers we were actually the least active growth investors in 21 this is um looking directly at some data we pulled from crunch base here um so we we've we've been holding back quite a bit in what see I I can take credit for that because I wasn't actually part of light speed at the time so maybe that's

an important caveat here but the team was holding back pretty well on um what looked like a time of of frothy multiples and we've actually been the most active growth investor this is you know investing in companies north of a billion dollar uh valuation in 2023 so we I think we played the that um landscape pretty nicely um but it's growth is a is a big big Focus area for us as a firm has been in 23 will be in 24 I think personally speaking if if there's one thing I would point to um where I'm adjusting also um my focus and where I'm looking it would be from you know early stage or at least uh pre-product Market fit to um to post launch post product Market fit opportunities in gaming they can still be on the early stage site um and then

then specifically growth opportunities in gaming you know this this definitely an area where will will will look a lot more heavily this year also for gaming and interactive media gotcha a year ago I asked you what you're what advice you're giving to teams who may have a harder time raising additional Capital due to um you know the valuations and expectations resetting that we were alluding to and at the time we talked about for instance being more conservative with burn rates um and making money last deeper into the future and and such uh what what advice are you giving to these teams today is it similar to what it was a year ago or has it evolved a bit what what are you advising these teams on yeah I don't think it's changed too much I I I guess in hindsight the advice we covered 12 months ago was probably pretty spoton for how 3 unfolded I I really think it's important

and this probably the the most important thing is to really you know not focus too heavily on on delution um and making sure to get get sufficient capital in to last at least two years this is how we've done our rounds um and it's probably easy for someone to look at the deals we've done and say like oh yeah but those those companies also you know they raise a lot of money they are able to raise at a high valuation yes but also I think in all those cases they either took more delusion than people would maybe expect just looking at the deals um or uh in the case of inworld it was a preempted round where the company didn't even need the money necessarily um and so you know we're we're kind of like following our own advice or are are hoping to find founders with an open ear

for the fact that I think this will continue to be a market where making sure you really have time to build hit the next Milestone come out of the gate strong and and and return to the capital markets and ask people for money and honestly like it's really hard to do in a 12 months time frame um and it's better to do in a 24 months time time frame now obviously a lot of these companies if they follow their plan they have something great to show within 12 months within 18 months and so they may still tap the capital markets then but having that extra buffer and in some cases like what are you really giving up you know oftentimes I see Founders negotiate to death about even even five percentage points of um delusion and I think in the grand scheme of things if if it gets you a little bit closer to building a generational company then that might be the wrong

thing to focus on in some of these instances all right well let's let's go ahead and talk about the future as we kind of near the the final segment of our of our episode um and so we've we've kind of hit on this in some ways but gaming VC has steadily been evolving for at least as long as I've been paying attention the past five years or so and I'm sure well before that um to the industry was was much more On The Rise um and it still continues to change right we talked about the inry of generalist firms you've talked about how some of the more gaming specific firms that started are have now raised tremendous capital or almost more generalists themselves um we've seen maybe Publishers so show some greater signs of being more Venture investors and kind of moving beyond just the publishing um model and of course AI the chat around Ai and better tooling

is at least creating conversation around um teams becoming more efficient and what that means for the money that they have to raise in order to create the types of games that they want and so my question to you is we've obviously seen the market change quite a lot over the past five years but as you look to the next three to five years of gaming Venture what are the main ways that you think that the industry may change yeah I would say there's probably going to be less funds at that point um in three to five years pursuing the sector I think we'll have at that point less specialist funds around um on the flip side some of the some of today's specialist funds will have grown further and have have established themselves as um maybe also somewhat gener list funds that go well beyond just gaming or game studios and and go into platforms and Technology

more aggressively and and more broadly like similar to what we're we're focused on um I think we'll see less Studio investing at that point as as discussed previously a lot of them will go back to the um traditional publisher model I think it's also important to be intellectually honest about gaming as a VC category and and you know just be open about the fact that we still are um looking to just get that first feedback loop in over probably the next 18 months because this is um this is a domain where in Earnest Venture investing kind of started around late 2019 2020 um Specialists only and and so you know we're the jury is not out uh especially on Studios I think platforms and Tech looks it Rhymes enough with traditional Adventure that I don't see why that

should not work out obviously you need to pick the right ones and and you need to be extremely sharp about it but um I think Studio investing the jurry is still out it feels right to me it feels super exciting to me um I always probably push more on it than than I should um but that's Al it's grounded on a firm belief that that there's great returns and great companies to be built here as evidenced in the past um I think those those are the main themes um I have no doubt that as a category just looking at the underlying Tailwinds um societal Tailwinds technological Tailwinds gaming is only going to grow I'd be really surprised to see like an industry decline over the next three to five years um but as we've touched upon earlier it's always a big question of where where the additional value cruise and whether that's existing um gaming companies strategics

