Why India's gaming industry is the Next Big Bet for VCs

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Salutations, Olio aficionados! 👋

WE MADE IT – 100 EDITIONS! 🎉 

Welcome to the centennial edition of Weekly Olio! Whether you’ve been with us since our humble beginnings or jumped aboard along the way, this milestone is all thanks to you. 💯

From the laughs to the lightbulb moments, and of course, the tantalizing thought pieces (hello, Publisher's Parmesan) 🧀, we've hit the 100 mark together. And you better believe today’s slice of Olio is extra cheesy, packed with intrigue and inspiration to match this epic occasion.

Here’s to 100 more! 🥂 

Thank you for making this journey unforgettable.

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The Quote󠀢 💭

The Tweet 🐦

Last week, customer data from one of India’s largest insurance companies was available for sale on Telegram and Twitter. From what is alleged, the Chief Information Security Officer sold the data to a hacker but when the deal went sour due to payment issues, the hacker just put out the data for sale openly. India really needs better practices around data security especially everything is now done online - from buying groceries to buying insurance policies.

The Infographic 💹

Overwhelmingly, China is the main hub for processing critical minerals across the board. The country is responsible for processing 65% of global lithium mined, 74% of cobalt, 100% of natural graphite, and 90% of rare earths.

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The Short Read 📝

Venture Capital’s “Crisis” - by Spyglass

2020 and 2021 were the go-go years for venture capital. With CoVID bringing interest rates close to zero and huge economic stimulus being rolled out, we saw an unprecedented expansion in VCs as an asset class. New firms were born and the existing firms raised super-sized rounds. Suddenly every one was either an angel investor or running a venture fund promising to find the next decacorn. Except the music eventually stopped and the math just did not work. Read more…

Inflation rose its ugly head and interest rates zoomed to the moon. With the IPO window slamming shut and regulators closing the M&A route, most investors were struggling for an exit. With too much venture capital chasing too few opportunities and limited exit options, valuations became frothy. Since the penny has dropped, VC firms are finally acknowledging the fact that there just aren’t enough $10B outcomes - despite the promise of AI. As a result, firms are now downsizing rounds and cutting fees - for a much needed system reset.

The Long Read 📜

Generative AI’s Act o1 - by Sequoia Capital

Over the last 12-18 months, the dust around who builds the foundational layer for AI seems to be settling - the market seems to be converging around Open AI/Microsoft, Anthropic/AWS, Meta and Google. Only players with deep pockets and patience to invest large amounts of capital over long periods of time will dominate. As the market structure crystallises, the focus is now shifting to the reasoning layer - systems/applications that can reason and help with problem solving. Read more…

Inference level applications were brushed aside as ‘wrappers’ just a few months ago. As research pushes the frontiers on reasoning helping AI hone its problem solving and reasoning skills, we will see the rise of domain specific applications. The application layer companies derided as ‘wrappers’ seem to be the only legitimate way to create enduring value on top of the foundational infra. As a result, we will see a lot of companies turn labour into software and move from software - as - a - service to service - as - a - software. This move will expand the TAM for software to trillions of dollars. Exciting times to be in. Highly recommend reading the fully essay for all details.

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Publisher’s Parmesan 🧀

Why India's gaming industry is the Next Big Bet for VCs

What if we told you that the next billion-dollar opportunity in tech isn't in Silicon Valley, but in the bustling streets of Mumbai and the tech hubs of Bangalore? Imagine a market with over 500 million potential customers, growing at breakneck speed, yet still in its infancy. Intrigued? Welcome to India's gaming industry – a sector that's not just playing games, but changing the rules of the venture capital game altogether. But what's driving this phenomenal growth? How are regulatory challenges shaping the landscape? And most importantly, where do the biggest opportunities lie for savvy investors? Let's dive into the world of pixels and profits that's making India the hottest playground for gaming ventures.

Picture this: a nation of over a billion people, armed with smartphones and an insatiable appetite for digital entertainment. That's India's gaming market in a nutshell, and it's a goldmine waiting to be tapped. With projections showing the industry's revenue nearly doubling from $3.1 billion in 2023 to $6 billion by 2028, it's no wonder venture capitalists are sitting up and taking notice.

But what's driving this meteoric rise? For starters, India's digital transformation is in full swing. High-speed internet is becoming as common as chai on street corners, and smartphones are now a staple in the hands of over 820 million users. It's a perfect storm of accessibility and affordability that's turning millions of curious onlookers into avid gamers.

The demographic dividend is another ace up India's sleeve. With 600 million young people hungry for new forms of entertainment, the country is a veritable playground for game developers. This tech-savvy generation isn't just playing games; they're shaping the industry's future, demanding experiences that resonate with their cultural context and social preferences.

