After a few sluggish quarters, the gaming industry is showing signs of life again on the investment front. In Q1 2024, VCs invested $594 million across 124 gaming deals, a 94% increase from last quarter. M&A was nearly flat, with 40 transactions completed. Let’s take a look at the recent uptick and what it could mean for startups and investors in this space.
Early-Stage Deals Pick Up Steam
In Q1 2024, $265 million was invested globally into early-stage gaming startup rounds. This represents a 65% jump from Q4 2023 and a nearly 4x increase compared to the low point in Q3 last year. While still well below the peak funding levels of 2021, the sequential growth is an encouraging sign. It’s the first in 9 quarters to show growth in investment volumes, following a steady decline since Q2 2022, which hit rock bottom in Q4 last year.
Josh Chapman of Konvoy Ventures sees this as a return to pre-pandemic norms. Unlike other sectors buoyed by COVID tailwinds, gaming’s popularity hasn’t waned as the world reopened. The majority of the growth is coming from early stage deals as pointed out in the Q1 2024 gaming report by Konvoy.
Not everything is pointing up and to the right. While the PC and Console market grew 2.6% in 2023, overall average playtime fell 26% since the start of 2021 according to a recent report by Newzoo.
62% of Gaming studios already using AI
Artificial intelligence is also poised to shake up the gaming industry, creating new opportunities for innovation. The Unity Gaming Report 2024 found that 62% of game developers are already using AI tools, with an additional 29% planning to incorporate AI into their development processes.
To the most part, AI is being used to save time and lower production costs. AI capabilities like automated coding, advanced graphics rendering, and intelligent game design assistants could significantly boost developer productivity. This emerging tech trend has piqued investor interest in gaming AI startups that can unlock these powerful capabilities.
The most common areas of AI application in development are improving animations (46%); writing code (37%); generating art and levels (36%); narrative design (36%); automated playtests (36%); difficulty adaptation (35%); moderation of voice and text chats (33%).
Gaming IP is crossing to TV and movies
Another catalyst for investment is the growing appetite from TV/movie studios to adapt popular gaming IP into shows and films. With proven fan bases and rich storytelling worlds, hit game franchises offer a de-risked path to potential blockbuster content.
The Last of Us series on HBO, Fallout TV show on Amazon, Halo and Mario Bros or Sonic the Hedgehog movies are just a few examples of games transforming into hit TV shows and movies are just recent examples. As this transmission plays out, it unlocks new revenue streams and increases the strategic value of gaming IP.
Can Big Exits Reopen the Floodgates?
While the IPO markets have been relatively quiet, successful debuts like Reddit show there is investor appetite for well-known consumer tech brands. This bodes well for potential public listings from gaming heavyweight unicorns like Epic Games (Fortnite), Valve (Steam), Discord, and Niantic (Pokemon Go).
Big acquisitions could also provide much needed exits and return funds to investors. The public game companies hold about $35 billion in cash and equivalents, signalling a likely return to M&A. And big deals like Microsoft’s $69 billion acquisition of Activision Blizzard are setting a high bar, causing competitors like Sony, Netflix, Amazon, etc to think about their own IP catalog and potential acquisitions. We could see more consolidation plays by major gaming brands and new entrants into the gaming market.
The Bottom Line
Gaming investment activity is on an upswing in 2024 compared to last year’s lows. However, we’re still a long way off from the record levels of 2021 when over $1.9 billion was deployed into early-stage gaming deals in a single quarter (much attributed to Covid lockdowns etc).
Speaking at TED in Vancouver last week (April 2024), Venture investor Vinod Khosla gave a talk titled “Vision for 2035-2049“. He described a techno-utopian future powered by advances in AI, robotics, and other emerging technologies. While the timelines might be a bit off (who knows, really) some of trends he outlined have already started today and it’s easy to imagine they can quickly scale.
Entrepreneurs, with passion for a vision, invent the future they want. These are my predictions for abundant, awesome, technology-based, Possible Tomorrows (2035-2049) … if we allow them to happen! #TED2024@TEDTalkspic.twitter.com/Bq9MhHVoof
It’s easy to be uplifted from the promise of the rapid rise of AI/robotics: every person with access to the Internet will be able to get access to the best doctor/tutor, an explosion of creativity with generative AI will see the rise of personalised entertainment, labor will be near free as humanoid robots can work 24/7 and replace many human tasks… and so-on. It’s a vision that is easy to get behind. But unfortunately, we have to take into account that things can also go wrong, very wrong.
The Dark Side of the Techno-Utopian Dream
Below is a ‘warning list’ of 10 threats caused by scaling the future advancements in AI, Robotics and other tech trends.
We’re starting to see mass layoffs take place, where companies shed 10% of their workforce. When it happens in tech, the employees affected are likely to find new jobs in the industry, but what about less skilled workers? There are 3.5 million truck drivers in the US alone. What could the impact of fully autonomous cars on them?
The US Airforce successfully conducted a Dogfight between an autonomously controlled fighter jet and a human pilot last year.
As we move rapidly towards ‘smart cities’ the result could be quickly turned into surveillance states. Project ‘Sfera’ is a recent example from Russia.
When Google released the first version of its ‘Gemini’ LLM model, it became clear how the bias of the makers of a foundational model is reflected in its results. It was basically a reflection of ‘woke’ culture. Similarly, if you ask ChatGPT to tell a Jewish joke, and it will do so. Ask ChatGPT to tell a Muslim joke, and the result is “Humor is a wonderful way to bring people together, but it’s important to do so respectfully. I aim to be inclusive and considerate, avoiding jokes that may inadvertently perpetuate stereotypes or offend cultural sensitivities. How about I tell you a general, friendly joke instead?”
When deepfake Tom Cruise came out, the power of creating high fidelity deep fakes was concentrated in a small number of models and held by companies that largely adhered to safety principles. But the tech for video creation is moving fast, and more models are widely available enabling voice and video cloning from a single portrait image. What happens when we can no longer believe what we see on social media (or the news) unless it is verified?
