Korean Game Companies Investing in Startups of Different Industries

Pearl Abyss, a game company that hit the jackpot with the smartphone game, “Black Desert Mobile,” launched an investment company called Pearl Abyss Capital in June this year. Kim Kyung-yeop, who has been in charge of investment assessment at venture capital companies including Stone Bridge Capital and Atimun Investment, was appointed as the CEO of this subsidiary with a capital of 20 billion won (US$16.6 million). Kim said, "We will not limit ourselves to the game industry but plan to find investment opportunities in various industries."

Pearl Abyss is an example of game companies investing in startups. In the game industry, investments and mergers and acquisitions (M&A) targeting small- and medium-sized game development companies have been frequent in the past, but recently, they are turning their attention to the startups of different industries that are not related to games at all.

Industry sources say that Com2uS, the game maker, invested in a total of four startup investment companies and private equity funds (PEFs) this year. After acquiring a 2.1% stake in The Ventures, which is headed by Ho Chang-sung, one of Korea’s first-generation venture entrepreneurs, the company has invested hundreds of millions of won in Stone Bridge Ventures, Wonik Investment Partners, and a PEF formed by Bass Investment.

Joy City, a medium-sized game producer well-known with the game “Freestyle,” bought 51% of Laguna Investments, a new startup investment company, and incorporated it as its subsidiary. Joy City said, “We keep open the possibility to invest in promising startups in a variety of fields including artificial intelligence (AI).”

Neptune invested 10 billion won (US$ 8.3 million) in May in Sandbox Network, a multi-channel network (MCN) company which has more than 150 famous creators such as Ddotty, Zamddle, and Zhang Pizzu.

Smilegate, which has been a leader in venture investment in the game industry, is expanding its business. In early 2014, it opened the Orange Farm, a support center for early startups. This month, it launched Orange Fund with 4 billion won (US$3.3 million) to invest only in companies groomed by Orange Farm. Nearly half of the companies in Orange Farm are not related to games; they are engaged in travel, music, and education.

There are two main reasons why these game companies widen their startup investment. It is to secure next-generation technology and growth engines. The trend is all kinds of technologies being combined in a game such as virtual reality (VR), augmented reality (AR), and blockchain. In addition, as the e-sports industry grows rapidly, more and more people are “watching games” instead of “playing games.” There are a lot of professional game creators working on video services such as YouTube and Twitch.

The expansion of investment in startups of various industries is becoming more active among the medium-sized game companies. The “Big Three” of the game industry, Nexon, Netmarble, and NCsoft, are making different moves, however, focusing on M&As of game companies for overseas expansion.

"The startup investment will help the growth of promising information technology (IT) startups and contribute to the healthy development of the IT ecosystem," said an official of Com2uS.

Some analysts say that cases of some game companies that hit the jackpot with startup investment served as a stimulus. Neptune acquired a 2.35% stake in Blue Hall, a developer of Battlegrounds, it its early days and made a handsome profit. Smilegate Investment, which was created in 2011 when Smilegate acquired MVP and changed its name, has become one of the top domestic venture capital companies.