Venture capital firm Griffin Gaming Partners has made a name for itself with investments focused on the global gaming space.
Headquartered in Santa Monica, it has put money into the likes of mobile gaming firm Spyke Games, Indian social gaming app company WinZO, gamer messaging powerhouse Discord, Overwolf, a platform for creating, sharing and monetizing in-game apps and modifications, and blockchain and NFTs platform Forte, among others. Among its backers are big media, entertainment, gaming and technology companies.
Managing directors and founders Peter Levin, Phil Sanderson and Nick Tuosto just unveiled the closing of the firm’s second fund, worth $750 million, which follows a $238 million first fund launched in 2020.
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On that occasion, Levin talked to The Hollywood Reporter about recent consolidation in the gaming sector, the “gamification” of the world and the convergence of gaming, film and other parts of the media and entertainment industry.
Your second fund is quite a bit bigger than your first. What was key to raising more money this time around?
The first fund has performed quite well in a relatively short amount of time, which has given us the opportunity to raise a much larger fund that allows for us to invest in a variety of different businesses at a variety of different stages. And so, while we’re extremely excited with Griffin Fund I, at times it did limit us from certain investments. We didn’t want that to be the case going forward. If not for the traction that we had with Fund I, we would not have raised a larger fund. That does now allow us to do more investing and investing with larger check sizes and at a variety of different stages.
What kind of companies will this second fund focus on and how will that be different from the first?
Our remit from day one was always to be equally distributed with respect to our capital in platform infrastructure in one bucket and content, meaning developers and publishers, in the other. Platform and infrastructure being the plumbing that provides the experience. Web3 is certainly a buzzword right now. We try to stay away from the buzzwords, but we have invested into Web3 blockchain-enabled gaming opportunities in our portfolio. So that’s definitely a direction that the industry is going. And there is a lot of exploration there. I think, more importantly, a lot of teams of significant quality are gravitating towards those types of platforms and opportunities. So our thesis is always to bet on strong teams that have unbelievable product and a form factor that is missing in the market. Those are really the boxes we like to check when we are looking for investment opportunities.
You used to be CEO of Nerdist Industries and then served as president of interactive ventures, games and digital strategy at Lionsgate, among others. Your partner Phil Sanderson is a former investment banker who previously invested in such firms as Telltale Games. Your other partner Nick Tuosto previously served as an advisor to Tencent in its acquisition of Clash of Clans maker Supercell and FoxNext in its sale by Walt Disney to Scopely. And Griffin has invested in various companies, with your new fund having Aryeh Bourkoff’s M&A advisory firm LionTree as a strategic partner. How key are Griffin’s industry relationships in finding investment opportunities and adding value for your investors?
The whole model of the fund is to be very high-touch value add, both with our portfolio companies and our [investors]. They are going to get a financial return, because the fund is performing, so that is downside protection. But the upside is it is a novel source of information and deal flow. So it is a strategic arrow in their quiver, if you will, that allows for them to be exposed to this type of information and deal flow.
I know you take pride in a data-driven approach to investing. Can you explain that?
Phil, Nick and I have been doing this for two decades. And we have a very disciplined approach to investing. There are funds out there that are more spray and pray. And that is not what we do. We are very data-driven in our approach. There are a lot of KPIs [key performance indicators] and data that is scraped before we make an investment, and we share all that data with our [investors]. So we have an information flow that is quite proprietary. And there is also an ecosystem aspect to gaming. As big as it has gotten, it is also still incredibly fraternal, which is good, because you have got to remain civilized within the ecosystem. And I think that proximity has also allowed us to thrive.
Tell me a bit more about the first fund and whether any companies you have invested in have had IPOs or other ways to monetize investments?
The first fund is performing very well. Two of the companies in the portfolio already have gone public. So we are no longer in those businesses, which are [mobile advertising, marketing and analytics platforms maker] AppLovin and [mobile e-sports company] Skillz. The rest of the portfolio is performing well. We have had multiple markups within the portfolio. And we are very, very bullish on it. The traction of the first fund has allowed for us to raise the second fund. So we are very keen to make sure that Fund I turns out well.
What are the investment time horizons for the new fund?
Typically, for earlier-stage investments, it is anywhere from three to five years, and then later-stage is usually a little bit more of a collapsed window of two to three years where you are looking for some type of liquidity event.
What is your take on gaming M&A, which has been in such focus early this year with Take-Two Interactive’s deal for Zynga and Microsoft’s Activision Blizzard takeover, and will it continue?
The M&A going on is fascinating and that is going to continue. The worlds of gaming, media and sports, marketers, creator economies and social media, they have all collided very aggressively. And it is really all about gamification. So the number of actors that have now entered the theater, or players that have entered the pitch, is jaw-dropping. When you think about Microsoft buying Activision. And then you think about Amazon, entering the fray with their own games platform Luna. Netflix just announced they acquired their second studio in Next Games. I was an investor in Next Games. I have known the company and raised their first capital for them. So this was a good day for me, and I had to talk to some of the Finnish media.
