Silicon Valley venture capital firm Andreessen Horowitz introduced a $600 million fund earmarked for early-stage gaming startups, ramping up its bets on so-called Web3 technology, just as a broader market decline underscores the volatility of the cryptocurrency-based sector. .
The venture company, known as a16z, said on Wednesday that the fund is the first dedicated to the games industry, pointing to the billions of dollars in annual revenue that games like “Fortnite” and “Minecraft” generate. The fund builds on a16z’s longstanding practice of supporting gaming startups and builds on its strategy of investing billions of dollars in Web3 technologies. Web3 refers to a new iteration of the internet, with products and apps built on the blockchain, involving the exchange of cryptocurrencies or tokens, and sometimes housed in a virtual world called the metaverse.
Startup investors have said the technologies being built at virtual reality gaming companies will help lay the foundation for the Web3 industry, which is still more of a set of ideologies espoused by tech industry leaders than practical technologies. An early wave of such companies are creating games that take place in the metaverse, in which users can play to earn tokens or cryptocurrencies.
“Game infrastructure and technologies will be key building blocks of the metaverse, an opportunity that dwarfs the current $300 billion game industry,” said a16z. The company said it would invest in a spectrum of gaming services and apps, as well as companies building technology for the metaverse.
Andreessen Horowitz is an outspoken supporter of Web3, with his most recent and third fund for cryptocurrency-based startups totaling $2.2 billion. One of the company’s investors, Katie Haun, left in December to start her own $1.5 billion fund, also devoted to crypto investments, a sign of the growing demand for Web3 startups among not only venture capitalists, but also the limited partners who finance venture capital companies.
A16z’s new fund has coincided with a sharp decline in cryptocurrency value as investors discharge risky assets amid broader market volatility and inflation, wiping out more than $1 trillion in digital money since November. One class of cryptocurrencies touted for their alleged stability has crashed, while other popular coins are down about 60% from its November high. The steep and sudden drop creates risks for games whose goal is to spend and earn cryptocurrencies.
The cryptography is part of a broader cutback in the venture capital industry as investors show renewed caution or flee the sector, startups lay off thousands of workers and entrepreneurs come under pressure to cut costs and improve margins. The cooler market has led to lower prices for investors who are still willing to spend, but also significantly increases the uncertainty surrounding investments.
Many new venture capital funds have been announced since the beginning of the year, but most likely attracted before the current market correction.
Andreessen Horowitz has been a games investor long before the Web3 craze, including a 2009 bet on Zynga Inc.,
one of Silicon Valley’s gaming pioneers. Gaming apps became more popular during the pandemic, an outlet for virtual socializing amid Covid-19 restrictions.
write to Heather Somerville at Heather.Somerville@wsj.com
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Appeared in the May 19, 2022 print edition as ‘Andreessen Horowitz Debuts $600 Million Gaming Fund’.