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Bitkraft Ventures launches third gaming fund with $275M to invest

Bitkraft Ventures has raised $275 million for a third fund for early-stage investments in gaming and interactive media companies.

Bitkraft Venture Fund 3 succeeds the company’s two prior early stage equity venture funds. Bitkraft Venture Fund 3 will continue to invest in studios, platforms, and technology globally within the gaming and interactive media space at the seed and Series A stages.

Once closed, this fund will bring Bitkraft Ventures’ total assets under management to over $1 billion. It is the second game VC fund in a week to be announced, in addition to the $35 million Laton Ventures.

Grounded in its vision of synthetic reality, Bitkraft believes in the transformative power of digital experiences, shaping the future of entertainment. With a core belief that humanity is increasingly immersing itself in digital realms, Bitkraft recognizes game companies as central to this development, driving the evolution of digital entertainment.

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Founded by seasoned entrepreneurs and builders in the games ecosystem, Bitkraft has grown from a small team to over 25 professionals distributed globally, with a presence in key markets in Asia, Africa, Europe, and North America.

Jens Hilgers, founding general partner at Bitkraft, said in an interview with GamesBeat that he is pleased with the quality of the team and culture that Bitkraft has created for investing in early stage companies.

“What I think we’re particularly proud of with Bitkraft is that we’ve built a fantastic culture that resonates well with founders because we are straightforward, honest people that have been in the trenches,” Hilgers said. “That’s probably the thing I’m most excited about with Bitkraft. Culture is very easy to destroy. But it takes a very long time to build. And in our business, trust, integrity and being good people, besides being good investors, and making the right decision fundamentally, is incredibly important.”

Jens Hilgers is founding general partner of Bitkraft Ventures.

“At Bitkraft Ventures, we are as committed to — and optimistic about — the future of the games industry as we were from the inception of Bitkraft in 2016. We’ve seen continued growth across all major game platforms, in metrics including user engagement, activity levels, and monetization,” said Hilgers. “Newly formed game studios have seen substantial break out successes over the last years, and the advent of AI in game production further benefits new upstarts in the space.”

Hilgers added, “Additionally, we have witnessed increased interest in game content beyond incumbents from media and tech giants, as well as private equity firms entering the landscape of potential buyers further expanding the exit landscape.”

In the years of Bitkraft’s first fund, gaming was “established as an asset class” that investors could consider for growth opportunities, he said.

Bitkraft Ventures has strategically invested in various stages in a global roster of well-known companies including Frost Giant, a studio dedicated to bringing back real-time strategy; Anzu, an in-game advertising platform revolutionizing the gaming industry; Carry1st, a mobile gaming platform focused on serving the African market; InWorld, a social platform merging the digital and physical worlds; Voicemod, a voice modulation software empowering content creators; Immutable, the creators of the popular blockchain game Gods Unchained; and Karate Combat, an innovative martial arts league bringing high-octane combat sports to global audiences.

Bitkraft Ventures’ funds exhibited noteworthy performance, as documented by the Cambridge Associates Benchmarking Data Report 2023. Bitkraft’s inaugural Web 3 fund achieved a top 5% ranking, while its second Venture Fund secured a position in the top 8% of all funds based on Internal Rate of Return (IRR).

Overall, Bitkraft operates six venture funds with 130 portfolio companies.

The challenge of raising the thrid fund

The new Bitkraft Ventures fund.
The new Bitkraft Ventures fund.

Hilgers said that raising the first fund was difficult because it was one of the earliest in the new wave of game venture capital. Investors had to get comfortable with the game business and understand the talent available. Hilgers, despite having run a big game/esports company, also had to prove that he and his team could make solid investments in game startups.

But aside from that, this third fund was “certainly the most difficult one to get on the ground. There’s no question about it. The reasons for the difficulty and the challenges were much different though from the first fund.”

Hilger said, “Now, we’ve come to a point where we can prove to people we’re doing something right here. We’ve been around for quite some time, we’ve built ourselves a great name and a great team in particular, which is so easy to see. And now it’s the market that makes it difficult, but not only for us for everybody. The fact that startups suffer, and access to capital for startups is so difficult is because it is more difficult for funds to acquire capital from limited partners.”