Last year there were a lot of voices about the need to ‘slow down’ development of ‘G’d like’ AI (or basically, the pursuit of AGI). But those voices seem to have changed into a race between OpenAI, Google and Amazon, among others, on who can get to AGI sooner.
The Chip Wars between the US and China is an example of AI inequality, but so is the prevalent use of English as the main language to access LLM technology these days.
Eliezer Yudkowsky was named one of Time’s 100 most influential people in AI last year. Some people call him a scaremonger, but he’s one of the leading voices warning from an AI apocalypse. Stephen Hawking famously warned about the dangers of AI: It will either be the best thing that’s ever happened to humanity, or it will be the worst thing. If we’re not careful, it very well may be the last thing
It’s hard to tell whether we will be able to avoid these risks as we continue to rush into developing and deploying AI across every field. On the bright side, there’s at least awareness to these risks by governments, but will they know to strike the balance between innovation, progress and regulation? Time will tell.
I’ll finish with another TED talk takeaway on the existential threat of AI, this time from Mustafa Suleyman, the co-founder of Deepmind, founder of Inflection, and now CEO of consumer AI at Microsoft. Can we avoid the 3 conditions that make AI very dangerous in the next 5-10 years? I’m not sure.
The new CEO of Microsoft AI, @MustafaSuleyman, with a $100B budget at TED:
"AI is a new digital species."
"To avoid existential risk, we should avoid: 1) Autonomy 2) Recursive self-improvement 3) Self-replication We have a good 5 to 10 years before we'll have to confront this." pic.twitter.com/bUcEEOrawS
Marques Brownlee (MKBHD) is a creator, professional reviewer and bonafide influencer with millions of followers across social media channels (18.5M subscribers on Youtube, 6.2M on X, 4.8M on Instagram etc). His reviews are honest, sometimes negative, and indeed, influential.
NEW Video – Humane Pin Review: A Victim of its Future Ambition
This clip is 99% of my experiences with the pin – doing something you could already do on your phone, but slower, more annoying, or less reliable/accurate. Turns out smartphones… pic.twitter.com/QPxztCuBls
Marques got a lot of grief last week for publishing a negative review of the Humane AI Pin, a new hardware device created by ex Apple execs, after calling it “the worst product” he’s ever reviewed.
Critics said Marques has a responsibility before trashing a product that is pushing the boundaries of technology (but also raised millions of dollars, and is a business at the end of the day).
“I find it distasteful, almost unethical, to say this when you have 18 million subscribers. Hard to explain why, but with great reach comes great responsibility. Potentially killing someone else’s nascent project reeks of carelessness. First, do no harm.”
“MKBHD bankrupted a company in 41 seconds,” referring to the opening of his video. Finn later added, “If this video never came out, they would have sold so many more.”
So, who’s in the right? Can a reviewer be critical without drawing fire?
Humane AI Pin
Following the backlash, Marques published a response, asking the question: can bad reviews really kill tech products? “All that any honest review actually does is just accelerate whatever was already going on”
It’s hard to do the right thing for everyone
Allow me to take you back to Dec 2004, when I started this very blog, VC Cafe. I used to cover every single round of funding of Israeli startups. It was a one man operation and not so easy to keep up with the news, but one of my motivations for starting the blog was to provide news on Israel in English that show the incredible innovation taking place in the market…
One day I ‘scooped’ a funding round in a company that has since been acquired. The page was under construction, it was a big round, but I managed to piece together that it’s an Israeli startup and I put together an amazing post, with screenshots etc. To be polite, I emailed admin@company.com, webmaster@company.com, etc and said I’m going to publish this and ask if they have any comments.
The founder emailed me right away and said “great detective work”. he asked if I could give him 48 hours before I publish as the only have one chance to launch properly, and they’re not ready yet. I said sure, no problem, as long as I’m the first writing about them I don’t mind. 24 hours later, a post came out on Techcrunch. I emailed the founder 3 letters and a question mark (you can guess what they were).
He said: “Look, Techcrunch said that if they’re not the first to publish, they won’t cover the story”. I understood, that despite my hurt ego, if I thought I was helping startups by publishing news about them quicker than anyone else, I might actually be hurting them, because what they want is more exposure.
Are tech reviews ever really objective?
Going back to Marques – doing review videos is his thing, and he probably makes a good living from it. If every review is positive, he loses credibility. But at the same time, I’m not sure that new companies (especially devices) will rush to send him early versions of their product.
Ultimately, the fact that a Youtuber review is causing so much noise is a testament to the power of influencers in shaping public opinion, but while one voice can be influential, there are many voices out there.
Marques stayed true to his real customer – his own audience. My personal opinion – the AI Pin is a first version and an attempt to explore what comes after the smart phone, by very smart ex Apple professionals. But like many first products (see Apple Vision Pro) it’s not yet a mass consumer product and will require a few iterations.
The internet had a massive impact on the media industry, as the reporting of news became a commodity few are willing to pay for. The creation of content, but especially the sharing of content became a zero cost game. Initially, many publishers were slow to recognize the internet’s impact on their business model as distribution and the classifieds and ad worlds split – or what Ben Thompson calls the “Great Unbundling”. But in the coming age of generative AI, endless synthetic content and misinformation – there might be an opportunity for traditional media companies to regain their reputation as a 4th branch within a democracy. And make some money along the way.
Source: Ben Thompson
The missed opportunity of Media
The realization that most people do not want to pay for the “core” product called news came late. This oversight resulted in a missed opportunity to collect primary user data—a cornerstone for the digital advertising business that tech giants like Facebook and Google capitalised on. These platforms, leveraging vast amounts of user data, were able to offer targeted advertising solutions that were both more effective and appealing to advertisers, significantly eroding the ad revenue streams that publishers had relied on.
