Two-dimensional VC, Mihayou went to invest

Original source: Rongzhong Finance

Author: Wang Tao

Image source: Generated by Unbounded AI

Perhaps, the current level is far from that fantasy metaverse world. But it is undeniable that XR technology companies such as VR, AR, MR and other XR technology related to the metaverse are in the industry explosion period. Valuates Reports, a market research firm, predicts that the global XR market will reach $184.1 billion by 2025.

The latest news, XR technology development company Gravity has received a series A financing of hundreds of millions of yuan, led by Monolith Capital, followed by Sequoia China, Ningbo Commerce Fund, 37 Interactive Entertainment, Mihayou and others.

Founded on September 24, 2021, Universal Gravity has received four rounds of capital financing in the past two years, and the disclosed financing amounts have reached the level of 100 million yuan.

It is worth mentioning that in the history of universal gravity financing, there are star capitals such as IDG, Lenovo Venture Capital, Gaorong Capital, Sequoia China, technology giants such as Goertek and Lenovo, and local guidance fund - Ningbo Commerce Fund. But the most notable investor is Mihayou.

For players, Mihayou is a rising star in the game circle who debuted and peaked, and competed with domestic game manufacturers such as Tencent, Netease, and Sanqi Interactive Entertainment at a young age. But what is less known is that Mihayou, which has created great achievements in the game circle, is also growing wildly in its investment business.

In April this year, Mihayou participated in Gravity’s Pre-A round of financing for the first time, and after six months, continued to invest in Gravity’s latest Series A financing. This move was interpreted by the outside world as Mihayou’s layout of the XR industry chain, so why gravity?

01 Ningbo XR Rookie Gravity

In September 2021, Gravity was born in Ningbo, a start-up focused on XR (AR/VR/MR). With the core chip as the carrier and hardware technology and algorithms as the support, it provides the industry with a complete technical solution required for the next generation of XR user experience. The founding team are all returnees who hold key R&D positions in Apple, Huawei, Meta, Amazon and other major companies.

Prior to this round of financing, Gravity has received three rounds of financing, led by Gaorong Capital, followed by Sequoia China, IDG Capital and GSR Venture Capital; The pre-A round was invested by Lenovo Venture Capital, Yaotu Capital, Wuyuan Capital, 37 Interactive Entertainment, Chase Venture Capital, Qiji Chuangtan, Yuanyang Investment, etc., of which old shareholders Gaorong Capital and Sequoia China over-co-invested; The Pre-A+ round was led by Tongge Venture Capital, jointly funded by Goertek, Mihayou and Sanqi Interactive Entertainment, with Zhongyuan Capital, Zhongding Capital, Eight Roads Capital, Insight Capital, Ningbo Yongjiang Science and Technology Innovation and Ningbo Zhenhai Industrial Capital jointly investing, and old shareholders Yuanyang Investment, Sanqi Interactive Entertainment, and GSR Venture Capital continued to follow the investment.

It is not difficult to see the investor’s preference for gravity, such as Sequoia China, Gaorong Capital, Zhongyuan Capital, Goertek, Sanqi Interactive Entertainment, etc. are all old shareholders of gravity, and have participated in 2-3 rounds of financing of gravity.

In the “Ningbo Most Investment Value Enterprise” released this year, Gravity was awarded the title of “Digital Intelligence Star”. In less than a month, Ningbo Commerce Fund, a state-owned capital investment and operation platform at the municipal level, participated in the Series A investment in Gravity. It is worth mentioning that also this year, Zeekr Motors received a series A financing of 750 million US dollars, becoming a super unicorn with a valuation of 13 billion US dollars (about 90 billion yuan). Among the investors, there is also Ningbo Tongshang Fund.

What is the charm of star capital, technology giants, and government funds joining forces to invest in gravity?

In the angel round investment of Gravity, Yue Bin, founding partner of Gaorong Capital, once said: the popularity of AR/VR devices must be supported by professional XR chips, and there are only a few top technology companies in the world engaged in research and development in this regard. The founder of Gravity has a deep understanding of AR/VR technology. In the past period, a group of outstanding talents from world-class technology companies such as Apple and Meta gathered here, and the team has both vision and capabilities in different fields such as chips, systems, and algorithms. The chips developed by the company will drive the advancement of AR/VR devices and enhance the user experience.

From Mr. Yue Bin’s reply, we can see the reason why gravity has gained favor.

In recent years, XR technology has been continuously developed, and XR hardware is the most important foundation in the industry. As the cornerstone of XR devices, the performance of XR chips will directly affect the customer’s experience. With the birth of the meta-universe, users’ requirements for XR experience are increasing, such as higher-definition images, stronger computing power, lower losses, etc. are all problems that XR chips urgently need to overcome.

