eSports- The Dark Horse for Indian VC’s in 2019 and Beyond?

I have been following the eSports sector and the venture deals happening in this space with curiosity mixed with excitement over the past few months especially for the potential it holds for India. To briefly explain, eSports is a multiplayer video game played competitively for spectators, typically by professional gamers. It is a subset of the larger gaming sector which also includes virtual sports, e-games, online games, fantasy sports etc.

Globally the gaming industry generated $135bn in revenue during 2018 with eSports contributing $900m. That figure is expected to ramp up to $1.5bn by 2020 with a mind boggling 600m active viewers worldwide. Top it with a rapidly growing market (growth of 40% YoY for last few years) and fanatic user engagement (an average gamer spends 6+ hours per week engaged with a game) and you have a tantalizing mix for early stage investors to win big. What adds icing to the cake is that the users are still not fully monetized.

According to a report by NewZoo while the traditional sports leagues monetizes fans at about $15 per person, eSports currently does at $3 per person literally throwing open the door for companies to innovate on the model and capture value. Invariably funding has shot up by 1,000%+ over the last five years. CrunchBase data reports organized professional competitive video gaming sector in the US has seen 34 deals with a total value of $150m in 2017 compared to a paltry 6 deals with $12m in 2013.

A typical eSports tournament!

According to Dallas-based Complexity Gaming CEO Founder Jason Lake, ‘“The entire ecosystem has exploded in the past few years, it’s one of the most compelling cutting-edge places you can be.” The typical professional video gamer is between 18–23 years old, has a super religious fan following and would probably scoff remembering his/ her childhood where parents might have told that video games will never make you successful in life. A gamer’s main revenue streams include money from sponsorships, streaming and competing in high level tournaments devoured by an audience base of (wait for it) 50,000+ fans.

Sample this, the International Dota 2 Championship in Aug 2017 had a prize pool of $25m+ with colleges and universities giving scholarships to varsity video game players (Wow!). eSports is also evolving to function like other professional sports leagues and going by its popularity has a high chance to beat the viewership records (which it has already started doing!) on other traditional leagues such as for football, basketball or cricket. To add a few more snippets, the viewership for World Finals of League of Legends in 2016 (43m) exceeded the NBA Finals game 7 (31m). In July 2018, the Overwatch League Grand Finals took place in Brooklyn, New York which was the largest ever eSports event to happen. The 20,000-seater stadium was sold out in two weeks! Streaming has also added fuel to the fire and enabled eSports to emerge among the masses buoyed by on-demand platforms such as Twitch (more people watch it everyday than CNN) and YouTube.

By 2022 Goldman Sachs predicts that total eSports monetization will become $3bn. Widespread viewership will catalyze media and brands to follow the consumers and it might be the birth of a brand-new sports category! There are speculations that eSports is being considered for an official Olympic sport. Apparently, Paris 2024 Olympic organizers are ‘deep in talks’ to include eSports as a demonstration sport and competitive video gaming will be a medal event at the 2022 Asian Games!

Top Games in eSports; Source:IlnaClub

All these trends invariably point to the bullishness among the investors for this sector. According to an analysis by Stephen Hays (Founder, Deep Space Ventures) around 420 VC’s, angels, family offices and strategic arms of companies have had at least 1 investment in esports often erring beyond their investment thesis due to the lure of this sector. Some of the esteemed ones such as Accel Partners ( Smash, Discord), Bessemer VP (Twitch, Team Solo Mid), Sequoia Capital (Mobile Premier League, Skillz) already have 2+ investments. Tencent Holdings (a Chinese multinational investment holding conglomerate) though is the ‘Softbank’ of the sector having pumped $630m in Doyu and $461m in Huya (both being Chinese online video platforms).

Investments on a steady climb; Source:Crunchbase

So while the sector is creating much noise and fanfare globally, let’s shift gears and talk about the Indian market. Surprising it might be but in 2017, India was among the top 5 countries in online mobile gaming (along with US, Russia, China and Brazil- Start of BRUCI anyone?) According to a recent KPMG-Google report the Indian online gaming market is expected to add 200m gamers to become a $1bn opportunity by 2021 from $300m in 2018.

