Our latest survey of investors regarding gaming infrastructure companies was conducted in May, coinciding with the emerging understanding of the opportunities the pandemic would create for businesses in the gaming sector.

At that time, Amit Kumar of Accel predicted that “social and interactive elements integrated within games” would be particularly successful, pointing to his firm’s investments in companies such as Discord and Mayhem. Discord subsequently announced a $7 billion valuation in December, and this month, Niantic, the developer of Pokémon Go, revealed its acquisition of Mayhem.

Following my recent article examining investor perspectives on evolving possibilities within social gaming, I investigated gaming tools and emerging platforms, gathering insights from several venture capitalists regarding this market.

The overall performance of the market over recent months has surpassed initial forecasts, with gaming startups experiencing considerable growth. This week, Roblox announced a valuation of $29.5 billion, a significant increase from its $4 billion valuation in February of the previous year. Currently, game developers, including Roblox, are actively acquiring gaming infrastructure startups.

I engaged with investors to understand their priorities for future developments in this area.

“We are particularly interested in further innovation within gaming infrastructure, as it has the capacity to broaden access to game development and empower independent developers to compete with established companies like Riot and Epic,” stated Ethan Kurzweil and Sakib Dadi of Bessemer to TechCrunch.

They identified several promising areas for new ventures, including specialized game engines, advanced content creation platforms, and tools for adapting desktop games for mobile devices. The investors we consulted also expressed interest in the potential presented by major platforms’ adoption of cloud gaming technology. The prevailing trend emphasizes accessibility and a desire to offer more casual gaming experiences on platforms traditionally focused on “hardcore” gamers.

Conversations also revealed that Roblox is heavily influencing investor perceptions regarding potential growth and challenges within the broader gaming industry, with venture capitalists who missed out on investing in Roblox keen to analyze its success and invest in similar ventures.

Responses have been edited for conciseness and clarity. We consulted with:

• Hope Cochran, Madrona Venture Group
• Daniel Li, Madrona Venture Group
• Ethan Kurzweil, Bessemer Venture Partners
• Sakib Dadi, Bessemer Venture Partners
• Alice Lloyd George, Rogue VC
• Gigi Levy-Weiss, NFX

Hope Cochran and Daniel Li, Madrona Venture Group

Cloud-based game streaming services are generating considerable interest, but their ultimate success remains uncertain. What are your thoughts on this emerging technology?

DL: I believe the core appeal of cloud gaming lies in its ability to enable gaming on any device and facilitate cross-platform experiences. The nature of gaming differs significantly from services like Netflix; users typically don’t desire a vast, constantly changing library of titles. When engaged in a game, players often prefer to focus on a specific title, such as Overwatch, rather than having access to thousands of options. It appears that cloud gaming companies have primarily focused on leveraging their existing capabilities to develop offerings for gamers, rather than prioritizing a deep understanding of gamer preferences and delivering solutions tailored to their needs. While recent trends, like offering a couple of free games monthly, suggest a shift in this approach, the true potential of cloud gaming will be realized when players can seamlessly continue their games and connect with friends regardless of location.

If widespread adoption of desktop-quality cloud gaming on mobile devices occurs, coupled with greater cross-platform compatibility, could this pose a challenge to the current mobile gaming landscape?

DL: The player bases for games like Candy Crush and Warzone likely differ considerably, although I personally enjoy both. While some market share adjustments may occur, it’s unlikely that the primary concern for Candy Crush will be players switching to desktop versions of Call of Duty.

Are there specific areas within the infrastructure where you believe new companies could emerge to address existing deficiencies?

DL: I’m particularly interested in seeing advancements in game development tools – essentially, the next generation of platforms like Roblox Studio, Unity, and Unreal Engine. I’ve already observed a few promising companies in this space. Additionally, we’ve seen some smaller firms concentrating on ensuring the safety of gaming networks for children, but generally, infrastructure development is heavily influenced by the types of new content being created. For example, the rise of social games highlighted the need for robust security measures and safe chat environments.

HC: I would be very interested in a solution that simplifies the process of adapting games originally designed for high-end platforms to mobile environments. In my experience, gaming companies often have to essentially recreate their games to function effectively on mobile, so a tool that streamlines this transition would be incredibly valuable.

Ethan Kurzweil and Sakib Dadi, Bessemer Venture Partners

Considering the established players in the gaming infrastructure space, what areas appear most accessible for new companies to enter?

The success of games like Fortnite and Roblox demonstrates a significant potential for startups to offer individual features – such as user-generated content and seasonal passes – as readily available tools for game developers of all sizes. The key challenge lies in whether these emerging companies can expand to serve larger studios comparable to Epic or Riot Games. We see a path forward by enabling newer development teams to concentrate on their primary game content, rather than being burdened with secondary, yet crucial, elements. For instance, a company providing matchmaking solutions is unlikely to be acquired by a giant like Riot Games, but empowering the next generation of studios with innovative features designed to engage players will be increasingly valuable as the gaming market becomes more competitive. We are eager to witness further advancements in gaming infrastructure, as it holds the promise of leveling the playing field and allowing resourceful independent developers to challenge industry leaders like Riot and Epic.

With the potential for widespread adoption of high-performance cloud gaming on mobile devices and greater cross-platform compatibility, could this pose a threat to the current mobile gaming market?

Not necessarily. This development actually presents a substantial opportunity. A segment of players will likely continue to prefer simpler, more casual games like Candy Crush, Zooba, or Toy Blast. Simultaneously, it’s probable that a more dedicated, console-focused audience will spend increased time gaming on mobile platforms, and subsequently become acquainted with games offering gameplay experiences on par with AAA titles, albeit potentially with slightly reduced graphical fidelity.

Alice Lloyd George, Rogue VC

What possibilities, if any, do you believe the arrival of new gaming consoles will present for emerging game development companies?

As graphical fidelity and realism continue to improve, the resulting gaming experiences become increasingly immersive. It can be challenging to differentiate the incremental advancements from one console generation to the next, and to assess the impact on game developers compared to the introduction of an entirely new platform that enables the creation of novel game concepts. However, I maintain a positive outlook, as the pace of innovation is quickening and this is a field that genuinely attracts passionate creators.

Frequently, those who develop games are also avid players themselves, which provides a unique driving force. I believe the demand for content will only expand, as the potential for new experiences remains limitless. Even with the continued popularity of streaming services like Netflix, gaming offers a uniquely expansive form of entertainment, and I am eager to observe the integration of Unreal Engine into film and cinematic production. I anticipate that advancements in gaming technology will have broader implications, and we will likely see related developments in other areas.

Gigi Levy-Weiss, NFX

Considering the potential for cloud gaming on mobile devices to reach a level comparable to desktop experiences, and a possible move towards greater platform compatibility, could this pose a challenge to the current mobile gaming landscape?

Not necessarily. Should streaming become the preferred technology for mobile gaming, leading developers will likely adapt and utilize it. I don't anticipate this altering the core nature of prominent developers or publishers. It’s important to remember that players are primarily concerned with the enjoyment and overall quality of the game, rather than the underlying technology.

What potential benefits, if any, might a new generation of gaming consoles offer to emerging gaming companies?

The increasing realism of graphics is increasingly diminishing the distinction between films and games. While major studios will undoubtedly leverage these enhanced capabilities, a new wave of imaginative game creators – those unconstrained by traditional notions of what a game should be – could utilize this infrastructure to develop entirely novel gaming experiences. Combined with advancements in artificial intelligence, such as GPT-3, which enables the creation of remarkably sophisticated interactive game characters, gaming has the potential to evolve into something fundamentally different.