Why India is the future of gaming: Sequoia Capital India Interview

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Shailesh Lakhani, managing director of Sequoia Capital India, is very bullish on the Indian gaming market:

Here are the facts:

• India’s economy is growing like crazy.

• IAP revenue for games is heavily under-reported by all major data services.

• Geopolitical conflicts are pushing supply chains and sourcing to shift out of China, mainly favoring India; this will help drive middle-class growth in India.

You can see below the IMF expectations for GDP growth in 2023:

It’s only a matter of time before India’s middle-class rivals other major economies in terms of spending potential.

Once that happens, India will not only lead the world in game downloads, but will also drive significant IAP revenue. Now I’m not sure if I’m as bullish as Shailesh. But, I will say, he’s seen some numbers (my assumption), and so have I (although likely not as many data points as Shailesh).

People would not believe how much money is being made in India from games.

To help characterize the current thesis behind gaming in India, the investment climate, and the game development ecosystem, I spoke to Shailesh and Prachi Pawar from Sequoia Capital India.

🎧 Listen on Spotify, Apple Podcasts, or Anchor

Speakers:

• Joseph Kim. CEO at LILA Games (moderator)

• Shailesh Lakhani. Managing Partner at Sequoia Capital India

• Prachi Pawar. Vice President at Sequoia Capital India

Discussion Outline

0:00 Sequoia Capital India introduction

0:49 Intro to Shailesh Lakhani and Prachi Pawar

3:29 Type of investments and founders they seek

4:36 Surge pre-Series A program

5:30 Specific opportunities and trends in India

9:04 Gaming opportunity in India

13:51 Specific gaming investment opportunities they seek

14:59 Why did Sequoia India invest in Lila Games?

16:30 Current investment environment, macro factors

19:19 Advice to founders based on current trends

21:10 Outlook on Web3

22:51 Advice to founders who would pitch Sequoia India

Key Takeaways

• Manufacturing Hub to Consumer Spending: “Because of all the geopolitical situation, post covid, India honestly has a very good opportunity to probably be able to leverage the fact that they have good quality talent as well as technology jobs to be able to drive on something like that. So, in fact, it's said in the next seven or eight years, manufacturing will probably go up 7-8X. And so we might see that India becomes the hub or manufacturing or sourcing hub for many different companies across the world. This will also lead to a lot of increased consumer spending. So there could be actually tens of millions of households with substantial household income. And what that means is there would actually also be a lot of consumer brands because there'll be a lot more disposable income. So, we are seeing a lot of this opportunity at the early stages which will become a lot more larger in the coming years.”

• Gaming Opportunity in India: “Gaming has massive opportunity in India. From an investor perspective, it's often been underappreciated and often misunderstood. If I look back a decade ago, many people thought that Indians wouldn’t game or there wouldn't be a lot of people who would be as active in playing games as they were in East Asian countries or other developed markets. But what we're seeing is actually completely opposite. There are now hundreds of millions of people that play games. Games are amongst the largest category of application downloads on app stores and play stores. They're amongst the largest categories of viewership on online streaming platforms. So there's lots and lots of interest in this. What we're seeing of young streamers is that they can make millions of dollars a year.”

• What India Needs: “Gaming is where consumer Internet or mobile was in India in terms of talent, maybe a decade ago. Or where software was maybe seven or eight years ago. There'll be various parts of developing a game where there is a reasonable amount of talent, but a lot of other parts that are not. I think in engineering capability of writing logic and writing a game, there's probably a decent amount, but art, game design, production, and live ops at the scale that we expect some of these titles to reach, there's probably less talent. And it's incremental, as folks like you guys go through the journey, there'll be some people who learn and they'll eventually, hopefully do startups and build their own stuff.And there'll be more and more talent that spreads throughout the ecosystem with experience.”

• Type of Company Looking For: “High-quality studios is definitely something that we're very excited about and we've done a few of those at pre-launch stages both now and in the years past. We're certainly looking at eSports and overall aggregation platforms whether it be streaming, we have an investment in a streaming platform, or it could be more on distribution. So we're looking across all real areas. This ecosystem is just super nascent. We've also taken a look at gaming from a web3 angle, that there's lots of people who believe that Web3 will have an important role to play in how gaming transacts. We’ll see how that develops.”

• Current Investment Environment: “I don't think valuations are down. I'd say valuations were up in 2020 and 2021 due to elevated levels. If you look at most publicly traded companies, you're at sort of long-term averages of multiples based on what the outlook for earnings is. There’s a healthy level of competition from the investor side to invest in good quality teams and studios. We're not seeing irrational competition or ridiculous pricing and I think that also just helps in building for founders because that translates into more aggressive war for talent, which makes it harder to recruit, harder to retain, harder to build. So it's a very good environment right now, as long as you ignore some of the doom and gloom. As you can see in India we're relatively insulated.”

• Advice for Founders: “It's hard to give like, general advice because every context is different, but the generic advice is cut burn, make your runway last longer, focus more on unit economics. Just give yourself enough time to get to product market fit. But, yeah, every context is… we are advising some companies to accelerate in this market, we're advising some companies to upgrade quality of talent where they had maybe recruited too quickly and want to have a different caliber of team. We're advising some companies certainly to cut burn and to figure out the business. But it's all really based on sector and segment that you operate in.”

• How to Pitch Sequoia India: “How they should reach out to us? Email us, reach out to us on whatever channel works best. And for anybody that we probably don't know before, maybe a small email about, you know, quick introduction about what you do, as in what you're building, some background about why you are the best person to be building it, and your unique insight. I think that's a good start. Maybe if you already have a pitch deck, then maybe just attach it along with that email. So I think that's the best way to sort of reach out. I'd say two, three things always important to maybe take care of when you're reaching out to someone. Try to make it as compact and succinct as possible so that you are able to communicate your unique insight, why you're doing it, why you're the best team to be able to doing it as quickly as possible to whoever you're reaching out to.”