Readers will be fully aware that the entry of Jio has fundamentally altered the telecom market (not delving into the politics of the issue), increased internet penetration and given data to millions. With the next wave of increased data consumption underway (from 1.4GB/person to 7GB/ person as per KPMG) and bolstering smartphone sales online streaming of eSports will have a natural advantage. A young population, engaged online users and growing disposable income leading to improved paying capacity are expected to be the other growth drivers. Online Battle Arena games such as DOTA2, League of Legends and the more recent PUBG and Clash Royale are already quite a hit with gamers contributing to the popularity of eSports. Jio in fact is entering eSports and rapidly building its team. It has hired ex-Riots Games India boss Anurag Khurana as its eSports head and recently premiered the League of Legends World Championship 2018 exclusively on JioTV.

Players in Action; Source: BBC

In India the funding landscape for Gaming sector is in transformation as expected. Last five years has seen 48 deals with a total value of $350m out of which 16 deals with total value of $300m have happened since 2017 signifying that the sector is slowly heating up. 2018 witnessed the biggest investment till date in this space in India when Tencent Holdings (can’t miss the India wave!) invested $100m in Dream 11 Fantasy (fantasy sports platform of 20m users) with Multiples PE and Kalaari Capital being co investors. 2019 has already witnessed the first investment in Rooter Sports (an online sports social gaming platform) by Anthill Ventures, Intex Technologies and Venture Catalysts. eSports market is also witnessing deals from seed to bigger sizes. In Nov 2018, Gaming Monk (eSports gaming company) raised $540,000 from Japan based Incubate Fund, Stellaris VP, Advant Edge and Rajan Anandan. In Mar 2018, Mobile Premier League raised $30m from Go-Ventures, investment arm of the Indonesian tech-startup Go-Jek. Gaming is particularly exciting for investors due to its ability to deliver rapid returns with big exits which naturally lends gravitas to this area. Superb returns have already been demonstrated previously by Matrix Partners 22x exit from Ace2Three and Westbridge Capital 40x return (neat!) from Nazara Games (partial).

Some of the prominent players in the gaming market in India include Nazara Technologies, 99Games, Octro (Teen Patti, Indian Rummy, Tambola Housie), Games2Win (brilliant podcast by Bertelsmann India with the founder — aside) and NODWIN Gaming. Nazara has plans to invest $20m to develop the eSports ecosystem over the next 5 years and has already invested in 4 mobile gaming companies with an eye on India, South east Asia and Africa market. It is also geared up to be the first Indian gaming company en route to an IPO to raise $150m. NODWIN has taken a lead in building relations with global game publishers and platforms with market leaders such as ESL and Valve Corp. All these players are silently creating the ecosystem and building stakeholder partnerships to thrive as the market is on the cusp of explosion.

As it happens with any sector in rapid evolution there will be challenges which determine the growth intensity for the sector in India. Primarily I foresee erratic internet and streaming speeds, the reluctant sponsors (who might adopt a wait and watch strategy to see who bites the bait first), the reaction of early adopters to eSports, improving average revenue per user (a perennial problem with Indian consumers!) and Govt. regulations on online gaming (no dedicated laws yet) to be the major risks/ challenges.

Moreover, there will also be a lot of power dynamics tuning, stakeholder alignment and coordination required and entry of newer players (broadcast platforms, advertisers, gamers) which happens as the ecosystem evolves. It will be interesting to see the dynamics on how leagues are formed and their negotiating power with broadcasters and advertisers, the ability of early stakeholders such as gaming companies, console and broadcast platforms (Twitch, YouTube) to retain pole position and the elasticity of large consumer brands to shift advertising dollars to eSports platforms.

I am hopeful for the first Indian unicorn to emerge from the gaming space as early as next year (Dream 11, Nazara- I am looking at you!). Gaming has remained at the fringes for quite long in India but now backed with improving data infrastructure, rapidly developing local ecosystem, increased interest of bigger players (Reliance, Paytm) its moment to truly rise and shine is here. All in all exciting times for the industry and as the tagline of the currently viral PUBG states, ‘The Battle Rages On!’ for the players in the ecosystem.

PUBG Getting it eSports Ready!

For readers interested to deep dive into the gaming market, here is a recent KPMG-Google report

With inputs from Hackernoon, Digits to Dollars and YourStory

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The views and opinions expressed in this article are those of the author and do not necessarily reflect those of any institute or organization he is associated with.

You may want check out my previous ones at https://medium.com/@keshavbagri10

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