Westward Launches $30M Fund for Chinese Indie Games

A New Path for Chinese Game Developers

Hefei, a city in China recognized for both its historical significance relating to the Three Kingdoms period and its modern manufacturing capabilities, recently became the location where Maxim Rate discovered a small game development studio. This studio was uniquely focused on creating a Western-style role-playing game, a genre favored by players who appreciate immersive narratives and detailed visual design.

Rate commented on the quality of their work, stating, “The design and computer graphics are exceptionally well-executed. It’s difficult to discern that the team is based in China.”

Challenges Facing Independent Studios

Rate’s primary objective is to identify and support promising Chinese studios, such as the team in Hefei, in their efforts to reach a global audience. Increasingly stringent regulations surrounding game publishing within China, coupled with the difficulty of securing necessary licenses, are creating significant hurdles for smaller development teams.

Since the previous year, Apple has removed thousands of games lacking proper licensing from its Chinese App Store, responding to requests from Chinese authorities. This has prompted independent developers to explore opportunities outside of their domestic market.

“A key obstacle is the lack of experience these startups possess regarding international expansion,” Rate explained.

Westward Gaming Ventures: A New Initiative

Driven by his passion for gaming, Rate resigned from his position at a Chinese cross-border payment company last year. He subsequently founded Westward Gaming Ventures, a firm designed to both incubate and invest in Chinese game developers aiming for international success.

The firm’s name draws inspiration from Zheng He, the renowned Chinese diplomat and explorer who led large-scale naval expeditions to the “Western Oceans” during the Ming Dynasty.

According to a recent interview with TechCrunch, Westward Gaming Ventures intends to raise 200 million yuan (approximately $30 million) for its initial fund.

The capital will be allocated over the next three years, with individual investments in studios ranging from 2 to 4 million yuan. Currently, the firm is engaged in discussions with 20 to 30 development teams working across diverse game genres.

Facilitating Foreign Investment

This new Chinese fund is structured as a Qualified Foreign Limited Partners Fund (QFLP). Rate highlighted that this structure will, for the first time, allow foreign investors utilizing USD and EUR to directly invest in Chinese gaming companies.

QFLP licenses are limited to a select number of institutions. While Westward Gaming Ventures does not directly hold a QFLP license, it has established a pathway for legitimate foreign investment through a partnership with the private equity division of a major Chinese financial conglomerate, which has requested anonymity at this time.

Navigating Regulatory Complexities

To effectively manage the intricate regulatory landscape, Westward Gaming Ventures is also leveraging the expertise of its advisors. This includes counsel from an individual who oversaw the legal and financial aspects of one of the most substantial joint ventures between Chinese and foreign gaming companies in recent years.

This partnership, which remains confidential, also marked the first instance of a foreign entity securing majority ownership in a gaming joint venture within China.

Overcoming Investment Barriers

China imposes restrictions on foreign investment in sectors deemed sensitive, such as value-added services. Consequently, many companies resort to establishing complex offshore structures to receive foreign funding. This limitation presents challenges for studios with limited resources seeking foreign investors who could facilitate their entry into global markets.

Their alternatives often involve securing backing or being acquired by Chinese industry giants like Tencent or ByteDance.

The Expansion of Chinese Game Development

The initiative behind Westward isn't solely focused on easing access to foreign investment for independent Chinese game developers. It also aims to thoroughly prepare them for international market entry.

According to Rate, Chinese gaming companies, regardless of size, have traditionally depended on advertising for user acquisition when expanding internationally. Occasionally, a game would achieve success, but the development team often lacked insight into the reasons, leading to continued, and sometimes unsuccessful, testing.

However, launching a game internationally extends beyond simple translation and initiating an advertising campaign on platforms like Facebook.

Westward intends to engage with games during their initial development stages, assisting with positioning. This includes defining the game’s genre – is it an RPG? – and identifying the target audience, whether casual or dedicated players. Furthermore, the firm will offer developers workspace, technical support, marketing expertise, localization services, connections to publishers, and assistance with overseas operations.

To facilitate post-investment support, Westward has established a partnership with V+ Gaming Society, a game incubator based in Shenzhen, where Westward is also located.

As geopolitical tensions escalate, Chinese technology companies are encountering increasing difficulties in Western markets. Many are now opting to present themselves as “global firms,” and some even disavow their Chinese origins.

Westward, however, believes that the games it supports do not need to conceal their Chinese heritage. Rate stated that players generally prioritize game quality over its country of origin.

“We are, in fact, hoping to see aspects of Chinese culture incorporated into these games, elements that can resonate with international audiences.”

Amy Ho, a partner at Westward alongside Rate and Edward He, highlighted “Chinese Parents” as a successful example of a Chinese game that successfully bridged cultural gaps. This simulation game gained global popularity by offering players a glimpse into the experience of raising a child in China.

Rate drew a parallel to the wave of Japanese games that began exporting 20-30 years ago, describing them as distinctly “Japanese” in spirit but “globalized” in their graphics and game design.

Several Chinese-developed titles, including those from Tencent, Lilith, and Mihoyo, have already achieved international success. Rate noted a shift in demand; previously, Chinese Steam users requested Chinese versions of foreign games, now Western players are frequently requesting English versions of Chinese games.

Ho emphasized that, particularly for smaller studios, a significant challenge lies in collecting essential data for product improvement while adhering to local privacy regulations.

Westward anticipates that 50-70% of its funding will originate from Chinese institutions. This inevitably raises concerns regarding censorship. Ho clarified that while Westward provides resources and capital, it is committed to safeguarding the studios’ independence from investor interference.

A successful outcome for Westward could foster cultural exchange between China and the rest of the world. Rate suggested that games could serve as a suitable medium for Beijing’s efforts to promote its soft power. Furthermore, attracting foreign investment into Chinese companies could enhance China’s global “brand” image, particularly amidst ongoing trade disputes.