The session, ‘Building Value & Scale in Animation & Gaming‘ on day 2 of the NASSCOM Animation & Gaming India summit was moderated by Clearstone Venture‘s Rahul Khanna and panelists included Nexus Capital MD Sandeep Singhal, Intel Capital‘s Varsha Tagare and IDG Ventures India MD Manik Arora.
The message was loud and clear. VCs and the guys with the money are excited about the Animation & Games space in India.
All the four funds on the panel have invested into this space and are looking to make more investments. Intel Capital has invested in Maya Entertainment Ltd, Nexus Capital has invested in Mobile2Win and Contests2Win, Clearstone has invested in Games2Win, while IDG Ventures India has invested into Kreeda Games India.
The hot tracks in which the panelists were interested include Animation Features, Animation Production Services, Casual Online Gaming and Mobile Games.
“The big and positive change is in the quality of the animation production which has improved. And besides, the domestic market too is abuzz with 73 features announced and am sure that quite a few of these will make it to the screen,” shared Sandeep Singhal.
Rahul Khanna pointed out, “In terms of the animation feature value chain, distributors are now coming into the fray to share the risk and rewards, which helps offset risk in the face of significant financial commitments required to back an animated feature.”
“Another way to derisk is to look at creating the IP in other formats and testing the markets, or for that matter to license feature film franchises that have a built-in audience,” he added.
Talking about the gaming space, IDG Ventures India‘s Manik Arora shared, “The MMOG market today despite all the hype is just a 5 to 10 million dollar market in India and might shoot up to 300 million in the next two years and that is the kind of growth that excites us.”
Talking about distribution issues, Arora added, “How does one get the MMOG into the hands of consumers, cafes? We have to evangelize cafe owners to push MMOGs, there are 150,000 cafes in India and less than 10 per cent are organized.”
Manik shared that in order to reach homes and offices, one would have to look at playing with compression technologies and also tie up with the right retail and distribution partners. Another issue according to Manik was that of payment mechanisms considering credit card penetration was not high. “The other idea is to get advertisers to pay to subsidize the content,” he said adding that in the US, 40 per cent of revenues in the MMOG space come from advertising.
“It is very very early in India but we are seeing trickles in Kreeda with digital marketing agencies taking interest,” he added.
Intel Capital‘s Varsha Tagare shared that Intel was taking a long term view at the entire games ecosystem. “We have made 12 investments worldwide in animation and games space and have gone through both, the IPO as well as the bust cycles. In India our focus also includes how do we increase PC Penetration, Broadband, create awareness in channels, as well as an acceptance for games.”
Commenting on the animation front, Varsha pointed out that the momentum was definitely growing and that Intel was working with companies like NIIT to develop a curriculum that would train people across.
Giving an insight into key things that VCs look for, the panel shared that in early stage ventures the bet was on the people. “It’s about who will build the business, how compelling is your proposition and what gives you the credibility to raise funds,” shared Khanna, adding, “It’s not always about being first, because being first doesn‘t mean being best.”
Sandeep Singhal gave a perspective that companies needed to be open to entering joint ventures in order to scale up. “Sometimes two hands on the table is better than one.”
“You need to have a clear business model. You need to be clear where you fit in the value chain. And you need to be very clear on how you will scale up.”
On being asked as to how much stake do VCs generally look at, the reply across the panel was between 26 to 50 per cent though at times it could be much more.
At the conclusion of the session, IDG Ventures India‘s Manik Arora shared that VCs generally look for big outcomes in terms of 10x returns and they are not interested in 2x-3x returns. “Venture Capital is not necessarily the best solution for everybody. Think your model through, see if you could build up a services model to create a cash flow for your company and you may not need to divest stake to a VC.”