Furthermore, the rise of social media platforms transformed how and where people consumed content, especially among younger audiences. This shift not only fragmented audiences but also reshaped content consumption habits, leaving traditional publishers grappling with how to retain relevance and revenue in a rapidly evolving digital landscape.
With a few exceptions, most media companies struggled to transition into a subscription model and became addicted to clicks, as barriers to entry in media are very low (everyone can write a blog, share his opinion and news on social media) and media is widely available for free, it became a commodity very few are willing to pay for.
How can media companies transform generative AI from threat to opportunity?
Generative AI (or Gen AI for short) certainly further democratises the creation of all sorts of media – we could call it a “digital production revolution”. At Remagine Ventures we know that all too well, as we invest in these new tools (Hour One to create synthetic videos, Munchto help distribute short-form videos on social media, KwaKwa to create short-form educational videos, Playo to create games within minutes, Quiiiz to bring the Trivia game-play to mobile). In a few years, most media on the internet will have been created synthetically, especially video with its high production costs, monetisation potential and dominance to grab attention as a medium compared to all other media.
While I believe that there is an incredible amount of economic opportunity AI can unlock for everyone by democratizing the creation, distribution and monetization of content – I also believe that for the first time in a long time – new opportunities exist for traditional media publishers around the world.
Let’s dive into a few of these:
Value of Cultural and Contextual Data for LLMs
The $60m deal between Google and Reddit highlights a crucial trend: the hunger for rich, diverse, and culturally relevant data to feed and refine Large Language Models (LLMs). Media companies and publishers, being at the forefront of content creation, possess and constantly create new high-quality repositories of such data, not just in text but in various multimedia formats. This positions them uniquely to leverage not just their archives, but also their new content on an ongoing basis to partner in developing more contextually aware and culturally sensitive AI models. This collaboration could extend to creating localized models that better understand and generate content for specific regions or communities, enhancing the relevance and reach of AI applications.
Counter-Positioning
As generative AI makes content creation increasingly accessible, distinguishing between human-made and AI-generated content will become more challenging, and will lead to an over saturation of synthetic content. This scenario underscores the value of authentic, original content, especially one that reflects deep human experiences (real ones), expert insights, or high production quality. Media companies and publishers can capitalise on this by positioning their content as premium offerings, building trust and turning it into currency.
Production costs of content will continue to fall drastically – Case study Video
Video is a great case in point. One of our strategic investors is using HourOne.ai (disclosure: a Remagine Ventures portfolio company) to create synthetic video news around sports. The quality of the synthetic characters and of the video is high enough to monetise via pre-and-post rolls while the cost of producing these videos is extremely low. Using Munch (disclosure: a Remagine Ventures portfolio company) , these videos can then be automatically clipped, subtitled, formatted and distributed on social media channels – creating engagement and additional revenue.
Example:
This week on the Possible podcast, I share a clip of an AI version of me. What do you think?
Generative AI opens the door to unprecedented personalisation in content delivery and interaction. By harnessing AI, publishers can move beyond traditional segmentation and personalisation techniques to develop truly individualised experiences. This could manifest in chat-bots that allow readers to interact and dive deeper into the content, or reach new and younger audiences. Especially 1:1 conversations are interesting, changing the relationship between media and the consumer from 1:many to 1:1. This deep personalisation not only enhances user engagement but also opens new avenues for subscription models, advertising in our new privacy-restricted media world and services tailored to the unique interests and needs of each subscriber.
For example, the Financial Times just launched a Generative AI assistant that enables subscribers to ask questions about all the content published in the last 20 years
Innovative Advertising Products with GenAI
Generative AI’s capability to create personalised content extends to advertising, where media companies can leverage AI to craft highly targeted and contextually relevant ad experiences. Beyond just personalisation, AI can help readers find relevant local goods & services. It could help bring back some of that classified ad revenue that was lost.
If traditional publishers want to own “trust” they will also have to be very transparent about their use of Ai technology. This includes transparency about AI’s role in content creation, respecting copyright and intellectual property rights, and ensuring the accuracy and fairness of AI-generated content. As we are heading towards a world full of misinformation, media companies have an opportunity to lead by example, setting industry standards for ethical AI use that builds trust with their audience and safeguards.
Expand into Gaming
This industry has traditionally been expensive to enter. Creating a game usually takes months, even years if it’s Triple A quality, and more often than not does not create the anticipated engagement. With Gen AI this is about to change, as production costs for games will come down drastically, reducing barriers to entry. A good example of a publisher adopting a gaming strategy is the NYT. “Readers” are spending more time on NYT Games than anything else.
The New York Times is now a gaming company on the basis of customer time spent (Source: Matthew Ball)
Objective Journalism as a Competitive Advantage in the Age of GenAI
In an era where content can be generated en masse and tailored to echo the reader’s existing beliefs, the real opportunity for newspapers and media companies might lie in establishing themselves as bastions of objectivity and balanced reporting. This approach can serve as a counterbalance to the polarising, highly politicised content that often dominates social media feeds and niche news outlets. AI can also help with this mission, by:
Enhancing Fact-Checking with AI: GenAI can dramatically scale up the capabilities of fact-checking teams, sifting through vast amounts of data to identify inaccuracies or misleading statements faster than ever before. By positioning themselves as factually rigorous, media companies can attract readers seeking reliable information, thereby distinguishing their brand in a crowded and often dubious information landscape.
Balanced Reporting Powered by AI: Utilizing AI, media companies can ensure that their reporting covers multiple facets of a story, presenting a range of perspectives. AI tools can analyze content for bias, suggesting areas where additional viewpoints could enrich the narrative. This approach not only helps in building trust with an audience seeking unbiased information but also educates and informs by exposing readers to a broader spectrum of opinions.
Interactive Platforms for Public Discourse: Media companies can leverage GenAI to create moderated, AI-driven forums and platforms where readers can engage in healthy debate and discussion. These platforms could use AI to enforce guidelines, highlight insightful contributions, and ensure a respectful and constructive exchange of ideas. This not only fosters community but also reinstates the media’s role as a public square for democracy.
