Saturday, February 5, 2011

Riot Games & Tencent

As was widely reported yesterday, the Chinese internet giant Tencent has agreed to acquire a majority of the capital stock of Los Angeles-based Riot Games, a Benchmark portfolio company. The transaction is a huge validation of Riot's meteoric rise to prominence in the online game business. CEO Brandon Beck, his co-founder Marc Merrill and the team at Riot have executed their business plan brilliantly, and the Tencent transaction now gives them a global platform to continue to disrupt the video game business for years to come. Congratulations!

For those unfamiliar with the company, Riot develops and publishes high quality, online, session-based games aimed at the core video game audience. The games are free to play; the company makes money by selling virtual goods to enhance the play experience. Riot's first title, "League of Legends," was an instant hit in the US and Europe, and will launch in Asia this year. The game has attracted a passionate audience, and by the strictest measure of video game engagement -- peak concurrency -- only the multi-billion dollar "Call of Duty" franchise does better than LoL among session-based games.

Benchmark Capital was privileged to invest in both Riot's Series A and Series B financing rounds. We were attracted by three key ingredients: the team's maniacal commitment to product quality and user experience; their belief that they could create sustainable customer acquisition advantages by delivering modern, upgraded versions of well-established play patterns (i.e., DotA); and the inherent benefits of the free-to-play, virtual goods business model. It worked like a charm -- the company delivered remarkable usage, revenue and profit growth. Hat's off to the team for executing so well against the opportunity.

One quick word about Tencent. I've been lucky to know the company since before their 2004 IPO (Tencent distributed some games from my last startup, JAMDAT Mobile, in China). I have immense respect and admiration for Pony Ma, Martin Lau and David Wallerstein. They are smart, honorable business people. I could not be prouder to see the combination of these terrific companies, and I look forward to great things from Riot and Tencent in the future.

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My deepest congratulations. Your predictions about the seachange the videogame industry was about to undergo starting in 2004 have been evident a thousand times over in recent months - studio closures and layoffs sad as they are to see. Your January 2010 post is the gift that keeps on giving (or taking away as the case may be). I'll refrain from comments on ATVI for the time being however. ;)

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