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NEW DELHI : Venture capital (VC) firms have invested over $2 billion in gaming firms, mostly fantasy gaming platforms, in India over the past two years. Now, smaller game development firms are starting to catch the eye of investors in the country. Investors, founders and game developers said that investments in these firms are set to rise in the coming months.

According to Salone Sehgal, general partner at Lumikai, a gaming-focused VC fund, a significant part of funding went into real money gaming early on during the pandemic. However, investors have diversified their capital in the last 6-8 months, moving into game streaming, content and infrastructure providers, she said.

“We have seen a lot more domestic interest from VC, a lot more international interest from strategics who are actively scouting companies in the Indian market," said Sehgal.

A case in point is Bengaluru-based startup Bombay Play, which raised $7 million in a Series A round last month, led by Kalaari Capital to build social games. Another local game developer, Lila Games, raised $10 million in March to build a mobile games studio. The company is also developing a free-to-play mobile shooter game.

In March, game streaming platform Loco announced a $42 million funding round led by early-stage fund Hashed. Loco said the funds will be used to strengthen content and focus on web3 development.

Sehgal said more than 1,000 deals were evaluated in the last 18 to 20 months, of which 500 to 600 were in the gaming content space. “It is a mix of independent studios building mid-core games, and PC games, but most of them are building mobile and casual games," she said.

Oliver Jones, the chief executive officer (CEO) of Bombay Play, felt that VC firms “are starting to wake up as the spell of web3 and real money gaming is starting to pass".

“Gaming has historically been countercyclical. Investors are realizing that the content business is more dependable, and parking money in businesses like us will lead to more assured returns," he said.

Pranav Pai, founding partner at 3One4 Capital, pointed out that India hasn’t built large-game development studios yet. He said that while India has “almost all" of the essentials needed to create the market such as animation designers, developers, gamers and more, stakeholders need to come together and build an actual industry, including IP, platforms and dedicated capital.

Investments aside, services providers in the gaming market are also ramping up revenues. According to Manvendra Shukul, CEO of Gurugram-based Lakshya Digital, the company has seen work outsourced to India double since the pandemic began.

Shukul’s firm is among the oldest in India in this space, and has designed characters and artwork for big-ticket games like Metal Gear.

He said that while India was “getting low-hanging fruits" earlier, it is not working on complex characters, environment and level designs for large games. Lakshya has worked on a big-ticket gaming title Elden Ring from Japanese publisher Bandai Namco.

“Game development in India is booming. India is seeing a lot of new developers and startups that are excited about making their games," he said.

Lakshya opened a new studio in Bengaluru earlier this month, led by Raju Patil, co-founder, Dhruva Interactive, which bought by American Rockstar Games in May 2019.

Pai said while India is competent in terms of animation services, it needs to “transition to a product mindset where we will build and scale our own games".

All this will lead to more investments in gaming firms in India. Manish Agarwal, CEO of Nazara Technologies, said the environment in India has “improved considerably" in the last two years due to consolidation of non-real money gaming firms and acquisition of local studios by European firms.

Other than Rockstar’s acquisition, Swedish gaming firm Stillfront Group acquired Moonfrog, a Bengaluru-based independent game studio, in February 2021. In July 2021, word games startup PlaySimple was acquired by another Swedish gaming company, Modern Times Group, for $360 million.

India also set up a task force in April for the promotion of animation, visual effects, gaming, and comics (AVGC). The task force will focus on skilling, creating jobs, and attracting foreign direct investments (FDI).

Agarwal said content creation was an issue for non-real money gaming firms, which made exits difficult for investors. The trend, though, is changing now and more money is coming into the space. “Investors put money where they see an exit opportunity," he added.

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