We’re thrilled to co-lead Horizon Blockchain Games’ (“Horizon”) $40 million Series A round with Morgan Creek Digital and continue the longstanding relationship Colleen Sullivan has with Peter Kieltyka, Michael Sanders, Deborah Marfurt, and the broader Horizon team. Horizon, founded in 2017, is a web3 technology / infrastructure and game company based in Toronto. Horizon unlocks the utility of blockchain networks to drive mainstream adoption of web3 through its fun, skill-based digital trading card game, Skyweaver, and its Sequence web3 developer platform. Skyweaver has brought hundreds of thousands of players to web3[1] through its delightful gameplay, beautiful art, and engaging stories. The Sequence web3 developer platform, which brought Skyweaver to life, is quickly becoming the go-to platform for any company or project building a web3 game, metaverse, marketplace, or consumer-facing web3 product.
Our Investment Thesis
We believe Horizon’s infrastructure-led approach to seamless experiences and enhanced blockchain capabilities for users and developers alike uniquely positions Horizon as the “web3 Epic Games + Google.” We view Peter Kieltyka, Horizon’s co-founder and CEO, as the “Tim Sweeney[2] of web3” and, similar to how Fortnite has served as the go-to-market game for Epic’s Unreal Engine, Skyweaver is the go-to-market game for the Sequence web3 developer platform. We further view the Sequence developer platform as a web3 Google, but decentralized with self-sovereign identity built in. Just as Google made the Internet valuable to users and businesses alike by cleaning and structuring messy, unstructured Internet data to return search results that make sense, the Sequence developer platform similarly looks at, and builds on, unstructured web3 data in order to provide meaningful products and experiences for developers and consumers.
Games
We will be releasing an in-depth gaming investment thesis later this month (👀), but generally, we believe that people will spend an increasing amount of time in “games.”[3] The numbers support this:
-
~3 billion gamers globally, or 1 in every 3 people[4,5]
-
75% of kids ages 9 - 12 in the US, UK, Canada, New Zealand, and Australia use Roblox[6], which has 50 million daily active users with 5.7million concurrent users on its highest day of activity so far![7]
-
In 2021, $180 billion was spent on video games[8,9] of which, 75% was attributable to in-game purchases of virtual goods.[10]
-
Speaking of virtual goods, Fortnite's revenues from 2018 - 2021 were estimated at an aggregate ~$20 billion[11] and most of those revenues were derived from the purchase of cosmetic skins and emotes, which the gamers don't presently own.[12] Tim Sweeney, founder of Epic Games, recently said “I firmly believe there’s going to be a multi-trillion dollar economy around digital goods in the future.”[13]
On the “metaverse,” which we include in our definition of “games”:
-
Goldman: "the metaverse could be an $8t opportunity"[14]
-
Morgan Stanley "predicts the metaverse could be worth $8t"[15]
-
Bank of America: "the metaverse is where we're going to start using cryptocurrencies as currencies; they will be widely used for transactions"[16]
-
Citi: "the metaverse economy will be worth $13 trillion by 2030 and more than 5b people will live there."[17]
-
McKinsey: "the metaverse could be worth $5t by 2030" and "the average user will spend up to six hours a day exploring metaverse experiences by 2030"[18]
-
Sweeney: "over the coming decades, the metaverse has the potential to become a multi-trillion dollar part of the world economy."[19,20]
Skyweaver
We also believe that a great game is filled with stories and lore, and provides a destination where consumers love to be. Because these games deliver delightful experiences to their community and provide them with things they actually want, game developers and platforms can monetize that love, especially through the “net new” gaming economies that crypto rails open up. To date, many web3 games have prioritized “play-to-earn” economics and issued and sold NFTs pre-game development over building fun and engaging games. The focus has been on an ownership and transaction economy where much of the value has been extracted up front. We believe the web3 industry needs more games that draw users in because they are fun first and then add skill-to-earn or NFT/ semi-fungible token (“SFT”) collectible rewards that augment the user’s enjoyment of the game rather than driving their adoption of it.[21] Skyweaver is exactly this type of game. Skyweaver is a digitized trading card game that requires significant skill, creating a competitive environment while surrounding the user with beautiful art and engaging lore. As Skyweaver evolves, we view it as the breeding ground for web3 esports. With the ability to earn incremental value through regular play and tournaments, Skyweaver operates like a more inclusive form of esports. With traditional esports, only elite level players garner sponsorships or win tournaments, but Skyweaver opens up financial reward to a much wider audience. We believe that the combination of highly-skilled play, financial reward, and amazing stories has created a game that can stand the test of time.
