Match Group’s deal with OpenAI is just business with AI glitter on top

This week Mary Ann, Kirsten, and Alex gathered to chat through a massive sheaf of news. A note before we get to the rundown that Reddit filed to go public after we had recorded this episode, so notes on its IPO filing are not included in this particular episode. Don’t think that we won’t discuss its S-1, it just came too late for this particular entry. More to come! Here’s the rundown: Deals of the Week: PermitFlow raised $31 million to bring software to the construction permitting market, one man’s plan to keep Cake ebike’s alive for just a while longer caught our eye, and we had thoughts about Match Group’s tie-up with OpenAI. Fintech drama: With Reddit’s IPO in the hopper, eyes are turning to other companies that are expected to list this year. One such company is Klarna. And, the buy now, pay later company has been the latest recipient of governance drama. Former Sequoia leader Michael Moritz won this round, unsurprisingly. Video game startups could prove surprise 2024 winner: While the venture market retreats and venture funding for gaming companies slows, there’s good reason to expect fortunes to turn around for the startup genre. And while venture wallets might open for gaming companies this year, some others like Frost Giant are turning to their own community to raise. More to come, including Reddit IPO notes! For episode transcripts and more, head to Equity’s Simplecast website. Equity drops at 7 a.m. PT every Monday, Wednesday and Friday, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts. TechCrunch also has a great show on crypto, a show that interviews founders and more! Credits: Equity is produced by Theresa Loconsolo with editing by Kell. Bryce Durbin is our Illustrator. We'd also like to thank the audience development team and Henry Pickavet, who manages TechCrunch audio products. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:10Speaker 00

  Hello and welcome back to Equity, a podcast about the business of startups where we unpack the numbers and the nuance behind the headlines. Today is February 23rd. My name is Alex and I'm joined today by the usual power trio. In one corner, we have the pride of Texas. It's Mary Ann Azaveto. Mary Ann, hey.

• 0:28Speaker 01

  Hi, Alex. I can't help but chuckle at being called the pride of Texas.

• 0:32Speaker 00

  As I always tell you, you're my favorite Texan and therefore you're the best one. We also have Kirsten Korosec. Kirsten, how are you doing?

• 0:38Kirsten Korosec?

  Great. Great for me, actually, Alex, but not so good if you're trying to sell premium EVs, as you might have noticed with some of our coverage earlier this week about Rivian and Lucid.

• 0:49Speaker 00

  Yeah, we'll talk about more EVs down the road, but not the four-wheel variety. Instead, we'll talk about those that only have two. On the show today, we do have Deals of the Week from Permitflow, Cake, and then what Match Group is doing with OpenAI. And then for our first major section of the show today, we're going to discuss what happened with Klarna and Sequoia. And then we're going to close with notes on venture-backed gaming and why gaming companies could be in good straits for 2024. But Mary Ann, you have put my most hated words into a headline. And so I want to start with you because you put TurboTax into a startup headline and I want to know why.

• 1:24Speaker 01

  Well, I was, I wrote an article about a company called Permitflow. And I guess you can tell from the headline, they are focused on permitting, specifically construction permitting, and they claim to be building the TurboTax for construction permitting. So this company is basically saying, look, we can be a one-stop-shop for general contractors so that when you have to apply for a permit, we'll help you so that the process can be smoother and faster. Now, this is one of those topics that may seem dull to the average person, but again, maybe because I'm a little bit of a construction tech, prop tech nerd, I think it's very interesting. This is a huge problem. It's a big problem for everyone,

• 2:07Speaker 01

  really, even if you don't realize it, because if permits take a long time to get approved, that delays projects, that delays things like housing being built, and that makes prices go up. So that is one of the things this company says it's hoping to do with its software is help make housing more affordable by getting things clear through the pipeline quicker.

• 2:29Kirsten Korosec?

  Okay, I have a very important question, though, because software that streamlines things, great, but oftentimes the bottleneck is at the city or the county, which is an absolute, in my personal experience, total nightmare to deal with. So how is it navigating that piece?

