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IDGVI News: Media Coverage

Would you rather have a small stake in a big firm or other way round?

Livemint – April 2, 2015

By Krithika Krishnamurthy

The gaming industry is one of the fastest growing sectors in the Indian media and entertainment industry, expanding 22.4% in 2014


Game developers are attracting interest from VC funds as increasing smartphone penetration and falling Internet data charges prompt Indians to spend more time consuming entertainment on their handsets.
Photo: Carlo Allegri/Reuters

Mumbai: Last month, Moonfrog Labs, an 18-month-old mobile gaming start-up, raised $15 million from US-based venture capital (VC) firms Sequoia Capital and Tiger Global.

In June last year, Sequoia Capital had invested an equal amount in Octro Inc., which makes digital versions of the card games Rummy and Teen Patti, with 30 million registered users. Octro was the first Indian gaming start-up to receive such a large amount from VC investors.

Octro plans to raise another round of funding in the next three months, said Saurabh Aggarwal, chief executive officer, adding that the money will be used to diversify into different genres of gaming. The company is now in the midst of launching a digital version of carrom for mobile phone users.

Moonfrog Labs, Octro and other game developers are attracting interest from VC funds as increasing smartphone penetration and falling Internet data charges prompt Indians to spend more time consuming entertainment on their handsets.

At the end of 2014, India had around 116 million Internet-enabled smartphones and the number is expected to reach 435 million by 2019, according to a report published by industry lobby Federation of Indian Chambers of Commerce and Industry and consulting firm KPMG in March.

“This growth presents a good opportunity for digital content aggregators, advertisers, app developers and online streaming companies to engage users through relevant mobile-led strategies,” said the report.

The gaming industry is one of the fastest growing sectors in the Indian media and entertainment industry, expanding 22.4% in 2014 to Rs.2,350 crore in revenue, according to the report. That explains the investor interest.

“We are looking to build a portfolio of mobile gaming companies in India,” said Karthik Prabhakar, vice-president, IDG Ventures India, which invested an undisclosed amount in less-than-a-year-old mobile gaming start-up PlaySimple in December. The early-stage VC firm is trying to replicate its experience in the US, where it has a portfolio of 9-10 companies in the gaming sector and has already made one successful exit, said Prabhakar who is in talks with 3-4 Indian game developers for potential investments.

To be sure, the amounts game developers are attracting are small compared with the investments that private equity funds are making in e-commerce companies such as Flipkart and Snapdeal.

Flipkart is in advanced talks to raise $600-800 million in fresh capital, potentially valuing India’s biggest online retailer at as much as $15 billion, Mint reported on 30 March. Snapdeal received $627 million from Japan’s SoftBank Group in November.

Last year, online retailers raised upwards of $3 billion. In the just-concluded financial year, private equity and VC investments in gaming increased to $72.78 million from $3 million the previous 12 months, according to VCCEdge, which tracks investment activity.

But there has been a spurt in the number of gaming start-ups, with teams as small as three or five or 10 members.

“There are now 250-300 gaming companies compared with hardly 30-40 companies four years ago,” said Manish Agarwal, chief executive officer, Reliance Entertainment Digital, the gaming and entertainment arm of Anil Ambani-led Reliance Group.

India is also the third-fastest growing mobile app market in the world, behind the US and Europe, according to the Internet and Mobile Association of India. Currently, there are more than 9,000 app development companies in India, according to a report by software services industry group Nasscom.

“Over 50 million game-related app downloads happen each month from the iOS (App Store) and (Android) Play Store in India with a majority of these being freemium (downloads are free but users have to pay for extra features) games or with in-app purchases,” said Karan Mohla, executive director and head of digital consumer, IDG Ventures India.

Game developers are not restricting themselves to the domestic market. For instance, PlaySimple’s first game—GuessUp—has had over a million downloads and is among the top 10 downloaded games in 20 countries and No. 1 in Egypt, said Prabhakar, who also sits on the board of PlaySimple.

By 2017, PlaySimple intends to be the biggest mobile casual games developer from India and a dominant global gaming company, said Siddharth Jain, one of the co-founders. The company has plans to release 20 titles over the next three years with a revenue potential of over $100 million per year, he said.

Global gaming companies, like Rovio Entertainment Ltd—maker of Angry Birds—are also eyeing India.

“We have soft-launched games in partnerships with gaming studios in Japan and China in those markets. India, with its upcoming gaming industry, becomes very interesting in that respect,” said Antti Öhrling, country director, Rovio Entertainment.

Still, infrastructure issues loom in the way of India catching up with China or Japan in mobile game development.

“For a quantum leap to happen in gaming over the next 3-4 years, issues of carrier billing and relevant pricing for the Indian audience needs to be fundamentally solved, along with continued improvement of the quality of games,” said Mohla.

The revenue model in Asia, including India, is also different from the West, which could pose a problem. In Western markets, companies usually get 75% of revenue by selling the games and 25% from other sources like advertising, says Öhrling. In India, game developers have to subsist only on advertising revenue.