Compile: Biteye core contributor Crush
I spent most of late 2021 and early 2022 researching Web3 gaming VCs. Here are some thoughts on Web3 games and how my views have changed over time.
01. Some personal thoughts
fat tail returns
Similar to Web2 games, VC returns for Web3 games have a fat-tail effect—investors either make excess profits or suffer massive losses.
This is why investing in a single IP is high risk. You only have one chance to make it work.
(Translator’s Note: Fat-tail returns, also known as fat tail returns, are often used to describe extreme events in asset price volatility, that is, those events with low probability but high impact. For example, a sudden plunge or surge in the stock market , foreign exchange in the exchange rate market depreciates or appreciates, etc.)
The importance of experience
While investment in Web3 games has slowed considerably recently, we’re still seeing a number of US studios raising $20-$30 million in seed rounds from dedicated gaming funds. These teams have all been favored by first-line blockchain game studios, such as Activision Blizzard, Riot Games, etc. Investors are more inclined to choose teams with development experience.
This is the right thing to do because Web3 games have the following characteristics:
- Long development cycles, the need to manage costs and operational expectations.
- Shift from play-and-earn casual games to high-quality AAA games.
Failure to meet investor expectations
Top games typically have a 12-month life cycle. Considering that tokens usually have a 3-4 year unlock period, when investors’ tokens start to unlock, the price may drop sharply, which is lower than their psychological expectations.
02. Some future trends
Games attract users through playability, which may lead to a shift to AAA titles. Funding has also become more difficult for early-stage entrepreneurs without any track record.
The top 3A IP has a mature market
Essentially, Web3 games are entertainment products, and mature markets have historically had a huge influence over these products because of their soft power and first-mover advantage.
preference for investment diversification
Investors will focus on investing in diverse studios rather than a single game, thereby reducing risk and increasing the chances of a game’s success.
Studios with diversified investments may require investors to adapt to equity investment, but according to the investment structure, investors will also receive corresponding tokens to participate in the games released by the studio in the future and obtain corresponding benefits.
(Translator’s Note: The diversified studio here refers to a game development studio developing and publishing multiple games, rather than relying only on a single game intellectual property, which can reduce the economic risk caused by the failure of a single game .)
Gaming Infra (Infrastructure)
Gaming infrastructure will form an important part of the industry’s investment strategy – investors can gain exposure to the entire industry without taking any risk on multiple or individual games.
Game infrastructure may take the form of game blockchains, SDKs, and game distribution platforms.
I think the success of these game infrastructure platforms will depend on who builds them, for example game studios with a large library of game intellectual property coming into these platforms will naturally be able to drive the use of the platforms.
Web3 Ad Network
In addition to Web3’s common P2E (Play-to-earn, earn while playing), we will see more traditional user acquisition strategies, such as user-level indicators (user lifetime value, user acquisition cost, average user revenue, user churn) will increasingly be used in Web3 games.
The infrastructure project will be built in the next cycle to help Web3 games better understand their players by combining player on-chain and off-chain data, helping games understand the effectiveness and RoAS (Return on Ad Spend) of their advertising campaigns.
03. Translator’s summary
This article mentioned that Web3 games are characterized by high risk, but there is also the risk of failing to meet investor expectations. Several future trends include focusing on the playability of games, mature markets for top IPs, diversified investment preferences, attention to game infrastructure, and the application of paid advertising in Web3 games.
Future Web3 games still need experienced development teams and high-demand running quality!