Beyond Gaming - The Ecosystem Opportunity

Venture capitalists, take note: the opportunity here isn't just in game development. It's in the entire ecosystem that's sprouting up around gaming. From e-sports platforms to game streaming services, from AR/VR tech to blockchain-based gaming economies, the potential for innovative startups is boundless.

Speaking of innovation, let's talk about the game-changers (pun intended) in this space. Companies like Nazara Technologies are leading the charge, diversifying across interactive gaming, e-sports, and gamified early learning. Their recent equity raise of ₹950 crores is a testament to the confidence investors are placing in this sector. Then there's Delta Corp, making waves in both traditional casinos and online gaming platforms, showing that there's room for both old-school and cutting-edge gaming experiences in this market.

Navigating the Regulatory Rapids

But it's not all smooth sailing. The Indian gaming industry is navigating choppy regulatory waters. The recent imposition of a 28% Goods and Services Tax (GST) on the total face value of bets in real money gaming has sent shockwaves through the industry. It's a classic case of growing pains – as the sector matures, it's bumping up against regulatory frameworks that weren't designed with digital gaming in mind.

This tax issue is more than just a financial hurdle; it's a litmus test for the industry's resilience and adaptability. Smaller startups might find themselves squeezed out, unable to absorb the increased costs. But for savvy venture capitalists, this presents an opportunity. Companies that can innovate around these challenges, perhaps by pivoting to skill-based games or exploring new monetization models, could emerge as the next big winners.

The regulatory landscape isn't all doom and gloom, though. The Indian government is showing signs of recognizing the industry's potential. The establishment of the Animation, Visual Effects, Gaming, and Comics (AVGC) Promotion Task Force is a step in the right direction. It signals a willingness to create a supportive ecosystem for the industry to thrive. For VCs, this means keeping an ear to the ground for policy changes that could unlock new opportunities.

Emerging Trends and Investment Hotspots

One area that's particularly ripe for investment is the e-sports sector. With the inclusion of e-sports in major international competitions like the Asian Games, it's gaining legitimacy and mainstream appeal. This isn't just about professional gamers; it's about the entire infrastructure that supports competitive gaming – from training academies to streaming platforms, from event management to gaming peripherals.

Another trend to watch is the localization of content. Games that incorporate Indian themes, mythology, and cultural elements are striking a chord with players. Remember Ludo King? It took a traditional board game and turned it into a mobile gaming sensation. This trend opens up opportunities for culturally savvy game developers and publishers who can create experiences that resonate with the Indian audience while having potential for global appeal.

The integration of emerging technologies is another frontier that's begging for venture capital attention. Augmented Reality (AR) and Virtual Reality (VR) are still in their infancy in the Indian market, but the potential is enormous. As hardware becomes more affordable and 5G networks roll out, we could see a boom in immersive gaming experiences. Cloud gaming is another area to watch, with the potential to make high-end gaming accessible to a broader audience without the need for expensive hardware.

But let's not forget the social aspect of gaming. In India, gaming is increasingly becoming a platform for social interaction. Multiplayer games are virtual hangout spaces, and gaming content creators are the new social media influencers. This social dimension adds another layer of stickiness to gaming platforms, making them valuable not just as entertainment but as community-building tools.

The Game Plan for Venture Capitalists

For venture capitalists looking to dip their toes into this market, the key is to think beyond just game development. The most exciting opportunities might lie in the periphery – in the tools and platforms that support the gaming ecosystem. Think game engines that cater to low-bandwidth environments, payment solutions for microtransactions, or AI-powered content moderation for multiplayer games.

As we look to the future, the Indian gaming industry stands at an inflection point. The challenges are real – from regulatory hurdles to infrastructure constraints – but so are the opportunities. With the right mix of capital, innovation, and cultural understanding, the next gaming unicorn could very well emerge from the streets of Mumbai or the tech parks of Bangalore.

For venture capitalists, the message is clear: the game is on in India's gaming sector. Those who can navigate the complexities of this market, balancing risk with the immense potential for reward, stand to be the big winners in this exciting new chapter of India's digital economy. The question isn't whether to get in the game, but how to play it smart and come out on top.

Olio Jobs 💼

• Anduril | Costa Mesa, CA - Senior Aerodynamics Engineer, Chief Engineer (Maneuver Dominance), Senior Radar Engineer, Senior Firmware Engineer, Product Operations Engineer (Space)

• InWorld | Mountain View, CA - Principal Machine Learning Engineer, Staff Cloud DevOps/Site Reliability Engineer, Senior Unreal Engine Developer

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• Hadrian | Los Angeles, CA - Manufacturing Engineer (Go-to-Market), Senior Fullstack Software Engineer, Software Engineer - Data Platform

• HeyGen | San Francisco or Los Angeles, CA - Research Engineer (Tech Lead), Security Engineer, Backend Engineer (Infrastructure)

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We’ll be back in your inbox 2 PM IST next Wednesday. Till then, have a productive week!

Peeyush and Mohit

Disclaimer: The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group or individual.