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Much like the AI industry, sceptics can say the gaming industry is also alive because of hyped products. And currently, the ‘hype’ is around Black Myth: Wukong.
The game developed by Game Science, which is backed by the Chinese tech giant Tencent and Hero Interactive, is nothing short of a visual masterpiece, which is powered by NVIDIA GPUs. At the same time, its success story can be compared to OpenAI’s ChatGPT and also teaches a lot about how investments should work in the startup landscape.
To set the record, Black Myth: Wukong sold over 10 million copies in just three days, becoming the fastest selling game, beating Elden Right, Hogwarts Legacy, and even Red Dead Redemption 2. This is highly reminiscent of OpenAI acquiring 1 million users in just five days, compared to Instagram reaching 2.5 months to reach 1 million downloads.
But apart from the users, the game also tells us about what investing in AI startups means.
The Word is ‘Patient Capital’
Black Myth: Wukong took the company five years to make. Game Science was established in 2014 in Shenzhen by seven former Tencent Games employees. Before shifting their focus to Black Myth: Wukong in 2018, the startup released mobile games and the shift to making the AAA game only happened because of the rise of Steam users in China.
At that time, the company had 13 employees and in August 2020, when Game Science unveiled the first trailer for the game to attract talent, received over 10,000 resumes, including applications from AAA gaming companies and international candidates willing to apply for Chinese work visas.
The development team eventually grew to 140 employees.
In March 2021, Tencent acquired a 5% minority stake in Game Science, emphasising that their role would be limited to technical support, without influencing the company’s operations or decisions. Though the financial backing was there, the company received several controversies around the game’s content and technical problems due to the shift from Unreal Engine 4 to Unreal Engine 5.
Before Tencent and Hero Interactive’s investment, Game Science’s financial performance was largely dependent on the success of their mobile games. While these games were commercially successful, the studio’s primary goal was to develop high-quality console games, which required significant financial backing.
Similarly, AI Takes Time
This is what patient capital stands for. Believing in what the startup is building and giving them years to develop their products. What Game Science did right with their journey was developing smaller revenue generating games along the way to make up for the cost of building Wukong, which is something that AI startups should focus on.
Or maybe they need investors like Microsoft and YC, who believe in OpenAI.
Arjun Rao, partner at Speciale Invest, also told AIM a similar strategy when investing in R&D startups. He said that it is essential to be patient when investing as these startups are still in the budding stage, and placing the bet on the right founders is paramount. “Founders do not need to worry about the current downturn and keep a long-term mindset,” said Rao.
AI startups, just like games, require extensive patient capital from investors as they require extended periods of R&D before their innovations can be brought to market. That is what happened with Microsoft backing OpenAI, eventually resulting in the release of Chat`GPT.
OpenAI started laying the foundation for ChatGPT in the beginning of 2020 when they released GPT-3. Though a great technological marvel, the company wasn’t generating profits, and still isn’t even after two years of ChatGPT’s release in 2022.
India is expected to have around 100 AI unicorns in the next decade. This wouldn’t be possible if investors do not trust the founders and pour money into R&D. Prayank Swaroop, partner at Accel, said that VCs are increasingly expecting AI startups to demonstrate rapid revenue growth.
“Even to the pre-seed companies, we say, ‘Hey, you need to show whatever money you have before your next fundraiser. You need to start showing proof that customers are using you.’ Because so many other AI companies exist,” said Swaroop.
This is what investing in AI startups should look like. The game that took more than five years to make couldn’t have been possible if the investors were just looking for immediate profitability and not betting on the founders. Maybe, Indian investors need to relook at their investment strategy.