Capital is more expensive than it was before, with high interest rates and inflation. Investors now consider it normal to set aside money to invest in U.S. bonds earning 5% or 6% returns.

But the good part of the process was that it wasn’t hard to get investors excited about the potential of games, as the industry has proven it can experience enormous growth.

“I think I think people clearly see what’s going on with games,” he said. “High interest rates certainly have opened up opportunities for investments for allocations that weren’t there before, then the risk-reward profile with venture as an asset class is a different one now.”

Mobile gaming was held back by Apple’s decision to focus on user privacy over targeted ads, which cratered easy user acquisition for games.

Games must also compete with sectors like AI for investor money, though of course games will likely be one of the sectors that benefits from the efficiency and productivity games that come from AI, Hilgers said. Games also looks relatively small as a sector at around $189 billion in revenues in 2024, compared to the markets controlled by the larger tech giants. Hilgers thinks the opportunities for growth in games are still huge.

The good news

Inworld AI is valued at $500 million in its latest funding round.
Inworld AI is valued at $500 million in its latest funding round.

The good news, from Hilger’s perspective, is that the long period of layoffs at game companies during the past year could be coming to an end. Hilger believes that game companies have positioned themselves to be more efficient and can start growing again once the market conditions improve. He believes that companies will have to start hiring again once at some point. Certainly, one of the most troubled game companies, Embracer Group, announced it had stopped getting rid of studios after it agreed to sell Gearbox to Take-Two Interactive for $460 million.

Of the various tailwinds now helping games, Hilger doesn’t think it’s just one thing; rather, it’s multiple tailwinds like growth in emerging markets like Brazil, India, Southeast Asia, Africa and the Middle East. For instance, much of Africa’s population is under 14, and those kids growing up are heavy mobile gamers.

The user privacy trend has played out, and game companies have learned to adapt. Hilgers thinks that mobile gaming, as a result, will once again be one of the hot sectors to watch. Handhelds like the Switch and Steam Deck are also empowering gamers to find time for games while on the run. With PCs, consoles and mobile, “you have three platforms that allow you to build billion-dollar businesses,” Hilgers said.

Augmented reality and virtual reality are also growing at solid rates, he said. Subscriptions on platforms like Xbox, Apple Arcade and Netflix are giving game companies new options.

“With AI, we see a bigger amount of democratization and production costs coming down, like accessibility for new founders who like building quality intellectual property is higher than ever before,” Hilgers said. “The industry had one or two tough years after COVID. I think we’ll see the uptick again.”

Exits for game companies

Xbox is buying Activision Blizzard.
Xbox owns Activision Blizzard.

Despite the turmoil, or perhaps because of it, the exit activity for game companies has stayed fairly robust in the last few years, Hilgers said. A decade ago, it was just the big game publishers buying companies. But now the big platforms like Microsoft, Amazon and Meta are in the market.

Private equity firms have moved into the the game market, and that means the transactions are likely to pick up. Game VCs will want to sell to bigger firms, and the initial public offering market is starting to open again with the IPO of Reddit and others.

“The sentiment is favorable and beneficial now for potential listings again. And lastly, what I what I find interesting and might be overlooked at some point in time is that the landscape of the buyers of game companies is spread out in so many different regional geographic pockets around the world right now,” Hilgers said. “You have public games companies in Korea. What a great country for games companies. You look at the Nordic countries, you look at Poland, even you look at the U.S. You look at Canada, you look at the U.K. There are so many, like pools of public companies in the game space right now.”

The Middle East

ESL FaceIt is owned by Saudi Arabia's Savvy Gaming Group.
ESL FaceIt is owned by Saudi Arabia’s Savvy Gaming Group.

Hilgers built his network in one of the hot spots, the Middle East, a few years ago as he was selling his esports/gaming firm ESL to Savvy Gaming Group, which is funded by the Saudi Arabia Public Investment Fund.

“The great news isthat the people there have a true passion for video games,” Hilgers said. “It certainly comes from economic considerations, because they see that their population will likely be very excited about digital entertainment. It comes from a place of passion, particularly in Saudi Arabia.”

Hilgers acknowledged that the Middle East is a source of funding for the new Bitkraft fund. But the funding comes from a variety of regions around the world, he said.

