India Gaming Update: 1H23
A game-changing year?
Welcome back to our mid-year update on Indian gaming! As we delve into all the happenings of 2023, it’s evident that the sector remains as engaging as ever. While we may not have witnessed the same level of frenzied acquisitions and soaring valuations à la 2020/2021, there’s still plenty of noteworthy activity to unpack. Let’s jump in.
EY-IVCA’s monthly update for May 2023 recorded $3.5 billion in PE/VC investments overall i.e. across sectors, while noting that pure play PE/VC investments in May 2023 were 44% lower than May 2022 and 52% lower than April 2023 (both by value). This indicates lingering concerns on capital deployment and subdued activity, on similar lines as the rest of the world.
If you thought that was bad, spare a thought for the Web3 space. Moneycontrol reported a staggering 97% drop in funding for India’s Web3 startups during the first five months of 2023. In contrast to the approximately $1 billion invested across 44 rounds in the same period last year, a mere $32 million was allocated across just seven rounds. This significant decline in funding highlights the shifting landscape of investment in the Web3 sector in India.
Top Mobile Games in India (Grossing)
The news that created the most excitement this year was undoubtedly the much-awaited return of Battlegrounds Mobile India (BGMI). After almost a year, India’s Ministry of Electronics and Information Technology (MeitY) granted conditional approval to Krafton to bring back the revamped avatar of fan-favorite PUBG into the country, subject to strict monitoring. Within months of launch, BGMI has quickly soared to the top spot with over 100 million downloads, surpassing Free Fire MAX which, let’s admit, was a poor replacement to BGMI in the first place😛.
The usual suspects Coin Master and Candy crush remain in the Top 5 as always. Sadly, other than Teen Patti Octro, there are no games from Indian publishers in the Top 10 charts.
Key Deals: Who got funded?
While activity was certainly subdued, Venture Monk tracked at least 13 deals in the first half of the year with round sizes ranging from $1 million to almost $30 million. The series’ also ranged from Seed to Growth with the likes of Nodwin Gaming raising follow on rounds.
Some observations:
- After a brief lull, Lumikai inked 3 back-to-back deals in 2023
- Fantasy Akhada, which raised capital from Florintree, was also rumored to be evaluating a complete buyout by GMR Sports. The talks seem to have fallen through
- Mayhem Studios’ fund raise could indicate MPL’s increasing focus on non-Real Money Games, in line with other players such as Games24x7 and Dream11
- Investments in Studio Sirah and Mayhem Studios also indicate investor interest moving into mid and hardcore games (about time?)
- Kratos Studio made a remarkable debut, with a substantial maiden funding round and a valuation of over Rs 1,200 crores. The presence of a seasoned founder like Manish Agarwal (ex-CEO of Nazara Technologies) likely contributed to this. Despite reports of a decline in Web3 funding by Moneycontrol (see above), ventures like Kratos Studio continue to attract investor attention, indicating pockets of interest within the industry.
If media reports are to be believed, Shorooq Partners, an early-stage tech venture capital investor in the Middle East, is evaluating investments in Indian gaming startups. It is heartening to note that more and more foreign investors are looking at Indian gaming further validating our belief in the long-term prospects of the sector.
Major News & Developments
Lumikai, a prominent gaming and interactive media fund, unveiled its second fund aimed at securing a substantial $50 million corpus from investors worldwide. This fund is dedicated to supporting and empowering gaming and interactive media founders through pre-seed to series A investments. The fund boasts some impressive Limited Partners (LPs) such as Colopl, Smilegate, Krafton, Supercell and Nazara Games. Notably, Lumikai’s initial fund, Lumikai Fund I, already manages about $40 million and includes Krafton as an LP.
Former Robosoft Technologies executive Shylaja Rao has also launched a new venture capital firm that is looking to raise Rs 50 crores to support early-stage entrepreneurs in gaming and aims to close this fund by October-November this year.
Additionally, Sony launched their indie-focused ‘Hero Project’ in India. As per its website, the “India Hero Project (IHP)” is a new incubator program focused on identifying and supporting emerging talent from the country.
We were going to look at the latest financials if available for some gaming giants but Entrackr already did a great job of the same so we will just link you to their report instead.
Government Intervention (Interference?)
The Central Board of Direct Taxes (CBDT) recently announced a new tax regulation that will impact online game companies. Starting from April 1, 2023, these companies will be required to deduct tax at source (TDS) on winnings in an online game, if the amount is over Rs 100. Prior to this, TDS on winnings from online games was only applicable if the winning amount exceeded Rs 10,000 in a financial year. The TDS will be deducted under the newly introduced Section 194BA of the Income Tax Act, 1961, with a fixed rate of 30% on winnings from online games. The CBDT further clarified that GST will NOT be included for calculating winnings from online games for TDS. This development marks a significant moment in taxation policies for the gaming industry.
If this wasn’t enough on June 12, 2023, the Union Minister of Information Technology announced that India may consider banning any game that (1) involves betting (2) is “harmful to the user” and (3) is “addictive”. Apparently the regulations around this would be announced soon and online games will then have to be cleared by certain SROs or Self Regulatory Organisations, within 90 days from the announcement of these regulations. While the minister did not clarify how they will classify such games, some Internet Service Providers (ISPs) have already started blocking Valve’s Steam platform. Why this platform was singled out to be proactively targeted by ISPs in the absence of any official regulations is not known.
In a growing sector where foreign investors are keenly looking to invest, such potentially well-intentioned but obviously ill-thought-out regulations often hurt the ecosystem more than help it. Not only will local startups / companies find it difficult to navigate such loosely-worded diktats, but foreign publishers and investors will also hesitate before entering a country which such egregious rules. The government’s decision to target gaming in this manner is truly disheartening, especially considering the multitude of other urgent issues that require attention in our country. Here’s hoping better sense prevails and the sector is allowed to achieve its full potential.
If you actually made it this far, you might as well follow us on Twitter and Substack for more VC/PE related views and analysis. Our previous update on Indian gaming was published in GVCdium and can be found here.