• 2:52Speaker 01

  Yeah, very good question, Kirsten. I'm going to say that I think the best way to describe this is they have LLMs embedded into the software. And so they're able to tell maybe what kind of obscure requirements the city might be asking for and help contractors plan for that in advance even, because they've already, for example, let's see, they've helped 5,000 units of housing get permitted. So they have all this data already. So that's part of the goal is to say, okay, we can kind of predict what the city is going to ask for. So you can go ahead and address it head on. And I forgot to mention one other quick thing. This company just raised $31 million in Series A funding, and that was

• 3:37Speaker 01

  led by Kleiner Perkins. And interestingly, this was just over a year after they raised $5.5 million in seed funding, which is a pretty short timeframe in this day and age when it comes to raising venture capital. Other investors include Y Combinator, is a YC alum, Felicity's Ventures, initialized capital, Altos Ventures.

• 3:56Kirsten Korosec?

  I know that Alex is going to have all sorts of questions on the funding side and commentary, but I did note that, so right now, they're not working everywhere, but mainly in California, Florida, and Texas. And California is really interesting to me because that just seems like a permitting nightmare, a lot of specific requirements. So are they working with each city and county to get all that data? Because you said they're using LLM. So what's the data set? Where are they getting that information?

• 4:26Speaker 01

  Yeah. So, okay, from how I understand it, they do operate in municipalities all across the country, but their largest footprints are in California, Florida, and Texas. But they do plan to expand nationally. Good question about that. One of the things that they had told me is the co-founder Sam Lim, who used to work at Uber, has experience in helping to scale geographically localized software. So I think that that's one of the things they claim makes them different is they're able to really like hone in on each geography and figure out the different requirements based on, you know, that particular municipality or city. So yeah, one of the things that the Kleiner Perkins partners said in a written statement was, no longer do construction professionals

• 5:10Speaker 01

  need to try and decipher obscure municipal websites slash requirements and suffer through back and forth whack a mole in the form of municipal office comments. They're saying Permaflow handles all that complexity through its software.

• 5:23Speaker 00

  Which I just want to say nuances of how it actually works aside, super necessary. We have seen entire cities and regions handicapped in their ability to build housing because of permitting issues amongst other things like higher costs, labor and so forth. But I mean, oh my gosh, if we can use this offer to build more housing, hell yeah. If you want to see a real world example of housing policy and how it impacts areas and societies, look at Austin, actually oddly enough, Mary Ann, Austin has seen relatively high levels of housing permits approved and has seen a lot of apartment units come on, which has helped, I believe, if I recall the data correctly, dampen the increase in rent in the whole city. And other regions where that's not happening, San Francisco, for example, my adopted home, the other way around. So I really hope that this

• 6:07Speaker 00

  company succeeds just because I think it's going to be good for the country.

• 6:11Speaker 01

  I agree. One other quick point I'd like to make, this is just one of a number of startups in this space that has raised capital over the past year and a half or so. I wrote about another one called Pulli, which raised money in June of 2022. Also, very recently, Austin, as you mentioned, Alex, a company called Greenlight raised or announced it had emerged from stealth with $8 million in seed funding last fall. There's another bootstrap company also in Austin called permits.com. So there are a lot of companies in the space and partly that's because after COVID, that opened the door for more digital applications. So that kind of helped pave the way for more startups in the space.

• 6:47Speaker 00

  I see. Well, one last Note before we move on, I do want to talk about the numbers. Kirsten is correct. The company shared that it saw ARR growth of over 20x in 2023. Now, we all know what that means. It means they had $4 in revenue in 2022, but you still love to see rapid acceleration of that sort. And that, to me, explains Mary Ann, how it raised so quickly after its last round, because who doesn't want to invest in a growth story? Ironically, a great segue to our next story, which is all about a company that's not growing. It hasn't, in fact, kind of gone into the ditch. But as it turns out, we finally get to say the words "Florida man" on the podcast. Kirsten, what's going on with Cake?

• 7:24Kirsten Korosec?

  Yes, we do get to say "Florida man," and in a positive context, by the way. Not wrestling an alligator or some other Florida man story that we've come to love. So the story really centers around Cake, which is a Swedish startup that makes e-motocycles or e-motorbikes. These are not e-bikes. These are, you know, little, little heftier and go faster. And the company went into bankruptcy protection and is now winding its way through that. The founder is really, and who has spoken to us a couple of weeks ago, is really intent on trying to save the company. But as it goes through this process, a Florida man, his name is Michael Joyce. He runs a retail shop in St. Petersburg, Florida called Emoto.

• 8:08Kirsten Korosec?