But globally, research and development of XR chip companies can be described as rare. Only giants such as Apple and Meta (Facebook) are involved, and Apple and Meta mainly develop chips for their devices, and third-party XR special chip developers for market applications are even more scarce. This results in a serious mismatch between the demand side and the supply side. At this time, the domestic enterprise Gravity was born, choosing to enter the XR industry with XR chips, and the founding team was all R & D personnel of former top giant enterprises, which was naturally favored by investors.

Moreover, gravity has made some achievements in recent years.

First, Gravity’s first XR chip can greatly ease the rendering load of general-purpose platforms. When VR devices can reach 8K/120HZ resolution and refresh rate, reduce pixel flux, improve rendering efficiency, save power consumption, increase refresh frame rate, and ultimately reduce rendering load. Secondly, the video penetration method is used to solve the problems of VR hardware terminals, users’ difficulties, dizziness, and dizziness; Finally, digital correction and computing power are used to present the enhanced VR/MR image quality effect. Taken together, the first generation of gravity chips can cope with the important puzzles of most XR chips. It is worth mentioning that the founding team of Gravity expects that the first generation of chips can complete mass production achievements within 2024.

At the same time, in October this year, Zhang Yimou’s popular Qi Tian also received hundreds of millions of yuan in Series C financing. Investors include China Holdings Fund, NetEase, CITIC Group, etc. Danghong Qitian will work with investors to promote the creation of comprehensive solutions for metaverse-related technologies, products and application scenarios such as XR and AI.

As the explosive metaverse was poured cold water on the big model Ai, it seemed to become calmer and no longer fantasize about the currently unattainable dream, but became realistic. In addition, in the past two years, China’s “Virtual Reality and Industry Application Integration Development Action Plan (2022-2026)”, “Metaverse Industry Innovation and Development Three-Year Action Plan (2023-2025)” and other policies have been introduced. Metaverse industries like XR are accelerating again and ushering in a golden period.

02 Two-dimensional VC - Mihayou’s commercial territory

On July 18, 2022, Goertek issued an announcement that its company and subsidiaries have signed partnership agreements with Mihayou and 37 Interactive Entertainment to establish Tongge Venture Capital, and intend to subscribe a total of about 556 million yuan to carry out venture capital activities.

Among them, Mihayou and Sanqi Interactive Entertainment subscribed 100 million yuan and 50 million yuan respectively as LPs, with investment ratios of 17.99% and 8.99% respectively, and the investment direction is unlisted start-ups such as advanced manufacturing, intelligent networked vehicles, XR industry, and semiconductors.

In 2023, when Gravity’s Pre-A+ round of financing, Mihayou participated in the investment in this way.

But gravity is not Mihayou’s first investment project. In recent years, Mihayou has gradually become an “upstart” in the VC circle.

In March 2021, Mihayou signed a strategic cooperation agreement with Ruijin Hospital, which was among the top five hospitals in China at that time. The purpose is to combine their respective advantages in the field of information and medicine to cooperate in the establishment of “Ruijin Hospital Brain Center Mihayou Joint Laboratory”. After the agreement was reached, Mihayou funded and Ruijin Hospital jointly carried out research on the development and clinical practice of brain-computer interface technology. Currently, the lab is curing depression through brain-computer interface technology. Some people in the industry believe that Mihayou’s move is currently in the hospital field, but in fact, it is the same as investing in gravity to make a layout for the future meta-universe game field. After all, the world’s top game companies at that time were studying how to let players use brain-computer interfaces to play games to achieve a higher gaming experience, such as Steam boss Gabe Newell

In February 2022, Energy Singularity, which is committed to the development of commercializable nuclear fusion technology, announced an angel round of investment of 400 million yuan, led by Mihayou. Other investors are NIO Capital, Sequoia Seed Fund, and Lanchi Venture Capital. In April this year, Mihayou was also one of the investors in the pre-A round of 400 million financing of Energy Singularity. The financing funds will be used for the research and development of the Energy Singularity small tokamak device “Artificial Sun”. At that time, the world was investing in commercial nuclear fusion, OpenAi CEO Sam, Silicon Valley venture godfather Peter Thiel, the world’s richest man Bezos and Bill Gates were all investors in this field. For this nuclear fusion race, Mihayou is also very interested.

In addition to brain-computer and nuclear fusion, Mihayou also invested in rockets.