And when you think about Amazon buying MGM, that is as much about making premium James Bond video games as it is about making premium James Bond TV series. And they own [gaming-focused video streaming service] Twitch, so they know what they are doing. That is what I mean about all these new smart actors entering the theater, creating opportunities.
My point is: you have Netflix jumping in, Microsoft, Amazon, you have got Google launching Stadia, which didn’t work, but they will be back. This is the most attractive and elusive demographic in media, so they will definitely be back. You have Apple. So all of a sudden, you have got six or seven players of scale.
Even Zoom. We have been pitched no less than six companies that are developing games just for Zoom. Think about it: if we are sitting here in a Zoom (meeting), and we want to play Settlers of Catan or Ticket to Ride or even a game of cards. How great would it to be after a meeting to say: “Hey, who wants to stay on and play Dungeons & Dragons?” or whatever it may be. So that is the wonderful thing that is happening right now. As much as M&A is going on, which is great for a vehicle like ours, so much is happening in the form of market growth. You have got companies that are buying companies, for audience, for market growth, for expertise, versus focusing simply on what is the return on this investment.
Do you have any examples that illustrate that?
The two studios that Netflix bought, they are not going to move the needle for them financially, but they are giving them street credibility. They are giving them intellectual property, and they are giving them the know how and the wherewithal to execute in the vertical of gaming.
Do you expect Hollywood studios to buy and push into gaming more aggressively?
It is so inevitable that the studios will. It is no longer a luxury, but a strategic imperative for media businesses and the industry of sport to embrace gaming. And now you are seeing it. David Haddad at Warner Bros. has built an incredible games business. And he really did it because [former CEO] Kevin Tsujihara allowed for him to do it when none of the other studios were embracing a holistic game strategy. And so they made the LEGO games, they made Batman: Arkham Asylum, they made the Lord of the Rings games, the Harry Potter games.
That is going to be the model going forward, because this audience is not tuning into appointment television, they don’t even know what that means other than sport. And they are not going to the movies the way they used to. And the numbers support that. So it is really when you look at escape velocity and meteoric growth, you are talking about streaming platforms and gaming. Streaming has been a phenomenal positive data point of growth for the music industry, but gaming outpaces all of it. And that is where those demographics are.
So if you are a media company like the Walt Disney Co. that owns and controls the best IP in the world, you are talking about Star Wars and Lucasfilm, Marvel, Disney proper, Pixar, Fox, The Muppets, inevitably they are going to be in the gaming business. That is going to be so exciting. How amazing would that be for those who want to further embrace those intellectual properties that are meaningful to them, because the engagement metrics in gaming also eclipse the engagement metrics and any other form factor of media.
I know that actor and gamer Felicia Day is a Griffin portfolio company advisor. How are women represented at companies that Griffin has invested in?
Felicia Day is on television, in podcasting, she has got a huge social media footprint, and she will kick most of our asses at any game out there. And she has been doing this for a really long time, but she is also kind of a tip of the spear of advocating for that demographic.
Also, I think we have more female entrepreneurs as CEOs of our portfolio companies than anyone else, and we are proud of that fact. That is just a huge bellwether for the industry that it is going in that direction.
So we have demographics and geography, so we are at a very unique moment in time. And then if you look at things like Web3, blockchain and gaming, it is akin to what we went through with free-to-play gaming, which completely disrupted the industry in a positive way.
What will the key theme or topic in gaming be over the near term beyond consolidation?
I think it is Web3. Blockchain, Web3 and gaming is certainly the theme right now.
Can you explain the changes that Web3 is bringing to the industry a bit more?
The idea of Web3 and giving more agency, if you will, to the end user is nothing but a positive, creating less friction in the economy, attempting to eliminate friction between the end user and the experience of commerce. I think avoiding the hyperbole around that requires a lot of discipline, and that is really where we shine.
What is key to making Web3 work and avoiding empty promises?
For example, if you play Call of Duty, you spend so much time in the game, and you spend a lot of money buying skins and weaponry and customizing your vehicle, customizing the music you listen to within the game. If you are able to buy, sell and trade those items in the game, without any friction, and the publisher gets a small piece of it, that would be unbelievable as a user. Because as certain as certain weapons become more or less valuable, you want to be able to buy, sell and trade them. And if you don’t play the game as much as you used to, it would be great to be able to monetize those items that you spent money on. And this would allow for you to be able to do that in a frictionless way.
My best analogy is online commerce before PayPal, which was really clunky. You always had to enter in all your personal information. You always felt like someone was going to rip off your identity. And you were crossing your fingers, hoping that thing you bought would show up. Then PayPal came along, and all of a sudden, you could transact with this frictionless experience. Here is my PayPal, boom, done, and the thing comes to my house. And if it doesn’t, I know who to contact, and I can track it down. That is really what Web3 and blockchain and gaming will allow for – frictionless transactions, more agency to the user, so that they can have this persistent identity eventually.
This interview has been edited and condensed for clarity.
