Lumikai is a new venture capital fund targeting game developers in India. Due to the inherently complex and costly nature of game development, studios often have to consider alternate means of raising capital to continue bringing their games to life. While the likes of Sequoia Capital, Kalaari Capital, Blume Ventures, and even Indiagames founder Vishal Gondal have been funding Indian game talent in one way or another over the years, Lumikai is leaning on the fact that it’s run by those who have cut their teeth in the games business over the years. The Mako Reactor spoke to co-founders Justin Shriram Keeling and Salone Sehgal to find out more.

Sehgal’s track record includes stints at London Venture Partners, a fund that invested in the likes of Unity and Supercell early on, as well as TrulySocial that counted on the likes of Nazara and Supercell’s game lead as investors. As for Keeling, he had roles at the BBC and IGN before joining UTV Ignition Games as Global Head of Corporate Strategy and Product, working on El Shaddai: Ascension of the Metatron, an action game helmed by talent that brought classics like Devil May Cry and Okami to life (more on that towards the end of the story).

“Simply because we understand the nuances of building games and interactive media companies,” Sehgal says when asked as to why Indian developers should consider partnering with Lumikai. “Funding is only part of the puzzle for founders. For great founders, that can often be the easy part. What comes after is where we can help. Strategic partnerships, getting access to best practises like design, economy balancing or user acquisition from the best global companies and building a huge network in the industry both globally and locally which can help in hiring, knowledge exchange, learning how to foster culture are some of the benefits of working with us.”

Which companies are backing Lumikai?

On the topic of funding, the duo did not comment on the money it has set aside for investing in India though it did state it was looking to put between $200,000 to $2 million in about 20 companies. It refused to tell us who its backers are either. When pressed further we were told Lumikai’s limited partners include “iconic gaming, technology, and entertainment companies from Japan, US, Korea, and Finland”.

Odd when you consider that news of Lumikai’s existence was first broken by an India-only local business site behind a paywall after its founders were on a lowkey industry panel back in May. Not exactly first ports of call for any limited partners in those locations.

Assuming Lumikai’s limited partners are from the countries it mentioned to us, it makes us wonder as to why they’re kept a secret when every company seems to be vocal about investing in India. Perhaps they’re not too confident on India as a market and prefer to remain unknown until the fund actually makes a few deals? Either way, we don’t know at the moment.

Nevertheless, we wondered why Lumikai would choose to launch in India now considering the political uncertainty in the region along with a pandemic that has no signs of abating.

“We already have 300 million plus Indian gamers, and those numbers aren’t going anywhere but up,” says Keeling. “We’re looking at another 300 million gamers coming online over the next five to seven years, and the market is sustaining year-on-year growth of 35 percent. That has accelerated this year despite the geopolitical volatility and COVID.”

Incidentally, Keeling’s projections on the Indian market appear to be on par with KPMG’s so take that for what you will. Despite the apparent growth of gaming, Keeling is cautious not to label the business as recession-proof.

“I wouldn’t say gaming is recession-proof, but gaming usage and growth has always been fairly asymmetric to external factors,” he says. “Combine this with the fact that India has arguably the deepest bench of artistic and engineering talent in the world, and there’s a huge dual space opportunity — a massive domestic market, and a new generation of India founders building for global.”

Funding video games versus funding real money games

It’s obvious that Lumikai would naturally talk up the potential of the country it operates in. But there’s no denying that the current state of games funding is heavily skewed in favour of companies and products that are essentially gambling or “real money gaming” as the industry loves to call it or fantasy sports. Neither are video games in any sense of the term, aren’t accessible to a large part of the country due to current laws, and when you discount the cornucopia of deals in these spaces, you’re left with very few actual investments in video game developers. We had to ask why.

“Most VCs tend to follow the problem-solution approach for evaluating companies,” says Sehgal. “We know that framework breaks down when evaluating entertainment. While building gaming content, you don’t always need an inherent ‘problem’.Your biggest competition is boredom, that isn’t a problem in a traditional sense but a by-product of the attention economy. Thus, the focus needs to be on financing companies that are able to create truly delightful, fun experiences for  key audiences and also to some extent capture the zeitgeist.”

Although this would essentially mean VCs are simply chasing the latest trend, Sehgal states that timing is crucial.

“Trends in the games industry need to be timed as the industry moves fast and is rarely static. Invest too early and the companies need a lot of time and capital to gestate and alter consumer behaviour,” she says. “Remember the VR gold rush? Invest too late and you have missed the hype and most likely exit cycle.  Hence, the ‘Goldilocks’ rule becomes paramount — the timing needs to be just right. Further, there is often the push to target large markets for games developers but in gaming, focused plays with targeted audiences can often go on to achieve hugely successful outcomes.”

The challenges of being a game developer in India

“We’re looking at Indian developers building innovative products for both domestic and global,” says Keeling. “Broadly we invest across gaming and interactive content, tools, platforms, and infrastructure. The domestic short to mid-term opportunity is clearly mobile first — more evolved social gaming concepts, deeper metas building on established concepts, white space approaches to real money gaming, and breakout casual content targeting the Tier-2 to Tier-4 vernacular mass markets. But we’re also seeing really exciting and innovative social gaming, tools and technology startups building ground up to compete globally.”