incumbents or if we continue to see um early stage startups win and Michael Chow the CEO of believer he made this great point I think during game changers and also in the in the slush recording and I I firmly believe this too because otherwise I should pack my stuff and and probably not do Venture investing he said especially in a time where there's a lot of Shifting um and we are in the middle of a platform shift I would call generative AI a platform shift I would actually put it on the same uh pedestal as as I would put the emergence of the internet the introduction of the mobile phone and now it's it's it's this wave of generative AI it's going to be a time of a lot of change in the next uh three to five years and I think a lot of the scaled companies and strategics on the gaming side somewhat different from technology

more broadly where the big companies are actually investing heavily in generative AI I get a bit of an impression that on on the gaming side there's a lot of skepticism still and um kind of like careful exploration of these new technologies and they're really kind of playing not to lose um while the startups are playing to win because that's all they have going for them and I think it's going to create a dynamic where especially in gaming and interactive media we actually see a lot of value shift to to newcomers versus um existing companies and so that's an exciting playground and an exciting playing field I think for anyone who's starting up in that domain and funding in that domain um well let's seg away a bit to how you're thinking as an investor these days and where you're looking um what what areas of the market are you more interested in this year year um than you have been in the past is it mainly just AI or are there other um other areas

catching your interest as well yep so I would say big focus is growth stage and post product Market Fit versus pre-launch um and I would also say the other big Focus Shift is continuing to do Studios extremely selectively we'll probably do one Studio maybe two Studio deals in in in 24 uh By Design similar to actually what we did last year what we did um where we did two Studio deals and the there's so many interesting opportunities I think in in generative AI applications both on the developer workflow side but actually more interestingly on the um you know what I call previously impossible and new user experiences we wrote about this quite extensively also in the the thought piece we put out middle of last year um where we where we created a market map of the generative AI landscape but also

shared a little bit more broadly how we are thinking about that space and in general in previous platform shifts like the introduction of the internet like the introduction of the mobile phone the companies that really knock it out of the park are not the ones that incrementally improve um make things a little bit faster cheaper better but create uh experiences and build from the ground round up for new paradigms and really change the face of whatever IND industry it is they're operating and and so I think inworld is a great example for that versus um some of the more uh developer focused applications um helping them create 2D assets 3D assets for example um we have a big Focus this year on interactive media applications and platforms that resemble social networks um that can really those are really the companies that can reach massive scale within a a fund cycle I'm

not just talking about a Discord or a Roblox here but in general you know consumer and social media breakouts uh which is that's probably the number one consumer category or outlier category in in terms of fund returners out there like what how is that changing what are what are some picks in there where um it's either a gaming born Innovation or gaming influences uh what what these social media applications and platforms look like over the next few years I'm personally very excited about Innovations we see in 3d and um I love those innovations that are born in gaming but can also have vertical use cases if you look at Nvidia for example right like this is a company that originated because it was the most powerful computational engine for video games which really you know started as a video game company GPU company and and now serves all these massive uh

verticles well beyond its original focus in gaming became the backbone of AI became the backbone of of blockchain also um so what are what are those innovations that are either Hardware but probably more for our software Innovations um that that that can have the same effect and um this includes novel game I would put in World in that category as well I think this is a the the leading AI native or AI first game engine at at this point really um certainly include generative 3D in there but also I think reality capture is still really interesting Nerf volumetric video and that kind of stuff and then on um I teased a little bit but XR is an interesting area so maybe we just talk a bit about that I think during bit craft we're leaning in um uh still very excited about the the one XR investment

I I actually made during that time which is trip um but I think especially for a fund of our size and then also looking at the install based projections that that were a little bit underwhelming to be honest over the last you know 18 months or so post Co Peak it's really hard to make a case for there being a sufficient installer basis and specifically active install base to hit those multi-billion dollar outcomes um and I think I think to some extent AI might be the answer here as well and maybe maybe when we talk about XR and sensing devices were we'd been overly focused on um new new screens and new visual input and and we'll see like maybe maybe Apple actually breaks through um the the the mold and you know the Vision Pro is about to come out and so maybe that's

going to drive a real change in user Behavior but also they're only going to produce so many units this this year right so even even in a very aggressive U model they're not going to add a lot of uh projected install base this year certainly I think only up to 400,000 or so and that's mostly Enterprise yeah yeah it's it's Enterprise heavy um but you know compare that to PC console or definitely mobile install bases it's just still one or two orders of magnitude off in terms of active install base but what if we're shifting thinking to you know augmented reality maybe being one where um we rely on sensing devices and we've seen like some interesting ones pop up this year like the Humane pin for example uh I think meta Rayband glasses are super interesting and not talked about enough

um and if you combine that with our advances in generative Ai and then also the ability to bring a lot of these models on device I think that's a super interesting um that's a super interesting and physically very viable outlook for the near term that that will actually change consumer behavior and consumer experiences quite a bit and it it doesn't fall victim to the ongoing um hard work that still needs to be done on on Optics um to some extent like sheer physical limitations for making augmented reality glasses work but maybe they don't maybe they don't need that to be extremely valuable devices over the next couple of years and so I don't know if you'd call that XR or not or or or sensing devices enabled by on device generative AI but I