  And he basically bought all of Cake's assets in terms of motorbikes, not its IP or anything like that. And they're all coming stateside, which is kind of like a fun story about, you know, a startup kind of falling to the wayside. And it's, they are popular, one person stepping in and buying all this inventory. But there is another layer to it, and it's a startup. This Florida man is working with a Detroit-based startup called Bloom, not to be confused with all the other startups out there called Bloom. But this one is going to warehouse all the inventory and sort of help ship the motorbikes around the country.

• 8:48Kirsten Korosec?

  Bloom is this new company that's come from the founders of e-bike brands Propel and Vella. And the idea is that they see this Shift happening around e-bikes, e-motorbikes, a little bit of economic headwinds. And they see themselves as potentially this third-party go-between contract manufacturer that will help them. So there's this interesting layer of a fun hero story, but also this new and emerging startup, which by the way, is based in this place called Michigan Central, kind of like a hub for startups that I just happened to be at last week in Detroit.

• 9:28Speaker 00

  Wow. These Cake e-bikes are awesome. They're also like $5,000 or $10,000. So these are really serious bits of hardware. They're not like the e-bike that my family bought, which was like a grand from a friend.

• 9:39Kirsten Korosec?

  Right. These are, I think that it's better to call them electric motorbikes. And interestingly, we had a scoop a couple of weeks ago that the founder said, you know, while he was trying to save the company, the founder of Cake, he actually had a number of chats, fairly serious ones with Harley-Davidson and some other OEMs. So you could see in hopes that the brand would stay alive and there would be some larger OEM that would step in and save them. That didn't pan out, but you can see that this is more motorbike territory of Harley is interested in them.

• 10:13Speaker 00

  So Swedish company backed by international capital ends up going bust. Florida man buys the stuff with the help of Detroit startup. So that way, American consumers can have access to what's left of Cake's ashes. It's just, it's, it's cool. It just makes me happy.

• 10:29Kirsten Korosec?

  It's very interesting that just this one man and this one individual is buying the remaining US inventory of this whole company. That's kind of crazy. Good for him. I hope it works out for him, to be honest with you. I think from the article, that's all he sold, right? Though out of his shop in St. Petersburg, where this particular brand of bikes? Yeah, I think he has aspirations to turn this retail shop into, you know, a larger brand. The interesting thing here is it raises the question just in general around modern day e-bikes, especially these, and motorbikes, especially these bespoke brands that have software in them, is what happens when you buy a Bike like VanMooft, for instance, and then the company folds.

• 11:14Kirsten Korosec?

  What happens to, how do you repair it? How do you, um, soft, you know, software updates, things like that. And Alex is very excited to weigh in.

• 11:23Speaker 00

  What happens is if you buy a VanMooft and then the company goes down, you end up watching your life savings go VanPoof.

• 11:31Kirsten Korosec?

  Nice.

• 11:32Speaker 01

  You couldn't wait to say that.

• 11:33Speaker 00

  Could not wait to say that, sorry.

• 11:35Kirsten Korosec?

  We actually have a, at least one staff member who has a VanMooft. And there is a startup that's kind of popped up to support VanMooft owners. But again, just buying the inventory is helpful in terms of fixing, um, repairing. But then there's that question, if there is any kind of software management in any of these companies, what happens? And I think we're going to see that a lot more. This is just one instance of a startup that was popular, but it didn't really work out. But those products are floating around there. And so I think we're going to see more of this, actually. Who supports the folded company of the e-bike or a scooter startup?

• 12:14Speaker 00

  Doesn't that also apply though to EVs in general? Like, let's say, I don't know, you bought a Lucid and let's just say Lucid goes bankrupt. And they're not close to that, to be clear, but let's just say it happens. And so you have an EV from manufacturer that's dead and it's a bigger investment than an e-bike or a motorized electronic bicycle. Do you end up the same kind of quandary?

• 12:32Kirsten Korosec?

  I mean, yeah. And if you, if you think about it, people hold on to cars quite a long time. The average car ownership is 11 years. So you're hoping that those vehicles can be supported for the, the length of the time that you own that vehicle.

• 12:50Speaker 00

  Yeah.

• 12:51Kirsten Korosec?

  So I guess we'll find out if Lucid's still around in 10 or 11 years. But I think that's going to be the case with some of these EV startups. Some are in a riskier position than others.

