Griffin Gaming Partners raises biggest game VC fund with $750M

Griffin Gaming Partners is revealing it has the biggest fund in gaming with $750 million raised for its game-focused venture capital fund.

Founders Peter Levin, Phil Sanderson, and Nick Tuosto (a Griffin adviser who is also managing director at Liontree) head the fund, and it focuses on gaming and markets that are adjacent to gaming such as esports, gaming infrastructure, tools, social gaming platforms, streaming, and the cloud. Across its two funds, Griffin Gaming Partners now has more than $1 billion in assets under management to invest in games.

The size of the fund says a lot about the state of games and game financing (which we will discuss at GamesBeat Summit 2022). Gaming has become the largest global entertainment with $180.3 billion in revenues in 2021, according to market researcher Newzoo. That number was ahead of Newzoo’s earlier forecast of $175.8 billion, and it was fueled by growth in mobile gaming as well as strength from the core console business for the Nintendo Switch, Sony PlayStation 5, and Xbox Series X/S.

Asked what the $750 million funding round means, Tuosto said in an interview with GamesBeat, “It means it’s a great time to be a founder. When I think about the history of games, it has had a perception from investor mindsets of being a very hits-driven business, where it’s hard to make money. Most of the folks who invest in this category do it only for a percentage of their time. They’re not all in on games. We cover this space closely. It takes expertise, relationships, and dedicated focus.”

Drake Star Partners reported that 2021 was a record year for deals in video gaming, with $85 billion of value across 1,159 announced or closed deals. That was up almost three times compared to 2020. It came because of gaming’s historic growth during the pandemic when people turned to games to distract themselves during lockdowns. Those habits continued as lockdowns lifted and returned and lifted again, and game companies prospered.

“Phil Sanderson is the longest-running active VC who has been investing in games, and he was the first money into Discord,” said Levin, in an interview with GamesBeat. “Nick Tuosto is arguably the No. 1 banker in the industry. He sees a tremendous amount of proprietary information and understands what buyers and strategic investors are looking for. I’ve sat at the cross-section of gaming and media my entire career. Now, these worlds of gaming, media, sport, social media, creator economies, and brands are colliding.”

Now Drake Star Partners expects more than $150 billion in deals to happen in 2022 since we already have more than $85 billion in deals alone thanks to January’s big deals with Microsoft agreeing to buy Activision Blizzard for $68.7 billion, Take-Two buying Zynga for $12.7 billion, and Sony buying Bungie for $3.6 billion. Prices for game company acquisitions just keep going up.

As for the money coming into games, Levin acknowledged a lot of new sources of capital are pouring in.

“At times, that will gin valuations up to an artificially frothy place, and we don’t have a lot of interest in that,” he said. “We’re comfortable sticking to our models and rational entrepreneurs gravitate to that approach.”

The gaming market is now larger than movies, music, and books combined, and it is the fastest-growing consumer trend globally, with 248% expected growth over the next decade, according to Newzoo.

The global gaming market is projected to reach a staggering $256 billion of annual consumer spending in 2025, Newzoo said. One-third of the world’s population, 3.1 billion players, play games almost an hour a day, according to DFC Intelligence.

“It’s not only just a massive market in the aggregate, but there also are so many subcategories, each with their own dynamics, with each of the teams approaching things from a different angle,” Tuosto said. “It’s really tough to translate that into the kind of pattern recognition and muscle memory that investors develop around other categories. The addressable market for gaming is two-thirds the size of the entire enterprise software market. The fact that this market hasn’t had specialist investors is just a glaring oversight, and that’s our thesis.”

Tuosto acknowledged they have competition from others raising funds in this category.

“That means there is just going to be a lot more innovation,” he said. “It’s exciting that more and more people are playing games every day and for more time. There is more revenue generated from that opportunity. So it is fitting there should be more capital available to serve that audience.”

With the pandemic, Levin said the views of gaming have undergone a psychological change. Its trajectory is eclipsing film, television, books, and music. And parents realize that their kids are immersed in gaming and they’re picking up the habit themselves.

“They’re realizing that this is very much a thing,” Levin said.

Consumers spend an average of 5 billion hours and $1.7 billion per week on mobile games in the first half of 2021, according to App Annie.

“The lines have blurred across gaming, media, sport, and social connectivity,” said Phil Sanderson, managing director of Griffin Gaming Partners, in a statement. “By seeing more than 1,300 qualified investment opportunities a year, we get a bird’s eye view into the industry and what it will take to succeed in the next phase of interactive entertainment across platforms, genres and demographics.”

