VC Lumikai eyes 10-12 deals via India Fund-II

Gaming and interactive media venture capital firm Lumikai is aiming to close 10-12 investments in pre-seed and Series A firms over the next few years from its $50-million India fund II, according to its founding general partner, Salone Sehgal.

The VC firm has $58 million in assets under management from 15 portfolio companies, which have collectively raised more than $120 million, Sehgal told ET. "Even though we're a seed-stage investor, more than 70% of our portfolio companies are revenue generating."

Lumikai’s first fund, launched in 2020, allocated $40 million in gaming startups, including Loco, Elo Elo and Bombay Play. More recently, it led funding rounds in Vobble, Autovrse and QuriousBit as part of Fund II, which was announced last year.

The VC firm is particularly bullish on interactive media sub-sectors such as content (game development), platforms (interactive audio, social entertainment gaming), tools and technology infrastructure (in mixed reality and spatial computing) as well as systems of play (in ed-tech, health-tech, fintech), according to Sehgal.

“Media and entertainment India is about a $25 billion revenue pie, of which $12 billion is new media, including interactive, audio/video, games, esports, animation, VFX, etc,” Sehgal said. “And that revenue pie is expected to grow to about $30 billion.”

There’s interest in India’s game developer talent as abundance of capital has started flowing into the gaming industry from newer corners, such as the SBI Mutual Fund, Kamath brothers, Japanese entertainment firm MIXI Inc., Sony Interactive Entertainment, as well as Kratos Studios.

“The biggest pain point was risk capital for developers. Now, when capital unlocked in the last 2-3 years, this established talent which had been sitting outside India is shifting back,” Sehgal said, adding that there have been close to 2,000 deals in the game development studios, compared with only 25 four years ago.

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She said there’s been early adoption of generative artificial intelligence tools in game development in areas such as concept art, marketing collaterals, testing, debugging, change detection in multiplayer games, data mining, real time analytics as well as image enhancements.

On real money gaming, Sehgal said it is only a $2 billion sub-sector among new media which has already peaked in India and would not be a “blue-ocean opportunity” for an early-stage VC firm like Lumikai.

“We seek opportunities for creating category leadership over the next 5-10 years. This (RMG) is a space that mushroomed in 2015, hit its peak in 2018-19 when there were very large, well established incumbent players,” Sehgal said. “So would that be a blue-ocean or a red-ocean?”

Lumikai has already cut its growth forecast for the RMG segment to 5% over next five years, down from 25% previously, with its share in the overall market reducing to 32% by the 2028 fiscal.