Forte raises $185M at $1B valuation for blockchain game platform

Forte has raised $185 million at a $1 billion valuation for its behind-the-scenes blockchain game platform. Griffin Gaming Partners led the investment in the latest unicorn to rise in the blockchain gaming market.

The Forte deal comes a week after Hong Kong-based Animoca Brands raised $88 million at a $1 billion valuation (the definition of a unicorn is having such a valuation) to make games based on the blockchain, the secure and transparent digital ledger that enables cryptocurrencies and unique one-of-a-kind items, or nonfungible tokens (NFTs).

Instead of making such games itself, the San Francisco-based Forte is an infrastructure company, using blockchain tech to enable new kinds of game economies. It makes things such as cryptocurrency wallets that blockchain games use to store a player’s tokens. Wallets have to be secure and ready to transform a currency in the form of a cryptocurrency token in a game to multiple kinds of cryptocurrencies, such as Ethereum or Bitcoin, that could in turn be changed into hard currency like U.S. dollars.

“We set out to create a platform that makes it easy for game developers of any size, including the world’s largest publishers, to incorporate blockchain technology into their games, to enable players to own digital goods and currencies, and trade with each other, have true property rights and, and create thriving economies that both players and publishers can benefit from,” said Forte CEO Josh Williams in an exclusive interview with GamesBeat.

He added, “We just launched our beta platform almost exactly a year ago, with our first games. And we’ve been growing really quickly over the last year where we created our 10 millionth wallet — a crypto wallet that’s used in games where real players in games hold token assets, including virtual currencies and NFTs. In the space of the year, we’ve grown really quickly with 10 live games now.”

Williams said that the company has created those cryptocurrency wallets as part of its efforts to help game developers and gamers make the transition to blockchain games.

“We love the notion of new games being created around blockchain technologies, and we think they’ll be explosive successes, like new applications of blockchain technology that make things that are truly unprecedented possible,” said Nick Tuosto, the cofounder of Griffin Gaming Partners and managing director of LionTree, in an interview with GamesBeat. “It’s like I could take Magic: The Gathering cards of my youth and make a trade that is more like an investment. I can see that investment appreciates over time, and I could go out on eBay and sell those cards and recoup that investment or maybe make a profit.”

By contrast, in today’s traditional games, you pour money into a game but can’t take it back out, as if you’re a serf working for the lord of the manor, where you’re renting land and don’t really own it. In a free-to-play game, for instance, you could buy an item with real money. But you can’t take it out of that game or sell it to another player. It’s like you’re renting that item from the game publisher, rather than buying it and getting the benefits of ownership.

“If someone buys a durable virtual good in a video game, that good is literally worthless the moment you stop playing the game,” Tuosto said. “We think games will absolutely prove out that there are going to be explosive new hits that are built from the ground up with blockchain technology. But we also find it incredibly appealing that Forte’s approach is purpose-built with the large publishers in mind as well.”

Tuosto said his firm canvassed the landscape and talked to dozens of companies in the blockchain gaming space before deciding to back Forte.

He added, “The last thing a publisher wants to do is risk destabilizing a game economy or risks everything that they have built. What Forte’s unique integration approach allows is for a very low-risk, high-compliance approach that allows for existing games at scale to implement NFTs and blockchain technologies. And there we see incredible potential because the context is already there. The players are spending hours per day, engaging with the content. They’re tied up with that content in a way that’s pretty fundamental. In some cases, their identities or personal identities are invested into that game. So to be able to buy something and trade it or display it to friends in a way that has immense value to the player.”

Community economics

Forte’s economic technology, which is available by invitation only and still in beta, aims to address the growing misalignment between game developers, players, and fans. It enables the creation of new gameplay and world designs that directly support the long-term health of a game through cooperative token-based economics, or what Forte calls “community economics.”

Forte’s roots go back to 2019, when Kevin Chou and Josh Williams started the company. Chou grew mobile game publisher Kabam to $400 million in annual revenue and 1,000 employees before selling it in various parts for close to $1 billion to Netmarble and FoxNext Games (now owned by Scopely). He also cofounded Gen.G, the esports organization, with former Kabam chief operating officer Kent Wakeford, and he cofounder Rally, which creates blockchain-based tokens for creators and influencers so they can offer rewards to their fans. Chou’s credibility is one reason why Forte got so much momentum and why it is working with a number of game companies. He gave up the CEO role and passed it on to Williams once Forte was established.