• 12:59Speaker 00

  Yeah, yeah. Well, I'm sorry to hear about Cake. I do hope that we keep investing in small electric transit for urban environments because I would like to buy something in that area and the companies keep dying on me, which makes me sad. But something that is not dying is AI deal making and my deal of the week is actually kind of a weird one because it's actually a bit of a, it's almost like a transaction, if you will, between two large companies. So Match Group, which we all know as the parent company of many dating services, it's public and it's well known. So when it inked a relatively large deal with OpenAI, my first thought was, cool, OpenAI is going to use Match.com's data and so forth. But actually, it's more of a Match Group is buying licenses from OpenAI.

• 13:40Speaker 00

  And that makes this slightly less compelling to me, but the fact that Match is so proud of inking this deal to me goes to show that everyone wants to have some of that AI glitter attached to them, if you will, Mary Ann. And so it's kind of a weird deal to discuss, but I think it shows where we are today regarding AI hype.

• 13:58Kirsten Korosec?

  I have to say, I thought it was amusing and even a little clever that they had the press release written by ChatGPT. And what a funny and interesting release that was. Our Sarah Perez made fun of it throughout her piece. The language, not at all, a groan exclamation point to a few of the canned quotes that were pretty funny, but hey, you know, it caught our attention, didn't it? Not a bad marketing strategy in this case.

• 14:27Speaker 00

  Well, I think anything OpenAI, I click on immediately because I'm always worried it's going to be the launch of a new model or a new doohickey that I need to understand and know about. So when they do anything involving a large dollar amount, I kind of go, what? What now? And the context here is that Match had discussed putting in 20 to 30 million dollars this year into AI-based innovation. So expect, I guess, this stuff to show up in your apps soon.

• 14:50Kirsten Korosec?

  First of all, I love, and I will now use it all the time, the reference of a company wanting to be dusted with AI glitter because I think this feels very much like what I've seen amongst some of the automakers as well, who are trying to be part of the conversation. You know, either putting, demoing ChatGPT in their vehicles or talking about AI quote unquote innovation, but not really being super specific. So do you think that this squarely falls in?

• 15:26Kirsten Korosec?

  A little bit thirsty and wanting to be included? Or is there actually some real stuff happening here that people who use Tinder or Match? OkCupid, we'll, we'll see.

• 15:37Speaker 00

  Thirsty like a man lost in the desert, needy like a child left out at snack time. I mean, come on, this is exactly what it is. But I think that we have to keep an eye on major transactions involving OpenAI, because we forget, I think occasionally, that OpenAI is a company. And it is partially owned by Microsoft and other investors, but not entirely. And so it needs to do business and, you know, we should keep track of how it's doing as well. So this deal with Match, interesting on the Match side. I think it matters a bit more on the OpenAI side, if that makes sense. And also, as we were kind of prepping for today's show, more news came out, namely that Reddit has penned a deal with Google to essentially license its data into Google's AI systems.

• 16:21Speaker 00

  If you didn't know, Reddit forms an important part of the corpus that AI models, especially LLMs, are trained on. And I think that deal is worth about 60 million a year. So here we have some companies paying OpenAI and then also other AI model companies paying other firms. So there's a lot of money moving around and we're sorting out who's going to make, I think, the most profit here. But the fact that Match Group was this desperate to get attention, I just think really does a good job of showing kind of where we are right now. Mary Ann, last comment to you before our break.

• 16:48Speaker 01

  No, I, I agree. And, I mean, I've never used Match or, or any of those dating apps, because thankfully they came after I got married. But I, I am curious to see how else they plan to incorporate AI into what they do. I know that they're planning to use it to more of the backend, like with coding, design, analysis, building templates, stuff like that. But I'm curious if they're planning to incorporate it in any other ways into their apps? Or is it mostly going to be on the backend?

• 17:16Speaker 00

  Can I, can I just do a really short segue based on something you just said, Mary Ann?

• 17:20Speaker 01

  Sure, of course.

• 17:21Speaker 00

  All right. So I was talking to my brother and we were talking about ChatGPT because he and I are both big old nerds and he's in the army. I didn't know if he'd used it and he's like, oh my gosh, I use it all the time to write code. And so it just kind of hit me like my dad likes it. My mom thinks it's cool. I use it. Match wants it. I don't know. It's, it's been impressive to me how this stuff has showed up in my regular life, if that makes sense, and kind of leaving the pages of tech, kind of walking around in the world. And that to me is, I think, I just can't stop thinking about how many people are using this stuff now, day in, day out, and what it would cost to kind of take it out of their hands.