In May 2022, Oriental Space, a private aerospace company founded by Yao Song, a top student in Tsinghua, officially announced the completion of a series A financing of 400 million RMB, led by Shanhang Capital, followed by Minbin International, Mihayou, Xinghan Capital, Yuanjing Capital and others. The financing will be used for the development and first flight of a medium-sized commercial launch vehicle. When everyone was shocked by Mihayou’s operation, Chairman Liu Wei said indifferently: Don’t think about it, I just invest in cutting-edge technology for the sake of feelings.

In addition to the above, Unity China, Soul, MiniMax and other companies have all received investment from Mihayou. According to the data, Mihayou has now invested in more than 70 companies, including XR, engine, AICG, dating software, games, etc.

From the perspective of combing, Mihayou is not like other capital giants, such as Tiantu Capital, which focuses on the consumer field. Its investment is wild, there is no trace, and it has the style of a newborn calf that is not afraid of tigers.

As the founder of Mihayou famously said: Otaku save the world. Players in the “Genshin” and “Honkai” series, Krypton’s gold has become the capital of Mihayou to “save the world”.

03 Mihayou’s confidence in doing VC comes from “banknote ability”

Mihayu was founded in 2012 by three technical otaku who wanted to make games and anime.

Unlike today’s boom, Mihayou broke his head in the early days of his business to seek investment, but he was also discouraged in the end. At that time, most of the game industry was martial arts series, so Mihayou’s two-dimensional fantasy was also scorned by investors. Perhaps because of this reason, the current Mihayou has successively rejected the investment of Tencent, ByteDance, etc., and now there is only one round of 1 million angel round financing from Skye Network.

From the first “FlyMe2TheMoon” to “Genshin”, from the initial 7 employees to more than 4,000 people now, Mihayou has become a new gold absorber in the game circle.

According to the prospectus of Mihayou disclosed by the CSRC, from 2014 to 2017, Mihayou’s operating income was about 103 million yuan, 175 million yuan, 424 million yuan and 590 million yuan, respectively, and the net profit was 66 million yuan, 128 million yuan, 273 million yuan and 447 million yuan. This data is good for newcomers, but it is not very impressive.

Until 2020, the year “Genshin” came out, Mihayou’s revenue reached 10.1 billion yuan, breaking through the 10 billion barrier for the first time. In the list of the top 100 enterprises in Shanghai, Mihayou also entered the list for the first time this year. In five years, Mihayou jumped from 100 million to 10 billion. At the same time, the net profit in 2020 was 5.7 billion yuan, a year-on-year increase of 475%.

This year, Mihayou disclosed the financial data for 2022, the main business income in 2022 was 27.340 billion yuan, the net profit was 16.145 billion yuan, the average daily net profit exceeded 44 million yuan, and by the end of 2022, Mihayou’s net assets have reached 37.4 billion yuan. This also means that from 2020 to 2022, Mihayou achieved a double record of revenue growth of 169% and net profit growth of 179%. It is worth mentioning that Mihayou will also create about 10 billion yuan of global revenue on Apple’s iPhone and iPad terminals in 2022, and Apple will earn 3 billion yuan in this year by relying on Mihayou.

If compared in the game circle, it is far from the first echelon of NetEase and Tencent in China. According to the announced financial report, Tencent’s game business had a full-year revenue of 170.7 billion in 2022, while NetEase had 74.6 billion. Although in terms of numbers, Mihayou has a huge gap between the two. But whether it is the size of the company or the number of years of development, Mihayou is far inferior to these two giants.

But if you compare downward, the game company with the highest ranking in A-shares is Sanqi Mutual Entertainment, with revenue of 16.3 billion yuan and profit of only 2.9 billion yuan in 2022, which is not as good as Mihayou’s data. This also means that after NetEase and Tencent, Mihayou has become the third largest game manufacturer in China.

According to data from game research agency Sensor Tower, since the release of “Genshin” in September 2020, the cumulative global sales have exceeded $4 billion, and in 2022, “Genshin” has become the third highest-grossing mobile game in the world.

The success of “Genshin” has also skyrocketed the founder’s value, including the “2023 Hurun Global Self-Made U40 Rich List”, and the three founders of “Genshin” production company Mihayou. Among them, Cai Haoyu ranked 18th with a wealth of 21 billion yuan, Liu Wei and Luo Yuhao ranked 27th and 30th with a wealth of 11.5 billion yuan and 11 billion yuan, respectively, and the three founders together have a wealth of more than 40 billion yuan.

Just recently, in the list of the top 50 global mobile game developers in 2023 released by the famous overseas mobile game media Pocket Gamer biz, Mihayou was ranked first.

The data and list prove that Mihayou has gradually become a gold-absorbing behemoth in the Mihayou industry, and has also been collectively missed by VCs in the early days, and now he has embarked on the road of doing this VC.