Andreessen Horowitz raises $600M venture fund for games

Andreessen Horowitz has raised a $600 million fund to invest in games. The storied venture capital firm is already a big investor in games, but Games Fund One will be A16z’s first fund targeted solely at games.

A16z investors Andrew Chen, Jonathan Lai, and James Gwertzman said in a blog post that the fund is dedicated to building the future of the games industry.

“Having been investors in this space for more than a decade, it’s clear to us the industry has entered a new era, and there is no better time than now to build a fund focused on supporting the next generation of games builders,” they said.

The fund is based on the idea that games will play a pivotal role in defining how we socialize, play, and work over the next century. Over the past decade, games have undergone a radical transformation, from simply being packaged entertainment to becoming online services that more closely resemble social networks and scale like consumer technology companies, they said.

The A16z investors said the most successful games today, such as Fortnite, League of Legends, and Minecraft, are communities that retain loyal, long-term users and generate billions of dollars in annual revenue. Furthermore, games are also driving innovation across the entire consumer ecosystem, pioneering best-in-class mechanisms for user engagement, retention, and monetization, such as microtransactions, battle passes, and web 3 tokens.

“We believe that over the last decade, games have fundamentally transformed from entertainment into much more — today the most successful games are online services, social networks, creator economies, virtual worlds, etc.,” Lai said in an email to GamesBeat. “Games like Fortnite, League of Legends, or Roblox have more in common with a modern consumer tech company like Instagram than they do the original Super Mario Bros back in the 1980s. Yet, this transformation is still largely not well-understood by the public or mainstream tech investors.”

Lai added, “A16z has believed in and invested in the games industry for over a decade, and we feel like the best is yet to come. There is more innovation and building happening in games than ever before – with new areas like web3 and the metaverse, as well as a resurgence in areas like VR/AR. Our dedicated games fund will enable us to fully invest in all the opportunities we see as well as plant a flag around our long-term commitment to the space – we’re not fair-weather fans, with this fund we are committing to supporting games founders for 10+ years, through bull and bear markets, platform shifts, new technologies, and come what will.”

And long term, A16z believes games infrastructure and technologies will be key building blocks of the metaverse, an
opportunity that dwarfs the current $300 billion game industry itself.

What the fund will invest in

The fund will invest in the following themes:

• Game Studios: The best games today are continually updated online services whose players form an integral part of the game through multiplayer and user-generated content. These “games-as-a-service” have become rich, interactive social networks, with players making in-game friendships that are just as meaningful as those made in-person.
• Games x Consumer: The rapid growth in the number of gamers worldwide has created a thriving ecosystem of consumer apps to support them. As games become the dominant way people spend time, we believe some of the most innovative consumer companies will be built around player communities. (Social apps like Discord that help gamers build community, or platforms like Twitch where millions tune in daily to watch creators livestream video, are just a couple examples of this).
• Infrastructure: As games evolve into virtual worlds and online services, the demand for tools and services needed to build great games is skyrocketing. Not only is this infrastructure important for games in its own right, we also believe that the coming Metaverse will be built by games companies, using games technologies. From content creation to multiplayer enablement to virtual economy management and live ops, the games industry has already solved many of the problems that need to be solved to create the Metaverse.

Why create the fund?

Games Fund One has been nearly a decade in the making. In the 2010s, A16z backed companies like Zynga and Oculus, which helped build the firm’s experience with both game studios and underlying games technologies. More recently, A16z has invested across the ecosystem, backing veterans from established players like Riot Games, CCP, and Epic Games, as well as from consumer tech startups that target gamers, like Z League and Sleeper.

Along the way, A16z has bet on emerging technologies, like web 3, instant games and VR/AR. All of this has cemented its belief that games require a specialized focus–not just in dedicated investing capital, but also in operational prowess that’s as unique and forward-thinking as the games industry itself.

Today, the firm’s games portfolio companies are supported by a cross-functional team of experts from across the firm, many of whom are themselves gamers— Lai even met his wife while playing League of Legends —and games industry veterans from companies like Riot Games, Twitch, EA, Tencent, and Oculus. These partners are dedicated to working with portfolio companies and accelerating their time to success across core company-building functions such as go-to-market, marketing, talent, people practices, capital networks, and more.

Lai addressed how the fund hopes to be different.

“We are a team of builders investing in other builders. Every member of our investment team has either worked at or founded a game company or high-growth start-up. I was an early producer at Riot, and then Tencent,” Lai said. “James Gwertzman founded two game companies and ran the gaming cloud at Azure. Andrew Chen led the global rider growth teams at Uber during their hyper-growth years. Our deal team Jack Soslow and Robin Guo worked at Oculus and Riot respectively. As a founder, you can be sure that the person you’re talking to across the table understands what you’re building, and respects the challenges that you face as an entrepreneur. “

He added, “We also have a unique operating model that we’re bringing to games. A key part of the A16z model is our operating platform – a 300-person plus cross-functional team that partners with our portfolio on key areas important for start-ups: go-to-market, talent, people practices, marketing, capital raising, and more. With our games fund, we intend to add even more functions specific to the needs of game founders, so we can help them do everything from reaching Twitch streamers, to managing their virtual economies, to performance marketing, to testing their games globally.”

With Games Fund One, the firm will continue to add more functions and develop deeper networks that are tailored to the games ecosystem so the firm can help portfolio companies with everything from building digital communities, to managing their virtual economies, to IP licensing best practices, to helping build their development teams.

“Due to the breadth of a16z, we are particularly strong at the intersection of industries. We have world-class experts in crypto, fintech, enterprise, and consumer social — and many game founders these days are increasingly building at those intersections,” Lai said. “We invested in Carry1st and Lootrush, combining games x fintech. We’ve invested in many web3 games companies such as Dapper Labs and Battlebound that lean on us for both crypto and games expertise. B2B games infrastructure companies like Parsec and Overwolf love our enterprise expertise, and consumer social companies building game-like experiences like Sleeper, also find us very helpful.”

A16z will be joined by games industry leaders and visionaries, including Jason Citron, cofounder of Discord; Marc Merrill, cofounder of Riot Games; Mike Morhaime, cofounder of Blizzard; Aleks Larsen and Jeffrey Zirlin, cofounders of Sky Mavis; Kevin Lin, cofounder of Twitch, Mark Pincus, founder of Zynga; and Riccardo Zacconi, founder of King.

Through Games Fund One, A16z said it is reaffirming its commitment to the games industry. If you’re building, supporting, or partnering with the next generation of games, the company says it wants to hear from you. And its hiring too – on the investment team, in marketing, and partnerships.

“It’s worth noting that while we’re focused on early stage investing in our games fund – seed and Series A – the firm has the ability to invest at the later-stages as well, for example our growth stage investment in Roblox,” Lai said. “Founders love the fact that we can support them from the seed all the way to IPO, with our operating platform adapting to their changing needs.”

I asked Lai if he was concerned about the hype cycle around blockchain games and some resistance to it.

“Web 3 is one of several areas we’re investing in,” Lai replied. “Our focus is on investing in the very best founders in the games industry — some of these founders are building in web 3, but many are not. We just invested in Startplaying.games, which you covered. What is important is that when we back a founder, we plan to support them for the long-term — through bull or bear markets, platform shifts, technology cycles, etc. So while there’s a lot of market volatility right now, we just go back to fundamentals which is finding and supporting the very best founders for the long haul.”