• 17:55Speaker 01

  I think it's impressive. I mean, considering it wasn't launched that long ago, that it's managed to become this widespread already among just a general population.

• 18:05Speaker 00

  Yeah.

• 18:05Kirsten Korosec?

  14 months or so, right?

• 18:07Speaker 01

  Yeah.

• 18:08Kirsten Korosec?

  Someone said something interesting to me the other day, and then we will definitely break. But go back in time to when Google Search just came out and it was like magic. If you knew just the right words to put in to get that, that response you wanted. And now that's happening with people who are familiar enough with ChatGPT around prompts and how to write a prompt. And it's the new skill set that today, we of course, take for granted Googling something. But there was a time when it was kind of magical if you knew the correct way to do it. So I feel like we're at that same moment in time again with ChatGPT.

• 18:49Speaker 00

  Yeah. All right. We have to take a break. Everyone hang tight. When we come back, we're talking about when you come for the king, you best not miss.

• 19:02Speaker 01

  And what Alex was referring to, when you come for the king and you best not miss, this has to do with Sequoia and the firm's effort to oust Michael Moritz from the Klarna board. So what happened here was a bit dramatic and it took over, what, it took maybe a few days for it to unfold, but a Sequoia partner, Matthew Miller, who joined Klarna's board at the start of the year, initiated this move to get Michael Moritz off the board of Klarna. Now, For the unacquainted, Michael Moritz was not only on the board, he was chairman of the board. He helped lead Sequoia's investment into the buy now, pay later company. And this came as a bit of a surprise. Then a couple of days later, we hear that Sequoia is walking

• 19:47Speaker 01

  this back, saying, oops, we shouldn't have done this. And then they said that initially, the decision was trying to help the company prep for its upcoming IPO. Then what happened is that Matthew Miller, who's the one that initiated all this, is now off the Klarna board. So the whole plan seemed to have backfired in his face. It's reminiscent of what happened at OpenAI a few months ago, when there was this initiative to try to get Sam Altman. Well, it did work. He was removed from his post as CEO and then reinstated. So anyway, all this happened. What do you guys think?

• 20:25Kirsten Korosec?

  I want to get to the root, which, by the way, the root question, which I'm glad you brought up OpenAI, because that question still hasn't been answered. But maybe you have the answer to this one, which is, why was there this effort to remove him from the board to begin with? What was the actual problem here or complaint?

• 20:44Speaker 00

  So I don't think anyone's actually finished chasing that down. So I think that's, that is the point of active reporting. But I do have a hypothesis.

• 20:53Kirsten Korosec?

  Okay.

• 20:53Speaker 00

  So you're the new guy on the board, right? And you're looking around the room, and it's a bunch of people that run the company that have invested in the company. And the chairman is this dude who just quit your firm. And you want to be the voice of your firm, Sequoia in this case, to be as strong, strident, and clear as possible. Hard to have two cooks from the same kitchen, even if one of them is chef emeritus, right? So you try to gently get Michael off the board. And then it turns out, he doesn't want that, and he has a lot more clout than you, ha, ha, ha. And then it blows up in your face. But I presume this was something that kind of a low key power struggle, if that makes sense.

• 21:28Kirsten Korosec?

  Yeah, but I'm it's interesting that they it hasn't been fully reported out yet because we still don't know what the root reason was with the whole OpenAI debacle either. So, well, we kind of know, but there are some details that are still missing, right?

• 21:43Speaker 00

  Yeah, but I mean, it's it's everyone thought that Sam was doing too much under his own name and was not being as clear with information as he should be, the same stuff that kind of dinged him at Y Combinator. There's a behavioral pattern here.

• 21:56Kirsten Korosec?

  Right, sure. In this case, it is interesting that these like little power plays came to a conclusion so quickly.

• 22:05Speaker 01

  Yeah.

• 22:05Kirsten Korosec?

  It just goes to show, you know, sometimes these things get drawn out and it never really gets the attention of media. And in this case, it really kind of came to a abrupt end or conclusion within a couple of days.