The tactical focus of the third fund

Scopely made Monopoly Go under license from Hasbro.
Scopely made Monopoly Go under license from Hasbro.

Hilgers clarified that the company has six funds with assets under management now, including two funds that are dedicated to Web3 games and cryptocurrency. Through the third Bitkraft Fund, Hilgers’ team will likely invest in Series A investments in video games and direct media companies.

“We’re very much on the same strategy that we had before, strategically. Strategically means we’re investing globally. We invest in video game studios, we invest in platforms and technology, and in what we call apply game mechanics, which is a bit like gamification,” Hilgers said. “The investment thesis didn’t change. What changes is tactics here or there.”

A few years ago, India wasn’t on the radar as much. Now it clearly is, he said. AI is also a big part of game investing as well. While there is growth in AR/VR, Hilgers doesn’t think he will deploy as much money three at the moment. But he is bullish on mobile games again as the “walled gardens” come down with the Digital Markets Act of the European Union. Mobile game studios as a result will be subject to lower royalty fees and have to share less of their revenues with platform owners.

On top of that, there’s just more room for innovation in gaming on mobile, as games like Monopoly Go suggest. So Bitkraft will prioritize investments in mobile content.

Original IP and new talent

Palworld creator Pocket Pair has teamed up with Tencent Cloud.
Palworld creator Pocket Pair has teamed up with Tencent Cloud.

Before the game funds started to come along, game publishers helped fund a lot of original game titles. But the big triple-A companies have retreated into franchises that been around for a long time. Retro games and remakes have also taken off.

That means that the job of the game VCs is to invest in game startups that are working on original intellectual properties, Hilgers said.

“Once Bitkraft came to market, we were among the first ones to globally invest in the video game space at large,” Hilgers said. “Venture capital for gaming wasn’t really a big thing.”

The kind of talent available to start companies and raise money is also much better than it has been in the past, he said. And that talent opens doors to invest in a variety of different sectors, depending on where that talent wants to focus. By around 2020 and 2021, Hilgers noticed a big step up in the quality of founders who were ready to start companies, with many multi-startup CEOs available.

“Those founders are now a part of the entire industry flywheel as well, hopefully stimulating innovation, creating greater products, and allowing great games companies to acquire some of these founders for a price,” he said.

Winners of the Gam3 Award for top Web3 games.
Winners of the Gam3 Award for top Web3 games.

Hilgers has seen some decline in enthusiasm for the term “metaverse,” which had its moment during the pandemic when people had to consider communicating virtually rather than in person.

“It was just very easy to see how an ever larger part of humanity spends an ever larger amount of time in simulations or digital worlds during COVID,” he said. “For that reason, that hype was there. I think the concept of the metaverse and a lot of the considerations behind it all have a lot of substance, and we see them increasingly around ourselves. But it was certainly a hype word that was attached to things that ultimately had little to do with what the metaverse actually entails.”

As for Web3, he said it is founded on a revolutionary technology that enables a digital first world and digital asset ownership. That foundational technology is advancing quickly, with gains in things such as transaction speed and lower fees. And with the recovery of Bitcoin prices, there’s a bull market again.

“We have as much as conviction as we ever had,” he said, in terms of Web3 gaming.

The AI effect

GGWP gives community moderators a dashboard for monitoring players.
GGWP gives community moderators a dashboard for monitoring players.

As for the layoffs, some companies may have hired too much during the pandemic and now they have had to correct that as growth slowed across gaming. In that sense, it isn’t too much different from the tech companies that saw their own wave of layoffs.

“Of course, we will continue to grow as an industry. We will continue to serve more players with better entertainment experiences,” Hilgers said. “We will face the challenge” of AI, and how it can be worked into the production process to make development more efficient.

Hilgers said there are many ways to look at AI. It can make operations and production easier, reducing the capital required and improving time to market. AI can help reduce risk if it means that teams can iterate faster. AI may enable games to scale up to much larger numbers of players. AI can be used by community managers to fight toxicity and improve community response.

And then companies like Inworld AI will change the way we interact with games based on dynamic character or map generation, Hilgers said.

“That’s a category of people using AI to bring forward truly new experiences, not just making it more efficient or faster,” he said.

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