How a VC Avoids ‘Hyperfinancialization’ of Gaming
- Gaming VC firm Hiro Capital just launched a $340 million fund to capture metaverse-based ventures.
- Co-founder Luke Alvarez lays out the firm’s unique and gamer-friendly approach to metaverse investing.
- He explains the expansion of gamified fitness companies in Europe and shares 3 rising stars.
European gaming venture capital firm Hiro Capital launched its second fund this week.
Hiro Capital II. raised $340 million, bringing its parent’s overall assets under management to $650 million, to tap into the boom in gaming and metaverse-based ventures.
Hiro Capital appears perfectly poised to capture the “metaverse moment” that’s taking place in society right now with a heavy-hitting investment team of gaming industry veterans and a metaverse-based strategy that dates back to 2018.
“It seemed in 2018, when we launched Hiro Capital 1, that there was another big shift coming,” said Luke Alvarez, Hiro Capital’s managing general partner and co-founder. “A massive new computing platform that was going to emerge over the next decade or two, which was this thing called the metaverse.”
The team even named the firm after Hiro Protagonist, from the sci-fi book “Snow Crash”, which is a foundational text of the cyber punk movement, and in which the main character jumps between Los Angeles and a virtual world known as the metaverse.
The metaverse moment
It’s still early days for the metaverse, a vision that hopes to parallel the real world through computer generation and technologies that drive its immersive capabilities.
But four years on from the launch of the initial fund, it now has a lot more attention.
Mark Zuckerberg brought mainstream attention to the concept when he announced he would be changing Facebook’s name to Meta as part of a broader metaverse vision for the technology firm. Brands and investors have since thrown significant amounts of money and resources trying to create a presence in the digital world.
It’s also become associated with cryptocurrencies as of late, as blockchain companies rush to develop the Web 3.0 vision, a decentralized and more immersive version of the internet where individual users have more control over their assets.
Hiro’s second fund will funnel some investment in the Web 3.0-based and crypto-oriented games, but it’s likely to be a only a small proportion of the total investment as the metaverse isn’t limited to a focus on decentralization.
“That’s partly because there are 3 billion gamers today worldwide, generating over a couple of 100 million of games income,” Alvarez said. “The web 3.0 piece of that is still very, very small. There’s only a few tens of millions of people with Metamask wallets.”
Betting on founders
The founding team of Hiro Capital are all entrepreneurs. Alvarez founded Inspired Entertainment, a NASDAQ listed games technology company.
Sir Ian Livingstone founded Games Workshop and was recently knighted by HM Queen Elizabeth II for his services to the gaming industry. Cherry Freeman meanwhile spent her career as a serial entrepreneur and has over 10 years of experience in angel investing.
They are looking for entrepreneurs that have “a magic combination of imagination, creativity, vision and ambition.” At the same time, there has to be some pragmatism and toughness, Alvarez said.
“You’re looking for that conviction that they’re going to be able to evolve and pivot and deal with problems and be creative in growing the business,” Alvarez said.
Investing in entrepreneurs in the crypto gaming space can be challenging.
Many know a lot about decentralized technology and finance, but very little about gaming, Alvarez said.
“You’ve got to back the creator and you’re looking for a great gameplay loop,” Alvarez said. “So if it’s someone with clever blockchain innovation, but no idea about the gameplay loop we will probably pass.
“If it’s someone with a really strong gameplay loop, who needs some help on the blockchain technology and economy design, we might back that because we can help with that stuff.”
Gamers vs crypto
The gaming community have been hesitant to welcome the introduction of crypto concepts.
The management team at indie game publisher Team17 planned to release a series of collectible NFTs for the popular game Worms. The decision received significant backlash from employees and gamers that resulted in a quick U-turn and the release was canceled.
Alvarez says some of the benefits have been overhyped, but there’s still strong potential benefits for gamers with Web 3.0, even though the whole thing is in its infancy.
“I think it’s all got to be proven,” Alvarez said. “What we don’t love is the mixing of the core gamer experience with hyper financialization.”
“That crossover is probably a fairly narrow segment,” Alvarez said. “And most gamers just want to play a game and have fun with their mates in doing so and enjoy the core gameplay loop. So the heart of what we look for is always gameplay, gameplay, gameplay … And if the blockchain trustlessness and decentralization can make that a better experience for the player then great.”
Gamified fitness
Hiro Capital is not only on the cutting edge of metaverse investing, but also in gamified fitness, a trend that originated in Europe.
Most people associate gamified fitness with a company like Peloton, but that’s a misconception, Alvarez said.
A good gamified fitness experience and platform comes down to four factors, Alvarez said.
1) The platform captures data from an individual’s body during fitness activities.
2) Machine learning can be applied to the data.
3) An interactive gamification element is implemented.
4) There’s a feedback loop that will help optimize the individual’s performance and technique.
With Peloton, individuals are consuming one-way content, Alvarez said.
“There’s no circular feedback,” Alvarez said. “The stuff that we get excited about is multiplayer gamification.“
He shares three investments that are finding success in this arena:
1) FitXR
FitXR is a London-based subscription service that provides access to fitness classes on virtual reality headsets.
“It’s established itself as one of the top fitness experiences in VR globally now and really scaling super super fast,” Alvarez said.
2) Zwift
Zwift brings massive multiplayer online gaming to cycling. It’s an app-based service that enables individuals to train and compete with each other in a virtual world.
3) NURVV
NURVV is a wearable smart insole that provides detailed feedback on an individual’s running form in real-time.
“It will tell you in real time through your hearable, or through your watch to shorten your stride or, or come more on to the center of the foot or more onto the balance between left and right,” Alvarez said.
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