One of Poland’s most famous exports is undoubtedly The Witcher. The fantasy book series about supernatural monster slayers has inspired three blockbuster video games and a Netflix series.
The games also put Warsaw-based games developer CD Projekt on the map — and made it one of the country’s most successful tech companies.
But despite CD Projekt’s success and the sector’s renown in the gaming world, Polish gaming as an industry has flown under the radar of international investors for years. That’s despite other high-profile, VC-backed gaming successes in Europe, like Finland’s Supercell or Turkey’s Peak Games, acquired by Zynga in 2020 for $1.8bn.
“It’s remarkable the amount of opportunity that is overlooked in the Polish market today,” says Jon Bellamy, chief commercial officer at Huuuge Games, a global game maker with a strong presence in Poland.
Today versus four years ago, I get sent more pitch decks for Polish seed-stage gaming companies than I ever have before
But both investors and Polish gaming startups might be rethinking their relationship with one another. Local gaming companies have usually preferred raising capital on public markets to tapping private investors, but public stocks are in the doldrums. There are macroeconomic storm clouds on the horizon and there’s a growing appetite for consolidation in the global gaming sector — see American megadeals of 2022: Microsoft’s acquisition of Activision Blizzard or Take-Two Interactive buying Zynga.
“Today versus four years ago, I get sent more pitch decks for Polish seed-stage gaming companies than I ever have before,” says Bellamy.
There’s a lot at stake: gaming was picked as one of three tech industries to watch in central and eastern Europe (CEE), according to a 2022 report published by Dealroom, Google, Atomico and Credo. While there are interesting projects emerging from countries like Ukraine and Romania, Poland is a step ahead.
“[In Europe], it's in the top three, with Scandinavia and the UK. It’s important on the global level and key in Europe,” says Paweł Sugalski, a fund manager at the Agio Smart Money fund and an author of a book on listed gaming companies.
In 2022, there were 490 gaming companies in Poland. The industry employs more than 14k people across the country, according to the latest report by the Indie Games Polska Foundation — this is more than, for example, the German gamedev sector. Also, 25% of the industry's employees are women — one of the highest shares in the world.
Polish gaming’s roots: Techland and CD Projekt
Polish gaming’s 30-year history started from two gaming giants, Techland and CD Projekt. The former is a privately-owned bootstrapped behemoth, the maker of games like Dying Light and Call of Juarez, which is reportedly valued at 10bn złoty (€2.1bn); the latter is the maker of The Witcher and Cyberpunk 2077 which, in its golden era, was the most valuable company in Poland. Its current share price values it at $3.11bn.
Over the years, key employees and whole teams spun off from these two dominant companies, forming their own smaller studios, and birthing a whole gaming startup ecosystem. This is the story of 11 bit studios, for example, considered by some to be the third biggest player on the Polish gamedev scene. Its team previously worked for CD Projekt. More recently, the main director of The Witcher and the producer of Cyberpunk, Konrad Tomaszkiewicz, also left CD Projekt to start his own venture, Rebel Wolves.
Despite this flourishing industry, many small gaming studios didn’t necessarily seek VC help in recent years — they would usually go public to gain capital. There are currently 88 companies listed on the Warsaw Stock Exchange (and its subsidiary for smaller companies, NewConnect) that are classified as “gaming” companies. Many of them IPO'd when CD Projekt was on the rise after The Witcher’s release and they were benefiting from its international success.
If a company hasn’t produced a game since May 2020 or secured a publishing deal, now they have a problem with financing
At that time, stock exchange investors would put their money behind almost all, even the most bizarre, ventures just because they said they would make a game — many of which turned out to be empty promises.
This gold rush ended after December 10 2020 — the release date of one of the world’s most awaited games in decades: CD Projekt’s Cyberpunk 2077. It quickly became apparent that the game had been rushed and many gamers playing on consoles, especially older ones, struggled with a range of technical errors. It was later temporarily withdrawn from the online stores of Sony, the owner of PlayStation.
CD Projekt’s value plummeted and has not really recovered since. This has, naturally, impacted investors’ appetite for smaller gaming companies.
“The valuations now have dropped. If a company hasn’t produced a game since May 2020 or secured a publishing deal, now they have a problem with financing,” says Sugalski. “The stock exchange option doesn’t work anymore, the investors aren’t that naive.”
New options
The bearish stock market might force startups to look for a different form of funding, while decreasing valuations might in turn attract international investors.
“They’re here already, the investors are watching the market,” says Radzym Wójcik, a lawyer at Baker McKenzie who has been advising on a range of gaming deals.
In the last couple of years, international investors have been increasingly interested in the sector: in 2020 Swedish video game company Embracer bought Polish studio Flying Wild Hog; in 2021, Chinese giant Tencent bought a minority stake in Bloober Team, and then in 2022 it also invested in Exit Plan Games; in November 2022 another Chinese gamemaker, NetEase, bought a minority stake in Rebel Wolves.
The international VCs have been less visible: Finnish VC Sisu invested in Exit Plan Games in 2022. Other, rather rare, venture investments in the Polish market usually came from local players, like Satus Ventures, SMOK or RKKVC.
But that might be changing, too.
In Poland, Borys Musielak, a partner at SMOK Ventures, one of a few Polish VCs that has invested in game makers — like Exit Plan Games and Madcore — says that they’re finalising new deals in the sector and planning to invest more.
“I believe the down market is actually the best time to invest given the low prices and the fact that the development of games usually takes two to three years, so most of those companies will be publicly launching when the crisis is, hopefully, over,” he says.
Daniel Mironov, a principal at vgames, an Israeli VC that specialises in the gaming sector, says they’re “huge fans” of startups from Poland — they haven’t invested in any yet but they’re scouting the country’s ecosystem.
He’s attracted to the country’s industry by the quality of local production and the “builder mindset” of the founders. He also stresses that it’s cheaper to build a game in Poland than in the US or Germany. “Obviously, there are cheaper places in the world to create content. But if you need to take the quality into account, Poland is one of the best places to develop games, because usually people are experienced and know what they're doing.”
A match made in heaven?
It’s still not a given that Polish gamedev startups will now become the favourites of the sector’s VCs.
“The gamedev market is becoming very competitive,” says Michał Płotnicki, partner at EY. “Polish startups are competing against players from all over the world, so they need to be competitive in terms of their development skills and technologies used.”
I feel that in some cases, the founders that I met from the region, they're not dreaming big enough
Wójcik says if a startup wants to tap VC money, it has to create a venture in line with the investment thesis, which often includes trends like the metaverse or Web3.
“I’m not sure to what extent Polish gamedev companies have this understanding and work this way. They might not have learned this lesson yet.”
Mironov at vcgames sees one more potential challenge.
“I feel that in some cases, the founders that I met from the region, they're not dreaming big enough. They're more humble. And they're seeing the next milestone and are chasing it, which is fantastic. But sometimes it's not sufficient for the VCs.”
