Investors weigh in on how the pandemic has changed the playing field

COVID-19 has impacted every aspect of games, from how they're played to how they're made. Naturally, it's also changed the way they're funded.

At last month's GamesIndustry.biz Investment Summit Online, a panel of investment community experts shared their thoughts on how the pandemic has changed the equation for developers and venture capital investors alike. The session included WINGS Interactive CEO Cassia Curran, Digital Extremes Head of External Projects Richard Browne, Kowloon Nights advisor Astrid Refstrup, and Galaxy Interactive managing partner Sam Englebardt. The full video of the session is embedded below.

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Digital Extremes Head of External Projects Richard Browne opened by acknowledging that with people staying home more and having fewer entertainment alternatives, the pandemic has created more demand for games.

"It's obviously put a spotlight on where we are and what we're doing," Browne said. "I think the industry continues to grow and people are looking for places to put safe investments. We've never been safe, but we're a pretty good investment at the moment."

"[T]here are very few AAA developers left to be bought, so investment now is looking much more lower down to who's going to be the next big thing"

Richard Browne

As for where game investments will be directed, Browne believes they will largely go to smaller companies.

"I had the conversation the other day that there are very few AAA developers left to be bought, so investment now is looking much more lower down to who's going to be the next big thing, who's going to be the next great indie," Browne said.

WINGS Interactive CEO Cassia Curran said even before the pandemic she'd been seeing an explosion of interest in games from venture capitalists, but it had been more targeted toward the platform or technology side of the business rather than game developers. And while some aspects of gaming have benefitted from increased interest during the pandemic, others -- such as brick-and-mortar retailers -- have struggled.

She also noted that even if games do look like an attractive investment right now because of the pandemic, there may also be a smaller pool of people with money to invest.

"When it comes to investment companies and funds, yes, everyone wants to invest in games because it's a relative safe harbor in these times," Curran said. "But at the same time, are the investors in those funds themselves completely safe? There's a massive recession occurring, and quite a lot of the major investors are already feeling a little bit poor right now, and perhaps it's a little bit harder to make those capital calls than it previously was."

Curran also expressed concern about how government programs investing in games like those in Canada and Germany would be impacted by the pandemic.

"The governments have seen a massive impact on their finances due to the COVID-19 pandemic," she said. "Whether they will then react to the shortfall by potentially taking away some of these programs is something that we're keeping a close eye on for sure."

Galaxy Interactive managing partner Sam Englebardt said one of the biggest challenges facing investors now is figuring out how much a business is actually worth.

"Rather than seeing a business where demand has fallen off a cliff, you have this other issue of seeing businesses and attempting to assess what is their normalized rate of growth," he said, adding, "It's this analysis of trying to figure out, 'Well OK, this appears to be a business where all indications are that it's really working, but how do we price it properly? How should we model the continued growth of the business? What's going to happen when people have other options that are currently unavailable to them?"

That problem is further complicated by the inability to appraise companies as investors ordinarily would.

"Right now, the people who could not afford to go to GDC no matter how we supported them, they can actually turn up on Zoom and we can have a conversation there"

Astrid Refstrup

Browne asked, "How do you do due diligence when you can't actually go into the office and actually go through the books and ask the questions of the people you need to do? So it's like there's a lot of movement toward, 'Well I want to get involved in this,' and a lot of, '...but how do I verify it?' And if you're investing millions and millions of dollars into something, you really kind of need to know."

Regardless of the difficulties, Kowloon Nights advisor Astrid Refstrup said investors will figure out a way to keep investing.

"All of us still need to put some money into games, and right now, we're all at a tipping point," she said. "We're slowly adjusting to, 'How do we do this on Zoom or whatever platform? How are we going to meet each other?' Because up until March, if someone was starting up a company, you would tell them, 'Go to GDC, go to Gamescom, go to Games Week Melbourne, Taipei Game Show, whatever there was in people's region... But right now, we can't tell people specifically where to go.'"

That hurts a lot of developers, she said, but it's also a great opportunity for investors to find new teams and people who would otherwise be locked out of the usual game funding avenues.

"Right now, the people who could not afford to go to GDC no matter how we supported them, they can actually turn up on Zoom and we can have a conversation there," Refstrup said.