Fund II

The new fund will help fuel these deals by focusing on both early and late-stage game companies. Griffin invests in content, software infrastructure, and social platforms, as well as gaming-related Web3 companies.

The company’s first fund started in 2019 and it was announced in November 2020 with $235 million in funds. For the funds that started in 2019, Griffin Gaming Partners was the No. 1 fund in performance with an internal rate of return of 81%, according to announced data from Pitchbook.

Griffin argues its track record and competitive advantage come from pattern recognition drawn from historical knowledge, proprietary research, and hands-on experience supporting portfolio company growth.

Tuosto said, “We can really get our hands on a product and try to figure out if it’s fun. That’s the part of the job that doesn’t translate always into numbers. I think it’s a unique combination, though, to be able to look at thousands of data points that benchmark a company’s performance and make sense of the data and the comparisons within gaming. We look at dozens or maybe more deals in a particular category. We always overlay the consumer perspective on it.”

The Griffin team analyzes amounts of data and reviews over 1,300 qualified investment opportunities per year to inform perspectives on growth, retention, and monetization. The firm assists portfolio companies with recruiting and business development leveraging its unique resources and focus on gaming.

“We’re all in for the culture, we play games, we have passion about games, we care very much about the industry and, at the end of the day, we’re investing in the ecosystem. That creates jobs and opportunities for people to create jobs,” said Levin. “And scale does matter. But we’re also incredibly focused on early-stage investments, and that’s by design.”

The Santa Monica, California-based Griffin Gaming Partners was started by general partner Peter Levin, cofounder of Nerdist Industries and former president of interactive ventures, games, and digital strategy at Lionsgate; Phil Sanderson, a venture capitalist with two decades of experience in game investing; and Nick Tuosto, managing director of investment banking firm LionTree. Liontree serves as a strategic partner for the fund.

“Our core thesis is to learn as much as we can about a category we’re passionate about, be active and understand where buyer’s heads are, what they think is attractive, where are they want to buy, and make sure we’re investing behind trends that show where the puck is going. That’s a pretty unique element of our strategy,” Tuosto said.

Levin has been behind deals such as getting the Westworld TV show creators Jonathan Nolan and Lisa Joy to work on a video series for Amazon based on the Fallout video games, as well as taking Candy Crush Saga to CBS for a show. He also helped with the integration of John Wick into Fortnite and Reservoir Dogs into Pay Day. He thinks we’ll see even more successes like the Sonic the Hedgehog movie and the Netflix video series adaptation of The Witcher novels.

Sanderson, who regularly runs 100-mile races and recently completed a 240-mile race, worked at IDG Ventures and has been investing in games for 23 years, with deals including Funzio, Next Games, Telltale, and Plain Vanilla Games.

Levin said that the company has a big network that it uses to help game companies with hiring, business development, and corporate development.

Tuosto has been one of the most active investment and acquisition advisers in the gaming sector, with seven 2020 transactions such as Take-Two Interactive’s $12.7 billion acquisition of Zynga, Electronic Arts’ $1.3 billion acquisition of Playdemic, Scopely’s acquisition of FoxNext Games, AppLovin’s acquisition of Machine Zone, and Phoenix Labs’ sale to Garena. He was also behind deals related to N3twork’s (partial) sale to Forte, and public offerings (through SPACS) with Nexters, Playstudios, and Skillz.

The first fund had a number of big returns, with Skillz and AppLovin going public. Its investments included N3twork, which sold a division to Forte, another Griffin investment. It also invested in Tactile, Wave, Subspace, Scopely, Discord, Overwolf, Winzo, Spyke, and Funzy. It also made seed investments into Theorycraft, Incredible Dream, Players’ Lounge, Latitude, ggwp, and Supersocial.

The second fund has also already invested into game companies including Winzo, OMG, Hadi, Forte, Neon, Million Victories, STG, Palm, DeHorizon, and others. All of this activity will be one of our themes at our GamesBeat Summit 2022 event on April 26 to April 28.

Griffin helped fund Forte, the blockchain gaming infrastructure company, as it raised $725 million.

A fund by gamers

In interviews, Levin and Tuosto said the team is built from passionate gamers with decades of collective investing, advising, and operating experience in the games industry.

Levin said the fund has gaming in its core. The company’s offices are full of collectibles and arcade machines. Levin has a lifesize replica of Mario and he managed to take a picture with Mario creator Shigeru Miyamoto in front of it. Levin said he is obsessed with Animal Crossing, while Tuosto is a big fan of Pokemon Go.