• 22:19Speaker 01

  Yeah, I was intrigued because in the Financial Times article on the topic, according to a person with knowledge of Sequoia's thinking, the firm had not fully understood the situation when it launched an effort to remove Moritz. Okay, now, this is this is what I don't get. Why would you allow something like this to even get started, take place if you had not really taken the time to fully understand what you were what you're trying to do as a firm? I mean, did you not understand the implications to begin with? This is a big deal, trying to get the chairman kicked off of the board, essentially. How can you not understand? Like, it reminds me of like not doing due diligence when you're investing?

• 23:01Speaker 01

  Like, what? How did this even happen to begin with? Like, did they not think this through?

• 23:06Kirsten Korosec?

  I have one word that will explain and answer all of your questions. Hubris.

• 23:14Speaker 01

  Oh, that's not, you know, rampant in the VC world.

• 23:18Speaker 00

  You know, I don't think that we should read Kirsten's comment as indicative of hubris qua Sequoia, but maybe perhaps hubris qua this particular partner, right? I mean, you show up, you're the new Sequoia person. It's kind of like putting on like a Ferrari jacket. You know what I mean? Like, you're like, you're representing the famous brand, the brand everyone knows, the cool, everyone, you know, wants to be associated. Sequoia is like the Harvard of VC, right? Like, it's been around for a bajillion years, and it's how it's controversies, but still well-respected.

• 23:45Speaker 01

  But he didn't, he didn't do this alone, right? He did this with the support of the firm. I'm just trying to clarify, as I understood it, the attempt to remove him was backed by Sequoia Managing Partner Rolif. Okay, so I don't, we don't know any of this for sure. We don't know exactly what happened. Clearly though, the firm realized very quickly after the initiative that maybe they had made a mistake and walked it back. So, once again, maybe just another lesson for startups, boards, companies, firms, founders. Really think these things through before you try to get someone kicked off or kicked out of their roles as CEOs or board chairs.

• 24:26Speaker 00

  Yeah, and just one more thing, like Michael Moritz is not just another investor. He's one of the few whose brand has transcended, I think, the venture capital realm. And he's backed companies like Google and Yahoo and PayPal. You may have heard of them. You may have used them today. I may work for one of those companies now. I mean, this is a person who has a pedigree that is basically going all the way back to 86. And I think it's going to be hard to say that you're better than him at leading a company through its end of growth period towards its IPO. Or at least I'd rather have Michael Moritz on my board than Jesus, so.

• 24:59Speaker 01

  He's a former journalist, which I have to love. I have to admit that.

• 25:03Speaker 00

  Yeah, actually, people forget that, but that was his original career trajectory. And there's a lot of interesting backstory there, but we don't have time for it because we have to talk about my favorite thing in the entire world. And no, it's not heavy metal or hot sauce. It's video games. And Mary Ann, I know that you are the other resident gamer on the podcast today, so I'm curious. What was your take on Rebecca Scoot's excellent piece outlining the optimistic case for venture investment in gaming this year?

• 25:28Speaker 01

  First of all, I'm not necessarily the gamer I was when I was younger. I played, you know, this Pac-Man, Galaga and Donkey Kong. I'm dating myself, right? And Super Mario, let's not forget. But I do have a gamer in the house in my 16-year-old son. So, seeing how, how even from as a child to teen years, he's continued to be into video games and different types of video games. I do think this industry has a lot to offer still. And I am not surprised that VCs see this as a potential bright spot in 2024.

• 26:02Speaker 00

  But Kirsten, the numbers don't look to be particularly attractive when we look at what happened last year.

• 26:07Kirsten Korosec?

  Right, so 2023's total is down from 2021, 9.9 billion, and 2022, 6.7 billion. This is compared to 2023's figure of gaming startups raising 2 billion last year. So quite a fall, actually. And I'm wondering, where is it lack of interest? Is that money going somewhere else? Is it all going into AI, for instance? Are there fewer VCs interested in gaming? What's the underlying reason for that drop?

