With BITKRAFT’s $165M Game Fund Oversubscribed, Jens Hilgers Talks Investing Strategy

Investor hunger for opportunities in the video game sector paid off for BITKRAFT Ventures, which said it overshot by a third its goal for its latest fund. The $165 million BITKRAFT Venture Fund 1, originally set for $125 million, will focus on esports, gaming and interactive media.

“The industry keeps growing, and gets accelerated by this entire Covid(-19) crisis,” said founding General Partner Jens Hilgers, who talked with me from Berlin about the fund’s investing strategies. “We’re probably leapfrogging a bit where video games have been and will be and could be.”

Various analysts project the video game sector will generate around $160 billion in revenues this year globally, including around $1 billion for esports. That’s equal to roughly double the global film and music industries combined.

The industry may exceed those prodigious projections as the pandemic and recession shut competing entertainment options and lead many to turn to higher value-per-dollar experiences they can do from home.

BITKRAFT undergirds its investments with a theory it calls Synthetic Realities, the increasing shift by entertainment, education, and other sectors to virtual technologies first pioneered in gaming. Hilgers said that sensibility, laid out in a white paper and other material on its website, informs its investing approach.

‘As gaming gets so large, and the tooling layer gets large, what happens if so much of what this society does starts to take place in simulated realities?” Hilgers said. “An ever-larger part of society will take place in simulated realities, an ever-larger part of labor gets done in simulated realities. Now is the time where that changes. We can clearly see that will expand considerably.’ 

Hilgers said the new fund will focus on four areas:

  1. Direct investment in game development studios and intellectual property;
  2. “Horizontal technologies,” such as more sophisticated haptic feedback tools;
  3. Platforms, such as Boom.TV, which enables high schools and similar organizations to stage their own esports tournaments;
  4. “Applied Game Mechanics,” companies that are extending game technologies, interfaces and engagement techniques into education and other sectors.

Much of gaming itself depends on recombining tested-and-true genres and formats for new platforms or markets, Hilgers said. One classic example is League of Legends, which crossed the team-based shooter genre with the then-emerging free-to-play business model and became one of the world’s most popular titles.

Other investing opportunities emerge regularly, but making money from them depends on finding “a space” in the market, he said.

“Where’s a vacancy?” Hilgers said.

That space might be around a genre, a platform, a monetization model, or even geography, given the predominance of mobile gamers in Latin America and parts of Asia compared to console-focused territories such as North America and Europe.

In the year after Epic Gamesmega hit Fortnite swept the industry, for instance, it didn’t make sense for anyone else to bring out a cross-platform, free-to-play battle Royale shooter, Hilgers said. (BITKRAFT is an investor in Epic.)

Eventually, enough players had both been introduced to the format and were looking for new experiences, creating the conditions for a new market opportunity. Soon enough, both Apex Legends from Electronic Arts
EA
and Call of Duty Warzones from Activision
ATVI
jumped in, to great success.

“We’ve educated a ton of people for mobile and shooter games,” Hilgers said of the industry. “That’s a new opportunity. That’s the wonderful combination we’re looking for.”

Hilgers is actually more bullish on the potential impact of the next generation of consoles from PlayStation and Xbox, both expected later this year, than 5G mobile, which is rolling out across the world behind tens of billions of dollars in capital investments.

“The new console generation will be more successful than the last generation,” Hilgers said. “I feel like there’s a bigger excitement that has built up because people have spent so much more time with video games now, so I think in these markets, it’s going to be a big boost.”

Conversely, in the markets such as Japan, North America and Europe where console gaming is deeply entrenched, Hilgers said faster networks aren’t likely to make a big impact soon.

“I don’t see the need even for 4(G) or 5G really, at least in a market with a good LTE network,” Hilgers said. “I don’t see cloud gaming as something that will change the market in the next three, four, five years. In emerging markets, it might be a big difference. There are quite a lot of places where multiplayer gameplay or downloading larger games on devices will be difficult. They’ll become huge gaming markets with huge connectivity.”

BITKRAFT investments from previous funds include gamer-focused video network Venn; massively multiplayer sandbox title Playable Worlds; and Galaxy Interactive, the Los Angeles-based fund headed by Sam Englebardt (listen to my Let’s DEW Lunch conversation earlier this year with him here). The company also backs Roundhill Ventures, which has two ETFs focused on gaming, esports and online sports betting, $NERD and $BETZ.

The new fund’s corporate investors include shoe-maker Adidas, marketing/advertising holding company WPP, gamer-gear maker Logitech, and Advance, the Newhouse family’s holding company of assets such as magazine publisher Condé Nast, Hilgers said. An array of family offices also invested, including Bruce Karsh’s Carolwood, David M. Rubenstein’s Declaration Partners, and Jonathan Soros’ JS Capital.

Hilgers is the founder and former CEO of ESL, one of the oldest esports operations, and co-founded the G2 Esports team. The four-year-old BITKRAFT also has partners in San Francisco, Los Angeles and London.

— to www.forbes.com

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