The Scoop
How AI can breathe fresh life into Web3 gaming
Mon Jul 17 2023Description
Venture capital investments in web 3 and crypto are down, but the quality of projects and innovation being presented to investors is increasing. The gaming industry has also experienced a decline in volume, but Q1 was still active. Partnership between LightSpeed and Faction VC allows them to compete for deals more effectively. Web3 game studios have the potential for multi-billion dollar empires. Blockchain adoption in game studios is more likely for spinouts from big studios. Crypto play-to-earn games and in-game monetization are evolving. Monetization and AI are becoming core components of gaming. Seeding the economy and the future of gaming are important considerations.
Insights
Quality over Quantity
Venture capital investments in web 3 and crypto are decreasing, leading to a decrease in deal flow. However, this decrease is seen as positive as it allows for higher quality projects and innovation to prevail.
Partnership for Success
The partnership between LightSpeed and Faction VC combines their expertise and resources, allowing them to compete more effectively for deals in the blockchain and gaming sectors.
Web3 Game Studios Potential
Web3 game studios have the potential to build multi-billion dollar empires with sound economic design and experienced game designers. Existing game developers are more likely to succeed on Web3 first.
Blockchain Adoption Challenges
Incumbent game studios face challenges in adopting blockchain-based models due to risks, inertia, and quarterly reporting requirements. Spinouts from big studios are more likely to adopt blockchain as a differentiator.
Evolving In-Game Monetization
In-game monetization has evolved from pay-to-win models to cosmetic upgrades that players are willing to pay for. Blockchain gaming provides opportunities for players to monetize their in-game items and have ownership of them.
AI in Gaming
AI is becoming a core component of the future of gaming, enabling workflow improvements and creating novel experiences. Intelligent NPCs that behave like real-life individuals are made possible by AI.
Seeding the Economy and Future of Gaming
Seeding the economy with internet money is easier than using actual money in gaming. Realistic representation of characters requires the ability to transact real money. The focus is on infrastructure and technology advancements in gaming.
Hope for the Future
There is hope for the end of the crypto bear market by Q1 or Q2 of 2024, bringing new users and opportunities. Expectation for Gen 2 games built by gaming professionals to be fun and innovative.
On-Chain Logic Games
There is a possibility of on-chain logic games where game logic is stored in smart contracts, providing new opportunities for gameplay experiences.
Chapters
- Venture Capital Investments in Web 3 and Crypto
- Partnership between LightSpeed and Faction VC
- Decline in Volume of Gaming Industry
- Quality Projects Prevailing in Web3 Gaming
- Investing in Web3 Game Studios
- Blockchain Adoption in Game Studios
- Crypto Play-to-Earn Games and In-Game Monetization
- Monetization and AI in Gaming
- Seeding the Economy and Future of Gaming
Venture Capital Investments in Web 3 and Crypto
00:16 - 08:44
- Venture capital investments in web 3 and crypto are down, which is seen as a positive development due to excessive funding of projects that shouldn't have been funded.
- Despite the decrease in deal flow, there is an increase in the quality of projects and innovation being presented to investors.
- Many companies that tested the market in the past two years are now withdrawing or struggling to secure funding.
- Both companies believe that this decrease in activity is healthy for the industry and will ultimately lead to higher quality projects prevailing.
Partnership between LightSpeed and Faction VC
00:16 - 08:44
- The partnership between LightSpeed and Faction VC allows them to combine their expertise and resources to compete for deals more effectively.
- Faction VC focuses on blockchain investments while LightSpeed covers various sectors with its core funds.
- When evaluating gaming companies with a Web3 component, both firms collaborate on due diligence and may share positions on the cap table.
Decline in Volume of Gaming Industry
00:16 - 08:44
- The gaming industry has also experienced a decline in volume, but Q1 was still the third most active quarter since 2020.
- Many companies that tested the market in the past two years are now withdrawing or struggling to secure funding.
Quality Projects Prevailing in Web3 Gaming
00:16 - 08:44
- Despite the decrease in deal flow, there is an increase in the quality of projects and innovation being presented to investors.