think that's a super interesting area it's also a good example for one where you know calling this thing light speed gaming but but really well I I'm I'm starting calling it light speeded gaming and interactive media now people hadn't noticed and so there's a and then this is also a great example where we can then draw on the the rich expertise of um our Enterprise investors who've been looking at um you know computer vision Ai and a lot of these these fields that's that then come together with maybe our expertise in in gaming and interactive media and have been investing in that space not just for the last year since it's been hot but like in some cases five years 10 years yeah well that's a really exciting answer and I'm I'm super curious uh to see where all that technology goes and how gaming fits into it I mean it's definitely a wave that's much bigger than gaming in a lot of ways but uh so good to hear that you're kind of putting your your

generalist hat on to some degree um when looking at that um really quickly I wanted to hit back on one of the first things that you said and and the answer about um what you're looking at that's different and you said um less uh like pre-launch companies and more companies that have hit product Market fit to some degree can you explain why you're you're making that change right now yeah I mean I think it's this is partly also a micro comment and not necessarily A you know a perspective for talk track from a macro perspective um I think we just have a a whole lot of really exciting pre-launch opportunities in the fund I think it's a little bit owed to us starting to invest in a platform shift where value can just develop a lot faster and so as a as a firm we've made a lot of interesting bets not just in gaming um in

2023 and I think that's all happened for the right reasons and some of them are actually already bearing quite substantial uh fruit um like mistr for example yeah so we just need to be careful I think as investors are like as from a portfolio composition perspective like I think will we ever down an exceptional opportunity when it presents themselves when it pre pre presents itself the answer is easy and the answer is no but we can also we can just choose how we um spend our time as investors and where we're looking and where we're focusing or where we're spending that extra third or quarter and whether that's uh whether that's spent on for example organizing an event to bring pre-launch Founders together or whether that's an event EV or initiative um that really scans the the growth deal landscape and makes a

concerted effort to kind of get in touch with every interesting company above a certain threshold so ultimately everything in Venture comes down to what do we find that we're truly excited about and so it's it's also sometimes you know big big big danger or trap in Venture investing from my perspective if I've learned one thing or a couple things over the last four years of doing this you should never have your thesis and then try and find the best team pursuing this thesis if that teams and if that team ends up being like a you know B+ team B+ pretty good but B+ probably not going to build you A5 billion doll plus company um and it helps to have a prepared mind on a lot of areas but it it really mostly helps you because when you see something that's truly extraordinary in terms of thesis and team behind it you're faster

to make a decision or you're you just have that institutional capacity to pull the trigger on something even when it looks a little bit surprising or even when it looks a little bit adjacent to whatever you might have been cooking up in your big like strategy plan for 2024 and so that's it's kind of like how I look at it the the best the best ideas Founders will have them not not VCS I think but VCS VCS need to be quick and um prepared when and also they need to they need to do the work to be the pick uh because those are probably going to be competitive France yeah uh well the last reflective question I was going to ask you was how have you improved as an investor over the past couple of years and how are you going to apply those learnings to to Future deals maybe you just partially answer that question but is there anything else you quickly want to to add to that well I'll just say like one one

thing really quick is it's really super interesting and an honor to work alongside investors who've been doing it in some cases for actually over 20 years um at light speed and to just see how much time is spent on building processes and building Frameworks for really high quality and repeatable decision making and how that translates into how we organize ourselves and how we spend our time it's a lot of fun it can feel overwhelming at times too I I I don't think I've never worked as hard and I like to think I've never worked as smart as I have in 2023 and so to see what what a what a great environment with people who drop everything if you say this matters and come and join you on a deal but who also push you at all times and where you never feel whatever you do is perfect

and you know you'll always get like two three new ways of thinking or suggestions layered on what you think was already great um I enjoy that quite a bit um just from a personal growth perspective and so yeah little little pluck for light speed it's a pretty epic place to work at so sounds like it we final question um from me and we can we can wrap up um if anyone wants to to reach out to you or the team Morts where is the best place to find you yeah it's very simple um we have uh we have a inbound form on the light speed Gaming website and so despite what people might think I actually read all that stuff and um we have we have our emails on our website too so people can send me individual emails I'll really try and respond to as much as possible which is a major majority of things um that that comes in I definitely look at 100% um and I scan everything personally that

comes in so people people can rest assured that I will see it yeah well even even if you're not looking to reach out go check out the website it's super slick it makes me jealous what thinking about my own website too um but anyways morit um thank you as always for for hopping on it's always a fun time talking to you I always feel like I walk away smarter than than when we started so um best wishes to you and the whole light speed team in 2024 and thanks again thank you if you enjoyed today's episode whether on YouTube or your favorite podcast app make sure to like subscribe comment or give a five-star review and if you want to reach out or provide feedback shoot us a note at podcast nov. or find us on Twitter and Linkedin plus if you want to learn more about what navic has to offer make sure to check out our website

www.nic.edu and advisory Services again that is www.nic.edu [Music]