Harnessing Specialised Magazines for Vertical LLM Development
Everyone knows that in AI, garbage in (when it comes to data training) means garbage out. But is the opposite true as well? Media companies can create their own smaller, specialised LLMs to boost vertical content creation. Leveraging the specialised content and data from these magazines, vertical LLMs can be tailored to offer highly customised and personalised experiences for professionals and businesses. Whether it’s generating industry-specific reports, providing tailored advice, automating customer service with industry-specific knowledge, or curating personalised learning and development content, the possibilities are vast and varied.
Depth and Expertise in Niche Domains: Specialised magazines often curate content that delves deep into the nuances of specific fields, whether it’s technology, biology, real-estate, healthcare, finance, or any other industry. This content is not just informative but is written by experts who bring years of experience and depth of understanding to the topics. For AI developers, this represents a gold mine of terminologies, insights, case studies, and contextual knowledge that can be invaluable in training LLMs to understand and generate industry-specific content with a high degree of accuracy and relevance.
Strategic Collaborations and Ethical Use: To maximise these opportunities, media companies behind specialised magazines could explore strategic collaborations with AI developers focused on creating vertical LLMs. Such partnerships could involve licensing arrangements, data-sharing agreements, or co-development projects aimed at creating next-generation AI tools tailored for specific industries.
These are just a few opportunities we see for traditional media companies. It’s up-to-them to exploit these opportunities and it involves a cultural shift we did not talk about here. To do that media companies have to abandon their “click-bait” strategy that even publishers like the NYT often pursue and later on have to apologise for. Serious publishers have to stop behaving like social media platforms. To stand out and demand a premium, media companies will have to go back to doing actual journalistic work. They have to embrace AI and new tools, try them out, fail and try again. One of our investors and leading media companies in Europe, Axel Springer, is setting up new templates to do just that. It will be a crucial job to safeguard our democracies.
Talk to us at Remagine Ventures if you are a founder thinking of disrupting these industries and also if you are an executive at a traditional media company! Remagine Ventures specialises in pre-seed and seed investments at the nexus of AI and interactive media and entertainment in Israel and the UK.
Human attention spans are short, and some studies suggest they are getting shorter. The breakneck speed of AI advancement is one of those areas where the stream of information is so constant and so dense, that it’s very hard to process it all, let alone STAND OUT in the crowd.
This creates a challenge, but also an opportunity for startups in the generative AI space. They need to think creatively and figure out how can they stand out in the crowd. Case in point: this week was Ycombinator’s W24 demo day. 70% of the startups in the current batch (170 out of 243) are AI companies. Techcrunch, who covered the demo day, featured about 10…
Another example is The 2024 MAD landscape (Machine Learning, AI & Data) by Matt Turck. The landscape grew to 2,011 companies in 2024 from merely 139 logos in 2012 when it was first published. How can startups even compete against big tech, scale ups and other startups?
The MAD 2024 landscape
A final example, is this list of the 50 most popular consumer AI web products, recently published by A16Z. How many of them do you know? I consider myself an early adopter, and very interested in the field of generative AI, and still didn’t know many of these existed.
The good news is that while generative AI usage is growing rapidly, it’s still relatively in its infancy. A survey conducted in Feb 2024 by PEW Research Center showed that 23% of U.S. adults say they have ever used generative AI, up from 18% in July 2023. It’s a lot, but there’s quite more room to grow.
The need to stand out is bigger than ever
With the breakneck speed of advancements and an influx of new players, it’s easy for startups to get drowned out in the noise. However, this challenge also presents an opportunity for those who can strategically differentiate themselves and capture the attention of their target audience. App developers, and game developers know this problem well and there’s something we can learn from them.
By the way, this not just about marketing or PR. While investments to generative AI startups are red hot, founders have to battle quite a few investor biases. As Andrew Chen points out in this tweet:
WHY INVESTORS DON'T FUND AI STARTUPS
you might know A16Z is running a seed-stage startup accelerator called SPEEDRUN where we're funding 40+ companies in the next 2 months with $750k per company. (apply here: https://t.co/7U8XfKEzmg). As part of running this accelerator, we get…
Here are three concrete tips for startups to stand out in the crowded generative AI market:
1. Counter position – Kill the value-proposition of the competition with a new, superior business model, which the incumbent does not mimic due to anticipated damage to their existing business. This is the an important part of Hamilton Helmer’s 7 Powers, a solid framework for business strategy.
A good example of this is in the world of generative AI is Mistral. When OpenAI, Anthropic, Gemini and Inflection made their LLMs closed, Mistral positioned itself as an open source LLM that can run on the end device (requiring less expensive hardware) and more easily trained smaller, dedicated models. Therefore addressing several shortcomings of their competitors. Despite being less than 2 years old, Mistral is now looking to raise funding at a $2 billion valuation in December 2023.
2. Identify a Niche and Dominate It – While the temptation may be to position your startup as a broad AI solution, true differentiation often lies in specialisation. Identify a specific niche or use case where your AI technology can provide unparalleled value, and become the go-to expert in that domain. This focused approach not only helps you stand out from generalist players but also allows you to build deeper expertise and a stronger brand identity. (Related: read my VC Cafe post on “Riches in Niches” – the lessons still stand).
A good example of this is Runway ML. I believe they were able to capture mindshare in a crowded market of AI video startups partly because of their cool early demos (even before the product was fully ready) and partly by being early. While there’s no second chance to make a first impression, waiting until the product is fully ready is almost always going to be too late.
3. Leverage Strategic Partnerships and Integrations – In a highly competitive market, strategic partnerships and integrations can be a powerful way to amplify your reach and visibility. Collaborate with established players in adjacent industries, integrate with popular platforms, or explore co-marketing opportunities. By tapping into existing ecosystems and customer bases, you can gain instant credibility and exposure while offering a more comprehensive solution.
