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  • Lumikai

For investors, early-stage gaming is where the magic is

What do Roblox, League of Legends, Candy Crush, Clash of Clans and WordTrip have in common? They’re all multi-billion-dollar gaming IPs — but more importantly, they all came from companies that were start-ups.

There are over 3 billion gamers in the world today. Over 60% of the global gaming market revenue comes from mobile games. And 23% of the total gaming VC deal value in Q1-Q3’22 went to early-stage bets.

Source: Investgame, Naavik

Early stage gaming has the potential to create some of the most spectacular returns in VC investing. But from a 30,000 foot view, gaming looks like a hit-driven business, especially in content.

At Lumikai we embrace that challenge, because a deep sector focus is required to identify the hits. As former game-builders ourselves, we identify the many nuances that need be worked on from day 1 to ensure successful outcomes. A mix of right talent, high conviction on a white space thesis, and staying power are keys to unlocking success.

Let’s take a look at a few of the key traits we look for in early stage gaming founders.

The right founding team: Building a start-up feels like a Sisyphean task, and for gaming founders, staying power is an essential superpower. Very few gaming studios hit it out of the park on their first try, so rapid iteration and learning from past experiences is key to success. We look for founders who are truly passionate about the space they’re in, and who have the conviction to keep building and improving over at least 10 years. Gaming founders often need at least three short on goals, and ideally 20–28 months of runway.

Gaming founders also need the flexibility to change when the facts do. Are founders data driven, and curious enough to adapt to feedback from their users, advisors and investors? Are they great storytellers who have the ability to synthesise their thesis into a compelling narrative to attract follow on capital, and the right talent?

Gaming is a unique mix of art & science, and founders need to have the right creative DNA, technical chops and customer centrism required to build a gaming company. Rarely will one skill alone make a good game.

Hyper-specialisation in a white space: It starts with founders that through either research or experience have identified a core set of unique insights into a genre, or audience. Questions follow from here — is there an upside venture scale, domestically or globally? What does the competitive landscape look like? Over 500 games are submitted to the app store every day — we’re in an attention deficit economy. Look at some of the great developers today like Dream Games, Trailmix, and Metacore — they doubling down often on a single game and iterating until they absolutely nail it.

One mental model for identifying a white space include spotting and disrupting legacy, or “sleeper” categories of games that have stagnated and not seen innovation in years. Founders can also approach this from a user centric view — have user expectations of a certain geography advanced beyond the type of content available to them? Have users become more sophisticated or matured faster than a market? Spotting these fundamental misalignments of user demand versus supply is a great way to identify a white space. This category is especially ripe for disruption across the Indian market.

Best in class execution: Gone are the days where Indian users will settle for anything less than delightful experiences and exceptional execution. If you’re targeting a global audience, you must have the ambition and capability to execute 5–10x better than your next competitor. Think carefully about the modulation and cadence of dopamine hits in your game (once every 60 seconds ideally) and TTF, or time-to-fun — a metric that tracks the time from opening a game to experiential fun that is representative of the core experience. Even for midcore games, again you should be looking at under 60 seconds. Making your tutorial (if you need one) interactive is a great way to reduce TTF.

Know your retention: Once your game is in public testing, truly understand the levers that drive retention in your game. A D1 outcome of 45–50+% is a good start. Following that curve forward, a D7–14 outcome of between 20–25% is healthy. From D30–90, you want your curve to tail off to a minimum of 10%. Beyond that, if you’re maintaining 5% retention of your first cohorts you stand a solid chance of long-term monetisation. Hitting these retention numbers are critical for long-term success and founders should make sure that retention is “Nth day” retention and not rolling-retention.

Once you’ve iterated on your product retention strategy to achieve these longer-term benchmarks, and optimised CAC spends, it’s time to turn on the UA tap. Be mindful that retention, return-per-install curves and CACs will of course vary as you scale, and you need to iterate accordingly.

Gaming studios that successfully navigate these key early inflection points have the potential to hit revenue scale very quickly, and in many cases don’t require raising further capital — in essence, they become self-sustaining at early-stage funding rounds. That means a high potential for fantastic venture scale outcomes for early-stage investors.

The table below shows examples of some gaming companies that have scaled to generate large liquidity outcomes from relatively small raises:

Source: Tracxn, press releases

While there are clearly challenges to navigate, at Lumikai we remain bullish on early-stage games investing. Lumikai today is India’s most active early-stage games investor. We’ve spoken to over 1,200 founders in the last 18 months, investing in 11 to date. The market is at $2.6B in revenue this last financial year, growing to $8.6B over the next five years. More than half of that growth is coming from gaming sectors that traditionally have been underserved by non-gaming-focused VCs — midcore, casual gaming, in-app purchases, and virtual gifting and tipping platforms.

When we look at caliber and liquidity of talent, potential for white space disruption, and sheer growth in user demand, India today is the global frontier for early stage gaming opportunities. There’s never been a better time to build a gaming startup, and being former operators ourselves, Lumikai prides itself on being a truly collaborative partner at the earliest stages of founder success. It’s never too early in your journey to drop us a line at

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