Most importantly, Skyweaver is fun, has real utility, and the community loves the game; in fact, for more than 60% of Skyweaver’s users, this is their first crypto experience. Pokémon, Magic: The Gathering (MtG), and Hearthstone competitive players play the game regularly, including national champions of Pokémon and elite-level Hearthstone and MtG players. The Horizon team has played the long-game with Skyweaver and has built a “game-first” rather than a “financial-first” experience, and in this context, has decided not to “front load” the game with a token. Instead, Horizon will introduce a token as / when a token makes the Skyweaver economy more dynamic and the overall experience more sticky.
Web3 Infrastructure
Sequence Wallet
We believe the gateway to “games” (and the rest of web3) is the wallet. We compare wallets to web2 browsers, except that, crucially, the wallet is also a user’s identity. As a result, wallets must be beautifully designed, consumer friendly, and fundamentally secure.[22] Currently, ~63% of the world’s ~8 billion people have access to an internet connection, and this proportion will tend towards 100% over the next decade as innovative means of distributing internet access improves. Ultimately, every internet-connected user will need to access both centralized and decentralized services through web3 interfaces for financial, entertainment, and social needs. In that future state, each of these internet-connected users will need a web3 wallet. We believe Sequence Wallet, which currently has 680k+ users, will be the primary portal for non-crypto native users to enter these web3 experiences.
The current reality is that the majority of existing wallet providers suffer from a litany of issues that are yet to be solved and, therefore, present a real, significant barrier to mass adoption beyond the crypto-native users that are currently in the space. For the crypto ecosystem to experience its next stage of growth, there needs to be wallet/custody providers that offer a simple, safe wallet that abstracts blockchain complexity away from the user, removing the large obstacles to onboarding that currently exist. We believe the solution is the Sequence Wallet.
The Sequence Wallet is a non-custodial smart contract wallet that directly targets and alleviates the aforementioned issues. Smart contract wallets, lauded by Vitalik Buterin as the future for crypto custody, secure funds directly within a smart contract, which by nature allows for programmability that is not possible on competing non-custodial wallets. In fact, in 2018, Philippe Castaguay, Horizon’s Director of Product, proposed EIP 1271, which was a scheme for how smart wallets could execute signature validation. Phillipe’s idea was that instead of having a key talk with smart contracts, the wallet itself would be the smart contract.
The next wave of adoption to crypto will be internet-connected web2 users of all ages globally. These users will find it exceptionally hard to pick up the intricacies of non-custodial wallet options for onboarding and the complexity involved with daily use of these wallets will leave them exposed to security issues. Ultimately, the Sequence Wallet provides a seamless transition from the world of Google, Facebook, and email accounts directly into a smart contract wallet, presenting a simple, easy-to-use, and highly functional form of banking that will appeal to the masses.
Sequence web3 Developer Platform
There is still a tremendous amount of infrastructure that needs to be developed to bring web3 games and consumer experiences to life. Horizon met this challenge by developing the Sequence all-in-one web3 developer platform, of which the Sequence Wallet is one of the modular components. Similar to how Epic Games built the Unreal Engine to develop Fortnite and now ~48% of all console games use the Unreal Engine[23] Horizon built the Sequence web3 platform to develop Skyweaver and Niftyswap, and we expect many web3 game developers will use Sequence products or the entire stack to power their games and other consumer experiences. From user onboarding and wallets, to transactions and gas, data and indexing, tokens and minting, trading and marketplaces, security, onramps, node access, and much more, Horizon had to solve it all to achieve Horizon’s goal of making web3 applications easy, fun, and secure for everyone. These solutions are now the products that make up Sequence, the all-in-one web3 developer platform and smart wallet for the Ethereum and EVM ecosystem.
As of the date of this essay, 40 projects have already integrated or are in the process of building with all of, or certain modules of, the Sequence web3 platform, including web3 games like Skyweaver, Sunflower Land, Ethernia, Mechachain, Metalcore, Mech, i3Soft, CyBall, and Dark Earth; NFT ecosystems like Cool Cats, DAZN Boxing, and Myntr; gaming platforms like Community Gaming; marketplaces like Niftyswap, Nalnda, and OnePlanet; and there are ~100 incredible web2 gaming, and web3-native consumer applications in the Sequence pipeline.