ChatGPT deserves a mention in this category as they pushed the envelope by letting anyone create Custom GPTs, which became the company’s app store. The idea was, other LLMs might be able to catch up to the features developed by OpenAI, but it will be hard for them to replicate all the use cases created by third party developers in the form of customGPTs.
4. Prioritise Exceptional User Experiences – In the world of AI, where technology is rapidly advancing, exceptional user experiences can be a significant differentiator. Focus on creating intuitive, user-friendly interfaces that seamlessly integrate AI capabilities into existing workflows. Prioritise factors like ease of use, personalisation, and continuous learning to ensure your AI solution becomes an indispensable part of your customers’ daily lives or businesses.
Case in point, in its recent AI Ascent event, Sequoia found that the biggest driver of churn in AI apps is the gap between the expectations and reality. So it’s very important that the cool twitter demo video and the actual usage of the product are closely aligned.
5. Create a dialogue with your audience and never stop thinking creatively – In a landscape where information is constantly flowing, it’s essential to engage your target audience in a creative and interactive way. Instead of simply broadcasting your AI capabilities, develop a dialogue that sparks curiosity, invites participation, and fosters a sense of community around your product or service.
One company that did a good job in this space is text to video startup HeyGen (disclosure: I’m an investor in HourOne, a competitor, but credit should be given when due!). They created a video of Argentinian President Javier Milei, by cloning his voice and using their translation feature, making it sound like he spoke in fluent English.
Milei’s talk at Davos
This never happened.
But with AI (HeyGen) his voice is cloned and turned to English (Elevenlabs) and his mouth is re-synched to match the English words.
This is the true power of AI, anything can be consumed in any language
Standing out in a crowded market is not just about having a great product or technology; it’s about effectively communicating your value proposition, building strategic relationships, and delivering unparalleled user experiences. By implementing these tips, startups in the generative AI space can cut through the noise and position themselves for long-term success.
Shameless plug, at Remagine Ventures, we’re looking to back founders that have internalised this. As pre-seed investors, it’s never too early to have a conversation. Please reach out and we will be happy to share our candid feedback.
It’s no secret that Israeli startups shoot above their weight. But now, a new report published by Dealroom (created in partnership with Tel Aviv Tech) shows that Tel Aviv is the world’s #1 most productive tech ecosystem in the world.
A few staggering facts:
Tel Aviv is responsible for 19% of all EMEA’s unicorns created since 2019, with less than 4% of the region’s funding.
More Tel Aviv Seed-funded started reach unicorn status than any other hub in the world (4.8%) – more than the Bay Area (3.6%) or Boston (2.7%) in 2nd and third.
Tel Aviv also creates more unicorns for every dollar of venture capital invested than anywhere else in the world.
The city has produced 83 unicorns in the last five years, behind only the Bay Area and New York, and it leads London in EMEA.
It ranks Ranks #3 globally and #2 per inhabitant by unicorns produced.
Tel Aviv produces more unicorns for every seed funded startup and more unicorns for every $ amount of venture capital invested.
By number of decacorns produced for every VC-backed startup, Tel Aviv ranks #3 globally.
Tel Aviv has a promising funnel of startups, breakouts and scaleups. The founder flywheel is in full effect in Tel Aviv. Tel Aviv unicorns have produced founders who together created 180+ VC backed companies:
The number of new startups spun out of unicorn startups is consistent with Accel’s founder factories report published in January 2024, which found that 45 Tel Aviv unicorn alumni created 181 new startup spinouts, with 78% founded in Tel Aviv:
Tel Aviv startups tend to go further with smaller amounts of capital. The ecosystem is arguably undercapitalised. With more funding, there would likely be more decacorns and centacorns.
The battleground for consumer attention and engagement is fiercer than ever. Platforms traditionally known for streaming videos or facilitating professional networking are expanding their horizons into the gaming sector. This move underscores a strategic pivot towards creating more interactive and immersive experiences, aimed at capturing and retaining user attention in an increasingly fragmented digital landscape.
First, it’s important to mention that gaming is not just popular amongst children. The latest NewZoo study on how different generations engage with gaming shows video games are the #1 source of entertainment for Gen Alpha and tie for first place with social networks for Gen Z, but even millennials, Gen X and Baby boomers spend significant time playing games.
Now gaming is expanding beyond traditional players. This post is an exploration of how various platforms are incorporating gaming into their ecosystems, organised by platform.
Netflix Gaming
Netflix’s venture into gaming, started in 2021, represents a bold step beyond its stronghold in streaming entertainment. With an executive specifically appointed to spearhead its gaming division, Netflix embarked on creating mobile games that resonate with its original content themes, such as “Stranger Things” and “The Queen’s Gambit”.
Two years in, Netflix reported it had 86 games available at the end of 2023 —all included with every Netflix membership without ads, in-app purchases or extra fees and nearly 90 more games in development. The bet seems to be paying off. Netflix Games downloads increased more than 180% year-over-year in 2023, according to data cited by TechCrunch. Netflix games were downloaded more than 81 million times worldwide last year, up significantly from 28.7 million in 2022. In August 2023, the company started testing streaming games on the Web and TV, in an effort to become a player in the Cloud Gaming space, and it’s also known to be working on a proprietary AAA game. Analysts have estimated that Netflix has spent about $1 billion on buying gaming studios and building the business. The company spends about $17 billion a year on its shows and movies.
Netflix is slowly but surely building an impressive games arsenal
YouTube Playables
Months after killing Google Stadia, the company’s cloud gaming effort, in November 2023, YouTube introduced ‘Playables‘, offering over 30 games playable directly on the platform. This initiative aligns with YouTube’s goal of becoming a one-stop destination for diverse forms of entertainment, complementing its existing offerings like music, TV shows, and movies.
Google’s motivation behind this move is likely a drive increased advertising spend on the platform. With gaming’s vast appeal, YouTube aims to leverage its massive platform to engage users in new, interactive ways, potentially transforming the way viewers consume content.