Keeling’s answer suggests that mobile would be Lumikai’s ideal bet as well as a larger focus on the ecosystem as well. On the surface, this would not differentiate Lumikai from other fund houses in the industry, more so with it being open to real money gaming which would explain how it already looked at over 140 ‘gaming’ companies. However the team is mindful of the concerns local developers face.

“Historically the sector has been underfinanced, so that means developers had to temper their ambitions,” Sehgal says. “Lack of funding also means that the analytical sophistication, access to talent, rapid iteration, appetite for failure and creativity so essential for building games companies has largely been missing. Constrained by capital, most game devs turned to work for hire, or sought game publishers or set out on their own. There is also a degree of skepticism from developers who are jaded about building for India due to the multiple false starts of the past. Overcoming that past baggage to ideate and create for this new generation of Indian gamers is going to be a challenge. However, we have seen 140 plus companies and spotted some very promising companies and founders in that mix.”

Speaking of the 140 gaming companies Lumikai has ascertained, it plans to expand its network now that it’s out of stealth mode. At the same time it’s also paying attention to how Indian gamers are playing games.

“We’ve also been carefully tracking usage sociology both pre and during the pandemic, and our investment theses reflect some unique opportunities that have surfaced as a result,” Keeling says. “Whatever the other side of the pandemic ends up looking like, we’re seeing an acceleration of multiple new play styles — a mass experimentation phase which will create richer user diversity and stronger social gaming connections.”

Funding games versus funding platforms

This would suggest that a somewhat qualitative focus on the existing player base, but is it worth pursuing? Of late there’s been a notion amongst VCs and investors to avoid putting money into game development citing the hit driven nature of the business being a risk and instead investing in game platforms themselves. 

Recent examples include the gargantuan amounts of money poured into Jio and Paytm which eventually get funneled into video game-related products and services. Does Lumikai view platforms as a means to an end or an end in themselves?

“While we understand the thesis behind funding platform bets, our view is that eventually the market will settle around a few incumbents and scaling those incumbents will be an arms race to the top,” says Sehgal. “Platforms without unique content will eventually either consolidate or die. The magic with backing gaming content studios is that they can create IP which can be deeply profitable and often act as good acquisition targets to the large global strategics who are looking to diversify their content base and reach.”

With that in mind, you can expect Lumikai to invest in a variety of gaming companies in the country.

“[C]reating long-lasting IP, building the right culture to sustain success and innovating constantly is often the hardest part for content studios,” she says. “We follow a portfolio strategy of investing across the games landscape including content studios as we can help provide companies the right ingredients to set them up for success.”

El Shaddai: Ascension of the Metatron — a lesson in trusting developers

On the topic of success, we had to ask Keeling what it was like to work on a game like El Shaddai: Ascension of the Metatron. Released for the PS3 and Xbox 360 in 2011 it was directed by Sawaki Takeyasu, lead artist on some of Japan’s seminal action-adventure games, including Devil May Cry and Okami. Many other studio members had also come from key roles on some of the biggest games from Capcom, Square Enix, and Sega. Sporting a cel-shaded aesthetic and biblical plot, it was in striking contrast to the myriad of brown and grey shooters of the time making it a tough sell to mass market audiences, something Keeling agrees with.

“El Shaddai was an original concept and frankly a tough sell,” he says. “Towards the end of development, we started getting really negative focus test reviews — people didn’t get it, and the character design was weird even for Japan. Management started to panic. Most publishers would have retooled the game or cut their losses.”

Regardless, developer Ignition Tokyo persisted. Refusing to back down from what it wanted the game to be he tells us.

“The studio fought hard to preserve their vision for the game, and actually doubled down on the weirdness,” he says. “The studio creatives helped build the marketing strategy directly, and the launch campaign was wildly unusual for the time. Partnerships with Japanese fashion influencers promoting jeans worn by the lead character, dedicated El Shaddai cafes in Tokyo, and a meme creation contest on Japanese video site NicoNico.”

Turns out that the gamble paid off. The game sold well Keeling recalls.

“Unexpectedly, the game ended up catching fire in Japan,” he says. El Shaddai memes were the highest trending IP across Japan for the whole year — not just in games, across all media. Ultimately the game made a solid profit, and still has a strong cult following today. Sawaki bought back the rights from UTV, and now runs a successful series of El Shaddai cafes in Tokyo while continuing to work on new mobile versions inspired by El Shaddai’s universe. I’ll never forget the team’s conviction to their vision, and the power of authentic, unique ideas to capture the zeitgeist in a crowded market. If you can’t build 5x better, build 5x different.”

It’ll be interesting to see how Lumikai’s India adventure shapes up. Although do have our concerns such as the absence of a corpus amount and details on its limited partners, perhaps the pedigree of its founders would be enough to see it through.


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