The Sequence developer platform includes many infrastructure pieces to help support the Sequence ecosystem of tools and developers. The Sequence Indexer, Relayer, Token/NFT APIs, and aggregated node layers are crucial to the platform for developers looking to integrate the wallet into their applications with reliable uptime. Sequence provides fully-integrated onramps from multiple providers in addition to developing SmartRamps with Wyre to allow users to directly purchase tokens or NFTs with their credit cards. Sequence has created their own Web SDK, Mobile SDK, and Unreal Engine and Unity SDK to ensure Sequence can be compatible with all platforms, devices, and applications. This collection of tools underpins the potential of Sequence to succeed and act as the portal to web3 for the next generation of users.
Niftyswap
This fall, Horizon will release Niftyswap.io, a decentralized marketplace that makes buying and selling SFTs instant, easy, and secure. Niftyswap.io provides front-end access to the decentralized and open source Niftyswap Protocol, which will enable anyone to deploy a liquidity pool themselves, creating their own pool for virtual goods. Niftyswap supports any ERC-1155 token, a standard which was co-authored by Horizon’s Director of Product, Philippe Castonguay. The ERC-1155 SFT token standard is well suited for a wide range of virtual goods with many copies, such as web3 game items, metaverse collectibles, digital fashion, music, or memberships. SFTs are already being used by leading web3 games like Skyweaver, The Sandbox, Sunflower Land, and Illuvium. Driven by the expertise of the Horizon team, we believe that Niftyswap will become the dominant SFT marketplace. This is very significant given the web3 gaming market will be orders of magnitude larger than the NFT art and PFP markets. The scale comes from game items having utility beyond status and speculation, which make them longer-lasting properties with higher demand (i.e., ~3 billion gamers in the world).
The Team
Horizon currently employs 60 people across 15 countries with headquarters in Toronto. The Horizon team is incredibly talented and has stayed intact and focused on the mission through the most challenging crypto winters and the most exuberant bull runs. We attribute this team loyalty to the leadership and vision of the Horizon co-founders and management team. The team is very technical, with 50% of the employees holding computer science and/or engineering degrees, and have consistently demonstrated their leadership in web3 through their core contributions to the Ethereum ecosystem. The team also has a deep bench in gaming, design, strategy, marketing, and community, with team members from companies such as EA, Ubisoft, IBM, Warner Bros, Wargaming, Deloitte, and Ubuntu. Finally, the team is also strong in finance, with a CFO, who was previously a leader in McKinsey’s private equity and institutional investor practice. We believe the Horizon team is not only one of the best in crypto, but one of the best we’ve seen in any early stage company.
Looking Forward
This Series A round empowers Horizon to grow the Sequence ecosystem by attracting more builders to the platform and enabling the next generation of video games and applications; expand Skyweaver content and community features to make the game even more enriching and engaging; and launch Niftyswap. The crypto ecosystem is still relatively nascent, but the next cycle of adoption will require infrastructure with improved user experiences and interfaces, more security, and delightful experiences to bring the next billion non-crypto savvy users into the fold. In our opinion, Horizon is best-placed to lead the building of the next generation of crypto infrastructure for not just gaming but the full spectrum of consumer experiences. Horizon is building a combination of the metaverse and web3 - where internet economies are fun, accessible, and for the benefit of all participants. We are thrilled to be partners on this journey with the wonderful Horizon team and look forward to helping them onboard the next generation of web3 users.
Footnotes:
[1] 60% of Skyweaver’s players are non-crypto native.
[2] Tim Sweeney is the founder and CEO of Epic Games, the creator of Fortnite.
[3] We define “games” as: the ultimate social networks; places to hang out with your friends and build communities; places for expression of creativity and identity; places to build immersive, authentic experiences (e.g., digital theme parks) and engage with brands of all kinds; places to engage in direct-to-avatar commerce and work / learn; metaverse and NFT experiences; and eventually - the only bank accounts people will need.
[4] Number of gamers worldwide by region 2021 | Statista
[5] Further: Ubisoft CEO Yves Guillemont recently said that gaming will hit an audience of 5 billion people by 2028 [Ubisoft CEO Yves Guillemot Wants to Reach Five Billion Players in a Decade (yahoo.com)].