Youtube Playables
Google Gamesnacks
Stadia was not the first or last attempt by Google to enter gaming. In April 2023 Google released Gamesnacks, an experimental gaming portal. Gamesnacks offers HTML5 fast-loading, casual online games that can run on basic smartphones, and even 2G or 3G networks.
Developers are welcome to submit games via their developer SDK.
Google Gamesnacks offers fast loading HTML5 games
TikTok minigames
TikTok, primarily known for its short-form video content, is dipping its toes into gaming with the introduction of mini-games and interactive live quiz games, like ‘TikTok Trivia“. These initiatives offer users additional forms of engagement, marrying the platform’s core video content with interactive gaming experiences. By enabling creators to integrate gaming into their livestreams, TikTok is exploring new avenues to enhance user interaction and community building.
Tiktok live games
Microsoft Teams – work hard, play hard?
In an unexpected twist, Microsoft Teams has introduced ‘Games for Work,’ integrating simple, safe-for-work games like Solitaire and Minesweeper into its platform. This initiative is designed to foster connections among professionals, offering a unique blend of productivity and leisure. By embedding gaming into a collaboration tool, Teams showcases the versatility of gaming as a medium for both entertainment and team-building.
Linkedin is the latest company to add gaming to its platform
Facebook was the first social network to offer gaming and leverage its social graph to help games grow virally. It brought the rise of Zynga with its hit game Farmville, but eventually Facebook shut down its gaming in 2022. Now LinkedIn is the latest social network to offer gaming on its platform. The company believes gaming could help foster connections and engagement among users in a more interactive and fun way compared to the current text-based communication tools.
App researchers started detecting code in Linkedin’s app that shows the new games.
It was recently published that Monopoly Go hit $2 billion in revenue 10 months after launch. The game was developed by Scopely, a gaming company acquired by Saudi Arabia’s Savvy Games. The IP of Monopoly is owned by toy company Hasbro.
Mattel is another toy company is sitting on an IP treasure trove. Following the Barbie movie success, the toy giant s becoming a game publisher and will release self-published titles featuring their iconic brands and characters later this year. This move allows Mattel to directly engage with fans, deliver gaming experiences based on their intellectual property, increase revenue potential, and expand their digital games business by working with development studios worldwide.
Barbie Dreamhouse Tycoon launched on Roblox in October 2023 and has already attracted 163 million plays.
Barbie Dreamhouse Tycoon
Disney partners with Epic
Disney invested $1.5 billion in Epic Games, the developer of Fortnite. This move represents a significant investment by Disney into the gaming industry, aligning with its strategy to diversify and expand its entertainment empire. Disney plans to further its metaverse ambitions to create new immersive experiences.
Disney CEO Robert Iger said in an official release;
“Our exciting new relationship with Epic Games will bring together Disney’s beloved brands and franchises with the hugely popular Fortnite in a transformational new games and entertainment universe. This marks Disney’s biggest entry ever into the world of games and offers significant opportunities for growth and expansion. We can’t wait for fans to experience the Disney stories and worlds they love in groundbreaking new ways.”
Disney press release – Disney and Epic Games to Create Expansive and Open Games and Entertainment Universe Connected to Fortnite
Discord – from talking about games to playing them on the platform
Discord, primarily known for communication among gamers, have been adding features to help developers embed games third-party apps directly into the Discord interface. The newly announced Embedded App SDK aims to make Discord a comprehensive hub for developers to build, share, distribute, and monetize their games, enhancing the platform’s community engagement without the need for users to leave the Discord experience?.
Zoom – the app store and games
Did you know people can play games with friends and co-workers via Zoom? The Zoom app marketplace includes 21 games like poker, bingo, trivia, card games, Boggle and Heads Up.
New York Times
The New York Times’ puzzle and games were played more than 8 billion times in 2023, the company shared with Axios, led by breakout hit Wordle, with 4.8 billion plays. Jonathan Knight, NYT’s head of games said: “Our vision is to be the premier subscription destination for digital puzzles”– as gaming becomes an increasingly important piece of the NYT’s subscription revenue. Rather than keep gamers playing for long sessions to maximise ad revenue, the NYT games focuses on creating regularity and retention, bringing player back daily to complete Wordle, Connections, the Mini crossword, Spelling Bee etc.
Several industry changes have made it challenging for gaming companies to scale. IDFA, Apple’s app store policies and its aggressive revenue share, and the rising costs of user acquisition to name a few.
That being said, gaming continues to increase in popularity across generations and remains an effective tool for engaging and retaining the audience. By integrating gaming into their ecosystems, these platforms not only seek to enhance user experience but also to establish themselves as multifaceted entertainment hubs in the competitive digital arena.
At Remagine Ventures, we predict that more players will continue to enter the gaming space, either by buying gaming studios or bundling gaming into their consumer subscription packages. This can include additional streaming platforms/broadcasters, commerce platforms, and content publishers. We’re excited to invest in the future of gaming and the technologies that will revolutionise gaming including generative AI.
The last few years have been a bit of a rollercoaster for tech entrepreneurs and investors. The highs were high, the lows were low, and the future seemed uncertain. Luckily, Vintage Investment Partners, an Israel-based fund of funds and growth investor, shared a series of graphs posted by Asaf Horesh (links at the bottom of this post), highlighting the insights and market trends of the tech and venture industry in the past four years with a look ahead at 2024 and beyond. So far, the 2020s have brought a perfect storm of disruption, irrational exuberance, sobriety, and everything in between.
2020 – The Upstream Tech Bubble
The decade opened with the macro investment world awash in cheap capital from a decade of “free money” policies in a robust pre-pandemic environment. Then, in March 2020 the market shifted as COVID-19 became a global catalyst. The pandemic shuffled the deck. Lockdowns brought the rapid rise of work from home, and some verticals saw rapid gains: video conferencing, gaming, remote work/events and food delivery.