Levin noted the Griffin team met Pierre Planche, who became a partner, by playing Call of Duty multiplayer and Call of Duty: Warzone. I’ve played Warzone with Levin and Planche, and the latter plays on an esports level of talent. I’ve also played Warzone more regularly with Anthony Palma and James Wing (and our friend Timmie Graves), and they have often carried me to victory or near victory many times. (We met in person for the first time at the recent DICE Summit).

“Griffin has been our trusted partner, supporting our shared vision around blockchain’s potential for the future of gaming,” said Forte CEO Josh Williams, in a statement. “Their extensive network has led to transformative commercial partnerships and key executive hires for us. They work as hard on their portfolio company’s behalf as any investors in the business.”

Felicia Day, actress and producer and author, is a Griffin fund advisor.

“Griffin is always looking for interesting game properties and developers.” said Day, in a statement. “The crossover between gaming and other media is becoming more frequent, and Griffin’s investments are helping to boost independent voices, foster innovation, and support out-of-the-box thinking.”

The hot or not gaming trends

Levin said we’re seeing big dynamic changes in the industry, as more teams with great pedigrees emerge on both the infrastructure and content side of games. He sees more companies gravitating toward web 3 platforms, which means both nonfungible tokens (NFTs) and the roadmap for the metaverse.

He said the company is investing in that space with the same discipline it has throughout its history. The fund isn’t taking a “spray and pray” approach with lots of similar investments. Rather, it focuses on trying to find the right teams and right projects.

“When we see unbelievable talent coming together, with a phenomenal roadmap, with product and opportunity in the market, we have to take a good hard look at it,” Levin said. “We’re not religious about investing a given percent of the fund into any subgenre.”

He noted the company has stayed away from VR as it didn’t feel it was ready for primetime in the past. But he said that if VR turns a corner, “that will be good for everybody.” He noted that some caution might be in order for NFT investments, in part because of the resistance from hardcore gamers.

“Some of the NFT investment has felt very opportunistic and exploitative,” Levin said. “That’s definitely a couple of red flags for us. If we feel any game mechanic or product is either opportunistic or exploitative, we are going to run away as far as we can. We’ve made our careers in this industry, we want to make sure we’re doing good by it. We’re definitely extremely excited about it. But we’re just going to be contemplative about the investment decisions.”

On the other hand, the company is a big believer in Forte, which is an infrastructure company that is focusing on providing regulatory compliance for blockchain game companies.

“They continue to put the foundational elements in place,” Levin said. “It’s companies like Forte that will allow for the developers to thrive on top of a platform with technology that enables scale.”

Tuosto also said he believes blockchain and web 3 are a hot category, as evidenced by Forte’s funding and expansion. He thinks it could open up different monetization methods and could be bigger than free-to-play games.

“When I think about what free to play did in terms of unlocking three billion people for the gaming world, I think something similar is possible in terms of new game opportunities,” he said. “It won’t just spin up just like that. The likely path will be more nuanced. There will be new teams that spin up with creative ideas that aren’t weighed down by the burden of an innovator’s dilemma.”

The metaverse

As for the metaverse, Levin said, “It’s not even the first pitch of the first inning of a nine-inning game. We’re about to take the field. Giving players more agency and removing friction from the economy, and doing so in a safe and compliant way is just nothing but good. Right. You can see where the puck is going. We just want to make sure that people aren’t getting out too far ahead of it. It will need guardrails in place.”

On a geographic basis, Levin said parts of Latin America, India, Southeast Asia, Africa, and the Middle East are becoming ripe for investment. Turkey has a lot of talent and Northern Europe continues to be a hotbed, he said. Levin noted he has been to Finland more than 50 times.

“The total available market has expanded, and these numbers are gobsmacking,” he said. “But that’s even more reason to be disciplined and grounded in your approach because you can get caught up in that whirlwind.”

Predicting 2022

As for predicting the rest of 2022, Tuosto said, “It’s hard to compete with $85 billion in deals in six weeks. That pace will be hard to keep up with. But I do expect a number of scaled transactions to remain at a fever pitch. It’s an incredible start to the year but the level of dialogue has never been higher across aboard, which is really as it should be for this category. Gaming should be a strategic focus for media companies, for tech companies, incumbents, international businesses — everyone should be looking at their strategy with respect to the metaverse and with respect to gaming because it’s just the core part of the human leisure experience. This is a mass market phenomenon, and it’s not going away. It’s on an exponential curve so it doesn’t make sense to sit on the sidelines.”