[6] https://conversationswithtyler.com/episodes/matthew-ball/
[7] 55 Amazing Roblox Statistics Revenue, Usage & Growth Stats (influencermarketinghub.com)
[9] Guillemont says gaming will achieve revenues of $300 billion by 2030 [https://venturebeat.com/games/ubisoft-ceo-yves-guillemot-predicts-gaming-will-hit-300b-by-2030-and-5b-people-by-2028/]. Further, the $180 billion figure ignores gaming hardware and equipment (including consoles) as well as gaming software such as streaming services (Twitch), gamer communication (Discord), and game engines (Unity, Unreal). Incorporating gaming specific hardware and software - and complimentary markets (streaming, esports) - equates to $335 billion in 2021 [see: https://www.bitkraft.vc/gaming-industry-market-size/\]
[10] https://www.wsj.com/articles/virtual-guns-in-videogames-could-soon-be-worth-real-money-11640286
[11] https://www.theverge.com/2021/5/3/22417447/fortnite-revenue-9-billion-epic-games-apple-antitrust-case andhttps://www.businessofapps.com/data/fortnite-statistics/. Specifically, 2018 and 2019: $9b, 2020: $5.1b, and 2022: estimated at $5.8b
[12] Fortnite has 350 million registered users. Epic Games, the creator of Fortnite, itself has over 500 million user accounts with 4.7 billion social connections [https://www.theverge.com/2022/2/16/22935013/epic-games-accounts-amount-store-fortnite].
[14] Into The Metaverse
[15] Metaverse Investing: An Investment Opportunity | Morgan Stanley
[17] Metaverse and Money: Decrypting the Future
[20] Although these numbers are significant, we believe there is much more to the story. The number of gamers is going to grow exponentially; by our definition of a “game”, every one of the 385,000 babies born every day globally is a gamer. Accordingly, the gaming ecosystem is growing by 140 million people annually. We believe the Gen Alpha gaming total addressable market, therefore, is limited only by internet connectivity, which is currently 5 billion people or 63% of the population and growing.
[21] We often get asked “what does web3 *really* do for games”? This is a question we will answer in our upcoming gaming essay, but we believe web3 enhances games through (among others): (i) ownership of virtual game items (including secondary liquidity); (ii) accessibility of who can access 24/7/365 open public networks to create virtual game items; (iii) adding programmability and composability to virtual game items (note that we’re not talking about interoperability of NFTs across gaming environments); (iv) royalties from secondary sales of virtual game items; and (v) subject to risks related to regulation (asset classification, legal status of DAOs, money transmission, among others) and the nascent stage of game tokenomics / managing open game economies, player ownership of games themselves.
[22] We believe that web3 wallets will eventually be “app store” like experiences, where users can select from different web3 verticals that are pre-populated, e.g., gaming, DeFi, social, fashion, creator, work, banking, which, in turn, will have sub-verticals / categories to explore further, e.g., under gaming, FPS, TPS, RTS, RPG, MMORPG, MILEs, board, puzzle, card, racing, family, etc. Users will also be able to choose which social or professional identity they want to use for the particular experience they enter and spin up different wallet addresses and avatars across ecosystems. Web3 wallets will allow users to: be anyone they want to be; flex whatever assets they want to flex; spend and earn effortlessly; and, importantly, have experiences created for them – a “choose your own adventure (and identity!)” experience.
[23] Nearly half of next-gen console games are using Unreal Engine | TweakTown
* Any investments or portfolio companies mentioned, referred to, or described on this page are not representative of all investments in investment funds managed by Brevan Howard and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A full list of investments that are publicly disclosed or not subject to confidentiality restrictions are available on request. This list of investments is updated periodically and as such may not reflect most recent investments. No assumptions should be made that any investments identified here were or will be profitable. It should not be assumed that recommendations in the future will be profitable or equal the performance of the company(ies) identified. Past performance is not indicative of future results.
Certain information contained in this blog post constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “project,” “estimate,” “intend,” “continue” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Any such estimates or projections are based upon forecasts and reflects prevailing conditions, assumptions and our best judgment as of the date of this blog post. There is no guarantee that any of these estimates, assumptions or projections will be materialized or achieved, and as a result thereof, actual results may vary from the estimates or projections. Furthermore, any such variations may be material. Nothing contained herein is, or shall be relied upon as, a promise or representation as to the past or future.