Investors were yield-starved and the VC/growth markets became a bright neon sign. Startups with grand visions but negligible revenue were scoring mega-rounds at unicorn valuations. Money sloshed upstream at a historic rate. The “Upstream Tech Bubble” had to burst eventually, and eventually it did.
2021 – An IPO/SPAC Frenzy, endless supply of capital
The free money kept flowing in 2021, driven by a seemingly endless supply of capital, mostly from “tourist” investors in growth stages. Valuations were turbocharged by Covid forcing so much activity online. Startups raced to capitalise on the frothy markets by going public via IPOs or SPAC mergers. Valuations reached astronomical heights as institutional investors piled in, creating a fear of missing out. The music couldn’t last forever though. 2021 also coincided with the rise of crypto, NFTs and other speculative investment opportunities.
2022 – The Reckoning
The downturn in the public market, that started at the end of 2021 continued in 2022 only hit the private VC market in mid-2022. Growth and late-stage investing were in charge of most growth in 2021, and also in charge of the decline in 2022. Inflation came roaring back, forcing the Fed to start ripping the band-aid off by aggressively hiking rates. Startups found themselves in a vicious recession, growth stalled, and valuations got slashed. Many high fliers were exposed as unprofitable zombies. The harsh reset culled the herd as investors got defensive. It was an overdue reckoning after years of excess.
Despite this market reckoning, 2022 marked the peak for capital raised by VC funds in the U.S. and Israel.
2023 – Signs of Life
While 2022 was brutal, the VC market showed green shoots last year as it adjusted to a new normal of more disciplined investing. Funds became highly selective, favoring sustainable unit economics over grandiose pitches. Valuations remained suppressed but capital started flowing again to the real differentiated companies. Talk of an “investor strike” was overblown.
Despite notable IPOs like Klaviyo and Instacart, the market window stayed shut in 2023.
Prominent VC investors who have provided little liquidity for LPs with a closed IPO market, turned to the secondary market to sell their shares, often at steep discounts, exposing that many unicorns are not worth their previous price tags.
2024 and Beyond
Looking ahead, I have cautious optimism for VC landscape. The sugar high of infinite capital is gone, and that’s probably for the best. Investing will continue to be fundamentals-driven – finding those precious companies with sustainable competitive advantages and letting the outsized returns come over time.
The latest quarterly data is giving us a glimmer of hope that the VC/startup financing markets may be finding their footing after an extended tumble. While still well off the stratospheric levels of 2021’s peak frenzy, investment paces in the major startup hubs of the US, Europe, and Israel are showing signs of stabilisation at a pre-bubble normal.
After watching countless zombie unicorns get mercilessly slashed down over the past couple years, a return to more discipline in the investing world is welcomed by many. But we’re not out of the woods yet. The current stability is still fragile. Funds remain highly selective as they adjust to the new sustainable normal.
As the valuations of private companies adjust to mirror those in public markets, Vintage expects to see a renewed uptick in the number of exits.
I’m watching the signals closely and with cautious optimism. The technology revolution shows no signs of slowing. If anything, the forced shakeout cleared the ‘tourist investors’ and ‘lifestyle entrepreneurs’ to refocus innovators on truly transformative areas like AI, computational biology, next-gen computing, climate solutions, and so on.
Smart investors will continue finding amazing founders and backing them to create the world-changing platforms of the future. It may just require more patience but then again, even in today’s market we’re seeing companies like French open source LLM startup Mistral go from $2 billion valuation at seed to $10 billion valuation in the course of a year! But that’s the exception rather than the rule, and investors still betting on unicorn pipe dreams are in for more pain.
I’m excited about the world-changing companies that will get built in the next couple of years. The combination of reduced prices, technology advancements like LLMs and talent that has become available for different reasons, make it a truly unique time to build and scale a company. I cover it in detail in my post on how pre-seed made a comeback in 2024.
Links to full slides for Vintage’s “State of the Venture Market”:
Calling Israeli startup founders in Interactive Entertainment, AI & Gaming!
With the rapid advancement of generative AI, we’re seeing content creation, distribution and monetisation being disrupted faster than ever before. Whether it’s text, images, audio, video or even music, new tools are democratising creativity, enabling new opportunities for startups. Are you building in this space?
You may have noticed that the fundraising market for startups has slowed down. Not for us. At Remagine Ventures, we’re always on the lookout for visionary founders building the future of interactive entertainment and gaming. If you’re an Israeli startup founder raising a pre-seed round in these spaces, we want to hear from you!
Whether you’re creating immersive virtual worlds, developing cutting-edge AI technologies, or advancing the gaming industry, we’re ready to learn about your vision. We’re fast and lean in our decision making and support companies beyond the money with our strong network in the media, entertainment and gaming space.
Our investment focus spans a wide range of verticals within these domains, including but not limited to:
Since I’ve started writing about Israeli startups in 2004, there has never been any event like October 7 and the war that followed. Now, 150 days after October 7th, the Israeli startup ecosystem is once again in a tough spot. In February 2024, Israeli startups raised $293 million in 16 deals, a 60% decline from the $731 million raised in the same period a year before. In the last 3 months of 2024, Israel’s GDP shrank by 20% in annualised terms and Israel’s credit rating was downgraded by Moodys. All of this is in addition to the macro challenges that Israeli startups had to deal with in 2023 even before October 7th, including international investor unease due to the proposed judicial reform (that has since been taken off the table), Ukraine war, global venture slowdown (US VC investments were down 60% in 2023), etc.
But here comes the narrative violation: despite the challenges, Israeli tech continues to power on. Creating companies, raising funding, completing multi million M&A deals. Despite the challenges, I’m very bullish on the future of the Israeli tech ecosystem and am honoured to directly invest in Israeli startups with Remagine Ventures.
