GCube wants to play

Raising a first-time fund is hard enough. Throw in an exclusive focus on a risky sector such as gaming and the challenges would seem doubly daunting.

But with game sales at record highs and big media players allocating ever-rising sums to the sector, the founders of Los Angeles-based GCube Ventures are betting the game business offers more than enough profit potential to compensate for the risks.

The firm was launched in July by Shiraz Akmal, former vice president of operations and product development at game distributor THQ, and Jawad Ansari, formerly general partner at cross-border media investment fund Miven Venture Partners and CEO of asset manager Corporate Metrix. They plan to back companies at all stages, with a particular focus on syndicating rounds with venture investors looking to co-invest alongside a firm that specializes in the gaming industry.

“We came to the realization that every media and game company in the world has announced that they’re investing hundreds of millions or even billions in the interactive gaming space,” says Akmal. “And we realized there is no investment firm focused on the global game ecosystem.”

Currently, the two founders are investing their own money in syndicated venture deals, but they expect to invest larger sums upon closing a fund later this year. They have not disclosed a target amount for the fund.

Prospective limited partners include private equity, hedge fund, media conglomerates and sovereign wealth funds, as well as likely some institutional investors.

We realized there is no investment firm focused on the global game ecosystem.

Shiraz Akmal

While Akmal’s background is in producing games (his resume includes development work on games based on “The Incredibles” and “SpongeBob”), much of GCube’s focus will be on investments that aren’t tied to gaming content.

“Generally the challenge that investors have had is that when you invest in just content, you’re betting that game is going to be a hit,” Akmal says.

The two founders have identified 14 sectors within the gaming industry that they plan to focus on, including tools to take online games to console and vice versa. They’re also looking closely at mobile gaming, outsourcing of development-related work such as testing, and middleware technology companies that provide infrastructure for gaming.

GCube’s launch comes as U.S.-based VCs are on pace to eclipse their 2007 investment pace in recreational/game software startups, just one segment of the gaming market. As of July 15, American venture firms had invested a total of $118 million in 16 such companies, according to Thomson Reuters (publisher of VCJ). For all of 2007, U.S.-based VCs invested $143 million in 26 recreational/game software companies. That was down from 2006, when VCs invested $180 million in 25 such companies.

The biggest deal so far this year was for Turbine Entertainment, a developer of online role playing games that raised $42 million from Highland Capital, Tudor Ventures and Polaris Venture Partners.

Other notable investments this year include Riot Games, a video game development company that pulled in $11 million from Benchmark Capital and Pequot Capital Management; Linekong (Beijing) Technology Co. Ltd., a provider of Internet games and entertainment that pulled in $8.33 million from New Enterprise Associates; and Gogii Games, a casual game developer that received $5.18 million from Kleiner Perkins Caufield & Byers. —Joanna Glasner