• 26:41Speaker 00

  Part of what Becca pulled out from a couple of investors helps kind of answer that question. And the thing that stood out to me the most in the story was that a lot of the decline was a retraction in investment in Web3 gaming. Because there was a moment when people were very optimistic that games like Axie Infinity were the future and that played to earn and its various machinations would become increasingly popular. And so a lot of capital went into that. But during the last Web3 winter, that dried up. So the numbers we're discussing, and Crunchbase, by the way, kind of backs up the data from Convoy, I think is like probably half the decline of Web3 gaming and probably half natural decline in other type of gaming investment. But the thing that hit me when I was kind of preparing for the segment and rereading

• 27:24Speaker 00

  this post is just how big the gaming industry is. It's something like just about $200 billion a year all in versus the American movie box office last year was 9 billion. And just the scale differential is so large, you would think that there would be a lot more capital chasing it, just given how much spend there is year in and year out, Marian. And I'm sure your Chuckbook has taken a hit from your son's gaming fandom.

• 27:47Speaker 01

  Yeah, I was really surprised at the difference between the size of the video game industry compared to the film industry. But then again, I shouldn't be because we were just talking about it here as a family that... There just haven't been that many movies, to be honest with you, that make you want to be like, "Oh yeah, I want to go see that in the theater." Because, you know, movies are so expensive these days. It costs a fortune just to go to the movies, to buy popcorn, to buy drinks. And a lot of them just don't have that much substance anymore. And when it's so easy to stream things in the comfort of your own home, I guess it's not such a shock. So, anyway, video games appeal to a large, like a wide range of people, from younger to older. And I think that's part of the appeal.

• 28:32Speaker 01

  And I think one of the reasons we saw a decline is, as Becca mentioned, there was a lot of Web 3 and crypto stuff that was trying to be incorporated into gaming. And then that kind of evaporated last year and that contributed to the decline of funding. But that also goes to what we saw is what like these tourist investors coming in and fueling these spikes. And maybe they've kind of gone away. But that doesn't mean that the gaming industry is not still worth investing in. I think the people who've seen its potential all along have stuck around and they'll continue to stick around.

• 29:02Kirsten Korosec?

  I was going to say also with the comparison to film, video games have a stickiness that not a lot of movies have. You know, you continue to use it, continue to go back to it. And it takes a lot for someone, like a Barbie movie, for instance, for there to be folks who could go back time and time again. It has to reach that cult classic. Whereas a video game, if it's successful, you know, people will play it for years. So there's a long tail on video game. Of course, it has to be a hit and there's certainly plenty of examples of failures out there, right?

• 29:41Speaker 00

  Oh, gosh, yes. There's also so many amazing niche things. Like one thing we, I think, discuss at a cultural level is a lot of movies have been reboots, sequels and superhero films lately. And there seems to be a bit less of the more quirky, independent, experimental type films hitting the theaters than perhaps we would all want. In the video game world, just in the factory management sub-niche of automation games and in the sub-sub niche of space-based automation and factory games. There are so many cool titles. I'm playing a game called Dyson Sphere Program right now. That is amazing and cost me 20 bucks on Steam. It's just fantastic. So to me, like the the the the niche-ness of video games is just one of their best points,

• 30:22Speaker 00

  but it's big, it's interesting, and VCs do think that cheaper talent due to layoffs, corporate investors being active, and AI, especially generative AI in games are going to be major drivers this year. And as one last little addendum on the gaming front, there's a new community funding round coming together that I'm kind of excited about. Do you guys recall when Substack raised money from its subscriber base when it raised that 5 million last year? I think it was? Yeah, Reg CF funding and Frost Giant Games, who is building a real-time strategy game called Stormgate, is doing something similar rather soon. And I wrote about it because I think they're going to be able to raise a good amount of money. And I wonder if that's going to become more popular as a way to fund gaming studios than traditional venture capital, given how much money we've seen

• 31:05Speaker 00

  leave that space. But we'll talk about that more when we have time. In the meantime, Mary Ann, thank you so much for your time. Kirsten, thank you for repping Arizona, keeping it proud. If you want more from the Equity team, of course, we are over on X and Threads, and we are TechCrunch Pods over on TikTok. My name is Alex. We are back on Monday morning. We'll talk to you then. Goodbye. Bye.

• 31:25Speaker 00

  Equity is hosted by myself, Alex Wilhelm, and TechCrunch Senior Reporter, Mary Ann Azvedo. We are produced by Teresa Locan Solo with editing by Kell. Bryce Durbin is our illustrator. And a big thank you to the audience development team and Henry Pickavet, who manages TechCrunch Audio Products. Thank you so much for listening, and we'll talk to you next time.