- Both companies believe that this decrease in activity is healthy for the industry and will ultimately lead to higher quality projects prevailing.
Investing in Web3 Game Studios
08:16 - 16:16
- On the gaming side, it's remarkably easy to find the right deals and chase creative ideas.
- The goal is to find generational companies that can have a significant impact on returns.
- Our bar for investing in game studios is excruciatingly high, looking for teams with experience in creating billion-dollar enterprises.
- Web3 game studios have the potential to build multi-billion dollar empires with sound economic design and experienced game designers.
- There's nothing preventing Web3 games from being as successful as popular Web2 games.
- The higher likelihood is that existing game developers will win on Web3 first.
- The thesis for platform investments in blockchain gaming was to provide infrastructure tools for game developers to easily layer in blockchain-based economies.
Blockchain Adoption in Game Studios
15:46 - 23:43
- Incumbent game studios and publishers have a good business model, but it's risky to switch to a blockchain-based model.
- Blockchain adoption is more likely for spinouts from big studios that have experience and see blockchain as a differentiator.
- Inertia is a major obstacle for traditional game studios to experiment with blockchain.
- Public companies with quarterly reporting find it challenging to invest in long-term innovation.
- When investing in game studios, the team is crucial, along with a realistic bottom-up model.
- $50 million or more is needed to build such games with SaaS-like business models.
- The biggest differentiator between games with platforms and those without is the ability to turn initial success into continued revenue streams.
- X-Founders from Riot Games and Epic are popular with VCs due to their experience in building games as platforms.
Crypto Play-to-Earn Games and In-Game Monetization
23:18 - 30:32
- Games like Fortnite and League of Legends are successful examples of games as a platform.
- Getting tokenomics and crypto implementation right is challenging, as many have made mistakes in this area.
- Simply extracting value from a game without providing sufficient economic rewards or demand will lead to failure.
- Crypto play-to-earn games can be categorized into big sports IPs and card games, but adding tokens or NFTs alone is not enough for lasting appeal.
- In-game monetization has evolved from pay-to-win models to cosmetic upgrades that players are willing to pay for.
- Blockchain gaming will likely become more popular as players seek ways to monetize their in-game items.
- Players want ownership of their in-game items and the ability to sell them on platforms like OpenSea.
- Monetizing gameplay experiences can create financial opportunities for players who enjoy the game and have valuable items to sell.
Monetization and AI in Gaming
30:17 - 37:58
- Players desire some form of monetization in games to have ownership and value for their time and effort.
- Some players are willing to spend thousands of dollars on items that make them look cool in the game.
- User-generated content adds value to the gaming experience by increasing diversity and creating new assets, levels, or worlds.
- True ownership would drive people to increase their creation and consumption behavior in games.
- AI is becoming a core component of the future of gaming, with companies focusing on workflow improvements and creating novel experiences.
- Intelligent NPCs that behave like real-life individuals are an example of a novel experience made possible by AI.
- In World AI is an interesting company in the AI gaming space that focuses on logic over visuals.
- The intersection of crypto and AI allows for more realistic NPCs with their own blockchain-based bank accounts that can transact with real money.
- Using crypto-denominated currency in games could provide a way for developers to give value to NPCs without spending actual money.
Seeding the Economy and Future of Gaming
37:31 - 42:30
- MPCs can be given some amount of currency at zero cost, which is easier to accept than giving them real money
- Realistic representation of characters in gaming requires the ability to transact real money
- Seeding the economy with internet money is easier than using actual money
- Realizing that you might not be the main character is important
- Excitement about IP and studio exposure, including deals with Microsoft, Sony, and Nintendo
- Focus on infrastructure side of gaming for the second half of the year
- Interest in gaming tech or interactive media tech as a big focus
- Hope for the end of the crypto bear market by Q1 or Q2 of 2024, bringing new users
- Expectation for Gen 2 games built by gaming professionals to be fun and innovative
- Possibility of on-chain logic games where game logic is in smart contracts