Sophisticated investors and tech leaders are bullish on Israel
But don’t take it from me. Juan Delgado-Moreira, co-CEO of Hamilton Lane, a $900 billion asset management company, said in an interview last week:
“Now is the best time to invest in Israel. The only real essential market for venture capital, apart from the USA, is in Israel, and those who do not invest in it should be ashamed”
Juan Delgado-Moreira, Hamilton Lane co-CEO
Or the words of Justin Borus, the founder and chief investment officer of Ibex Investors that just raised $106M to invest in early stage Israeli startups
“The U.S. credit rating forecast dropped in November, and since then the S&P 500 index has jumped by 15%. Investors do not give the credit rating the same attention as before. What is important for them now in the context of Israel is a permanent ceasefire. This could accelerate a new rally in the domestic market, so we are also becoming more aggressive here. We recruited two more people to the office in Tel Aviv, and in terms of investments, the current situation in Israel is the best in the 12 years I have been working here. Today it’s hard to see that, and we also felt that way after 9/11, but since then the markets in the U.S. have quadrupled.”
Justin Borus, Ibex Investors
Another company that largely benefited from Israel’s innovation is Nvidia, which became the third largest tech company in market cap:
“Israel is home to world-leading AI researchers and developers creating applications for the next wave of AI. With NVIDIA’s Israel-1 AI supercomputer, a broad range of innovative companies in Israel will create AI that can transform the productivity and business models of enterprises around the world.”
Jensen Huang, the founder and CEO of Nvidia (source)
Michael Eisenberg, co-founder of Aleph, an Israeli venture firm, said in a recent post:
“What is the elevator pitch for investing in Israel for the next decade? Israelis are the most resilient, optimistic, responsible, battle-tested and innovative civilian population in the world. In an era where political leadership is waning, invest where creativity is already tested against the challenges of the future. Invest where multidisciplinary innovation will lead to exponential breakthroughs and profits.”
Michael Eisenberg, Managing Partner, Aleph (source)
Israeli tech by the numbers
According to the 2023 annual report by Startup Nation Central, there are 7272 tech companies in Israel and 353 active investors. 2023 was a tough year for Israeli startups, but despite the challenges the Israeli tech ecosystem remained robust.
In addition, according to the IVC-LeumiTech Israeli Tech Review 2023 showed that while total capital raising declined, the capital raising median has shown stability over the year and is normalising with 2020 levels.
10 Israeli innovation accomplishments in 2023
In the spirit of celebrating the success and potential of Israeli startups, I thought I’d mention 10 achievements of Israeli entrepreneurs in the first two months of 2024 (in no specific order).
1. AI– Israel-1, a super computer developed by Nvidia in Israel, is now available for use by the company’s research and development teams and “selected partners,” and is housed in Nvidia’s Israel data center.
3. CYBER – Israeli startup Wizreaches $350M in ARR (Annual Recurring Revenue) just four years from inception, making it the fastest growing cybersecurity company in the world. Wiz is valued at over $10 billion.
4. FOODTECH – Israeli startup Imagindairy receives FDA approval for animal-free milk proteins. Imagindairy creates animal-free milk proteins from microorganisms via proprietary precision-fermentation technology. And Israeli food tech startup Remilk, a developer of cultured milk and dairy, was granted regulatory approval for the use of its cow-free milk protein in dairy products in Canada. Israel’s Steakholder Foods created a 3D printed ready to cook fish fillet.
5. HEALTHTECH – Techsomed, a medical imaging startup, allows physicians for the first time to see exactly what’s happening in real time while they destroy (or ablate) a tumor using targeted heat through a needle. The company’s tech breakthrough, Thermal ablation therapy, a minimally invasive procedure for small tumours, has huge benefits over surgery or chemotherapy for the patients.
8. GAMING – Israeli game Lost in Play (by Snapbreak games) won the iPad game of the year in 2023 (source). Kooply, a game development engine in stealth, was of the 20 winners of the 2024 Game Changers list by Lightspeed Ventures.
9. AGTECH – Tel Aviv-based Bluewhitehas developed autonomous tractors and other farm vehicles that can spray, mow, and disc farm fields while collecting data on crops. Israeli startup Beewise has created a solution in the form of an autonomous beehive that uses AI-powered precision robotics to manage all beekeeping activities. Its automated BeeHomes are solar-powered, climate- and humidity-controlled, allow for automated harvesting, and can even alert apiculturists when their hive is likely preparing to swarm, preventing injuries to both humans and bees.]
10. HARDWARE – Intel announced plans to set up a $25 billion chip plant in Israel. Israeli startup Sightful unveiled Spacetop, the first AR-powered laptop. DustPhotonics created 800G silicon photonics chip, a key enabler for AI. Israeli battery Addionics which develops technology to improve the performance of batteries, announced on Monday a planned $400 million investment into its U.S. manufacturing facilities as part of a multi-year roadmap to support domestic EV battery production.
The list goes on and on.
Israeli startups deliver #NoMatterWhat
I’ve started VC Cafe in December of 2004. It was a tough time for Israeli startups, as the dot com bust wiped out much of the budding venture capital ecosystem, funds were licking their wounds, and the conflict with the Palestinians dominated the news in 2005, so I wanted to share a spotlight on the incredible innovation and entrepreneurship going on in Israel, in English.
Fast forward to mid 2020, at the peak of Covid. Israel was under strict lockdowns, investments plummeted and the future looked bleak. To celebrate the success of the Israeli startup ecosystem, I started “#Firgun“, a weekly newsletter shining a spotlight on the founders and investors who made an impact, including new fundraising rounds, exits, new funds launched and other things. The newsletter has since grown to almost 5,000 subscribers and I invite you to sign up here.
All I can say is that every crisis is an opportunity. What goes down often comes back up, and every dip could be a hidden opportunity in disguise. Rather than adopt a victim mentality, Israeli entrepreneurs do what they do best – build, invent, overcome obstacles and continue to develop a healthy disregard to the impossible. In the words of David Ben Gurion, Israel’s first Prime Minister “In Israel, in order to be a realist, you must believe in miracles.”
