As gaming’s popularity reaches epic heights, venture investors’ activity in the industry doesn’t seem to equate with the overall size of the games market. Spurred by an unreal year where traditional entertainment has been upended by the COVID-19 pandemic and consumers find unity in virtual worlds like Animal Crossing and Fortnite, gaming has never been more popular.

Late-stage investors have shown that they have a tremendous appetite for businesses in the gaming industry. They’ve been pouring capital into established gaming companies like Scopely, which on Wednesday announced a $340 million investment round at a $3.3 billion valuation. But venture capital simply hasn’t given the gaming industry and the broader synthetic market the attention it deserves given its place in the entertainment and cultural firmament.

Just ask LeBron “Bronny” James Jr., the son of the NBA’s biggest star, who became a professional athlete this week — as a gamer with one of the most popular teams in online gaming, FaZe Clan. Or look at Unity, the creator of a popular game development engine, whose stock price has nearly doubled since its public offering in mid-September. Since opening trading at $56 per share, the stock has nearly doubled in value and is now trading at $100 per share.

In the first half of the year gamers spent $36.8 billion on games through both the Android and iOS app stores, according to data from SensorTower. New game installs are also up for the year. The app analytics company said that new game installs were up to 28.4 billion over the first half of the year. Annually the 15 billion new game downloads in the second quarter represented a 45.2% year-on-year growth in gaming.

Then there’s Bitkraft, one of the only venture firms to focus on the totality of the gaming industry, which announced the close of its most recent fund, a $165 million investment vehicle. The firm, which added a former Goldman Sachs managing director earlier in the year to capitalize on the opportunity in what the firm calls “synthetic reality” investments, raised $25 million more than its $140 million target. One of these things is not like the others.

“I’ve been in the games industry for 23 years now [and] I’ve always had this huge fundamental conviction of video games not only dominating the entertainment industry but sort of taking up a big part of what society is — where video games create the digital identities that define evermore of what we understand of ourselves,” said Jens Hilgers, Bitkraft’s founding general partner. “We feel that these are times of acceleration … it’s great to see how we’re leapfrogging one or two or three years of the games industry in this crisis and it makes it more exciting to invest in these times.”

The Unity public offering, and its emphasis on markets outside of gaming, seems to prove Hilgers point and show just how much opportunity remains around the notion of synthetic reality in business and entertainment.

“Their thesis around democratizing access to gaming tools by letting hobbyists use the tools for free is smart, if you want to win the market,” said Alice Lloyd George, founder of Rogue Ventures, a new investment firm focused on frontier technologies and gaming investments.

Lloyd George compared Unity’s business to its biggest competitor, Epic Games, and noted that both have broad aspirations. “Both of them want to use their game engines beyond pure gaming,” Lloyd George said of the two big new gaming platform developers. “Unity is really well-positioned because they’re so strong on mobile. That positions them well for AR and VR. And you need onramps for the developers for AR and VR.”

Engagement and the future of entertainment

When Scopely’s co-chief executive Walter Driver talks about the attraction of gaming properties for players — and the reason investors have been willing to value his Los Angeles-based company in the billions of dollars — he talks about the connections between players. “People have found — and investors looking at the space have found also — that people value the connection they’re getting from interactive experiences. It’s not just our relationship with the players, but their relationships with each other,” Driver said. “Inside of most passively consumed media experiences, you don’t have an identity. You don’t have friends.“

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