How To Invest in Gaming Startups

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Contributor, Benzinga
December 18, 2023

A little over 40 years ago, a relatively unknown gaming startup called Atari Corp. (OTCMKTS: PONGF) came up with Pong, which was one of the world’s first video games. By modern standards, the game itself was rather simple. Users moved two large blocks, which represented ping pong paddles, vertically on a screen and tried to hit a virtual ball at their opponent in such a way that they couldn’t return it. 

No one could have imagined Pong would be such a smash hit. Eventually, companies like Nintendo Co. Ltd. (OTCMKTS: NTDOY), Sega Group Corp. (OTCPK: SGAMY) and Activision Blizzard (NASDAQ: ATVI) got in on the act and began manufacturing video games both for arcade and home use. Together, they pioneered an industry that’s now worth billions of dollars per year. If you’d bought into any of those gaming companies at the startup stage, you would probably be rich today.

The good news is that even if you didn’t, the gaming industry is still going strong, which is why adding gaming startups to your portfolio could be a winning move. There’s a wide range of mobile games, business models, gaming apps and companies to choose from, but which is right for you?

Why You Should Invest in Gaming Startups

Today, the total value of the gaming industry is valued at more than $150 billion. That figure is expected to grow at a rate of almost 10% until 2025, when it’s projected to be worth nearly $260 billion. There are several simple reasons for this explosion in growth and market value. 

First, gaming is fun, both for children and adults. Second, the technological advancements brought about by the digital era have improved the quality of video games to a degree that was almost unimaginable 20 years ago. Video games have gone from analog ping-pong, to immersive, multiplayer epic games that can last for weeks at a time. 

On top of that, there is now connectivity between gaming at home and mobile gaming that simply didn’t exist before. Mobile gaming allows players to literally pick up right where they left off at home and continue playing on their cell phones or tablets.

Online gaming doesn’t have to stay in just one place. In fact, mobile gaming has become so popular that it’s an industry all to itself. 

The mobile gaming sector has seen a tremendous explosion, thanks to popular titles like Angry Birds and Candy Crush. That explosion has generated an incredible amount of money. Rovio Entertainment (HEL: ROVIO) was a struggling video game company in the early 2000s before it created Angry Birds. That game, which cost just under $150,000 to make, made Rovio billions of dollars. 

Angry Birds has gone from a hot mobile video download to multi-million-dollar merchandising deals and even a feature film. The Angry Birds franchise is estimated to be worth $5 billion today. The video game industry is rife with success stories like this. Perhaps it’s because there are so many different styles of games to choose from. 

If you’re into sports gaming, Electronic Arts Inc. (NASDAQ: EA) has licenses from the National Football League (NFL), National Basketball Association (NBA), the National Hockey League (NHL) and the world’s best soccer leagues to produce high-quality, immersive games that allow you to manage your favorite team or be your favorite player for several years at a time. Call of Duty allows you to become a virtual soldier and participate in some of history’s most famous wars and battles — either by yourself or as a team.  

All of this represents a tremendous opportunity for investors. It only takes one hot video game franchise to change the fortunes of a gaming startup and turn it into a video gaming powerhouse. It’s hard to imagine the founders of Rovio predicting the popularity Angry Birds would achieve, but if hindsight were 20/20, surely you would have gotten behind them when they were a startup right? 

That’s why you should seriously consider investing in some gaming startups. Making the right investment into just one gaming startup that creates a hot franchise could literally make you millions of dollars overnight.  

Where To Find Gaming Startups To Invest In

The current popularity of modern video games is largely a result of the high levels of technology that can be built into them. Today’s modern games offer fully immersive 3D environments that are so real, it’s getting harder and harder for players to distinguish the difference between the game and live action. 

That explosion of technology has also created lots of new opportunities to invest in gaming startups. Retail investors no longer have to wait until after a company like Rovio makes an initial public offering (IPO) to get on board. Online crowdfunding platforms were created for the express purpose of allowing retail investors like you to get in early on things like gaming startups. 

StartEgine

StartEngine has an offering called Chicken Waffle Inc., which exists to provide 3D gaming experiences across a number of video game platforms. Its most famous current offering, Baby Hands, has had more than 1 billion plays on YouTube, and it is working on a follow-up to capitalize on that success. This offering has a buy-in of $246.03 and a share price of $4.17. 

Another thing working in Chicken Waffle’s favor is its commitment to developing 3D gaming technology gives the company inroads into several nongaming-related fields. Flight simulators, military training and other professional training that involves immersive environments are just a few of the other applications for the technology Chicken Waffle is creating. Theoretically, you would be investing in more than just a gaming startup. 

Wefunder

Wefunder is another platform that has some intriguing offerings in the gaming startup arena. The popularity of online video games among school-aged children has created openings for unsavory individuals to contact them through the game’s messaging apps. Wefunder has an offering called Gamesafe Inc. that seeks to give parents additional security tools to make sure their children aren’t targeted by the wrong types of people while online. The current buy-in for Gamesafe is $100 per share. 

Sometimes, the gaming community will tell you where to go because you see what the popular games or developers are. Take a look at a range of casula games, app purchases and what sorts of businesses can provide the best return. Remember, a video game startup is more than just one game—there are multiple revenue streams.

How To Choose Gaming Startups To Invest In

With all the growth forecasts for the gaming industry, it might seem like choosing gaming startups to invest in would be as easy as shooting fish in a barrel. Nothing could be further from the truth. In spite of the billions of dollars being made in the industry, and all the new startups developing everything from multiplayer online role-playing games to first-person shooters, the sad truth is most gaming startups aren’t going to make it. The same is true of most startups, regardless of what industry they’re in. 

That makes choosing which gaming startup to invest in difficult. The best way to counteract this is to follow the tried-and-true rule of all investing: diversify. Take advantage of the low buy-ins on equity crowdfunding platforms and build yourself a full portfolio of gaming startups. Imagine yourself with a good combination of game developers, security companies and 3D software makers. That kind of diversified gaming startup portfolio would give you multiple opportunities to strike it rich. 

Gaming: a Growth Industry for Kids and Grownups Alike

Regardless of whether you love video games more than life or you think they are an absurd waste of time, the fact remains there is a lot of money to be made in the gaming industry. As an investor, that means you need to be paying attention because wherever there is money and growth, there is an opportunity to add to your portfolio. When it comes to gaming, much of that opportunity lies in gaming startups. 

This doesn’t mean you should build your entire portfolio around gaming startups. However, if you do have some extra cash to spend or some dividends you aren’t sure what to do with, perhaps you should consider gaming startups. You never know who might develop the next Angry Birds or Call of Duty, but you definitely want to be an early stakeholder in whoever does!

Frequently Asked Questions

Q

What factors should I consider before investing in a gaming startup?

A

Before investing in a gaming startup, consider factors such as the company’s business model, market size and potential, the management team’s experience and track record, the competitive landscape, revenue projections, and any potential risks associated with investing in the gaming industry.

 

Q

How do I evaluate the potential return on investment for gaming startups?

A

To evaluate the potential return on investment for gaming startups, analyze the company’s financial projections, market opportunity, growth potential, revenue streams, and exit strategies. It is also beneficial to assess the experience and expertise of the management team in the gaming industry.

 

Q

Should I invest in early-stage or established gaming startups?

A

The decision to invest in early-stage or established gaming startups depends on your risk tolerance and investment strategy. Early-stage startups may offer higher potential returns but come with higher risks, while established startups may have a proven track record but may offer lower growth opportunities.

 

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