In past interviews with GamesBeat, Chou said that started the company as a way to help fix the problems in the industry, which is overly dependent on a small number of players to produce revenues in free-to-play games, where perhaps 2 percent of players will pay real money for a digital item. That system is broken because game companies have to spend a huge amount of money advertising their games to find the 2% that will pay. On the premium game side, players won’t pay more than $60 for a game. But the games can cost hundreds of millions of dollars to make, putting a lot of risk on triple-A developers, to the point where many are deciding to focus on free-to-play or mobile games.

Chou believed that blockchain could build new monetization foundations for games, such as peer-to-peer economies. He also saw it as a way to empower communities. In a multiplayer game, players often form groups like clans or guilds. The clans might be able to use blockchain rewards or items to incentivize their own players to go on a quest or do something for the clan. That means the players would have control over what happens with the blockchain items, rather than just the game developers. That’s the kind of business that Rally, which is one of Forte’s customers and another company started by Chou, is doing.

“Video games play a vital part in billions of people’s lives, yet fairly monetizing them is harder than ever,” said Williams. “We envision a sustainable and equitable ecosystem for games and are building the necessary infrastructure to make it possible. We’re incredibly fortunate to work with Griffin Gaming Partners and others who share our vision, and are helping us more quickly bring our technology to game developers, players, and fans around the world.”

The problems of blockchain games

One of the big problems is the “minting” and transfer fees associated with transacting NFTs from one player to another. Blockchain taps a big peer-to-peer network of computers to verify transactions. If one computer in the chain loses data or is tampered with, that’s not a big deal, because all of the other computers in the network can verify the data. But those who operate the computers have to be rewarded, and the cost of those computers can be hefty. So there are “gas” or energy fees associated with blockchain transactions. Companies like Forte have to either pay those fees or rely on other blockchain companies to create low-cost networks that can sit on top of the cryptocurrency networks.

“Blockchain technology is still pretty nascent,” Williams said. “It’s difficult to use and to scale. If you look at what is happening in the decentralized finance (DeFi) space and the NFT space, there are a few big problems today. One is capability, and then a cost associated with transactions. And those are really salient for this technology to work at a mass-market scale, globally, with games that have audiences of tens of millions or hundreds of millions of users a month. It’s a fundamental technology that has to be built.”

The user experience is another big problem. Cryptocurrency wallets are hard to use. Someone can hack your account and steal your money. Or if you lose the code associated with your cryptocurrency, then it’s gone forever. No one else can retrieve it for you. These factors make crypto wallets into complicated beasts that are difficult to use for mainstream consumers.

“If you go try to purchase an NFT or buy a cryptocurrency, it’s a really cumbersome process to get onboarded to find a wallet, to make sure that it’s set up appropriately, and that your transaction will even complete. So our platform takes care of all that complexities,” Williams said. “We provide a really slick, embeddable, totally white-label wallet. So that publishers can integrate this capability into their games, allowing players to make purchases.”

Lastly, game developers have to be careful about money laundering. They have to know who they are doing business with and be compliant with anti-money laundering laws and money transmission laws in various countries.

“Our platform provides that capability to publishers, and really a framework to ensure that all transactions are compliant,” Williams said. “So all three of those things are fundamental challenges to overcome to embrace this technology and open up the revenue streams and the economic opportunities for publishers and for players. And it’s why we spent so much time and brought in such a great team to build this stuff out.”

How it works

Integrating blockchain in games well is so hard is because most of the infrastructure that’s actually needed doesn’t exist, isn’t mature enough, or isn’t great for games. Tokenizing game items so they can be uniquely identified and tracked is relatively easy. But to actually enable the greater market opportunity that Griffin and Forte believe is possible (and also solve monetization issues today), you need an easy wallet solution (most mainstream people give up on blockchain here), developer tools, good games, full token economy models (not just selling collectibles), marketplaces, sources for liquidity, a mechanism for people to “cash out,” regulatory compliance, and more.

Each of these technical challenges is big enough to build a full organization around. Forte is building it all because adequate solutions didn’t exist when it started, and it can ensure the end-to-end experience is as frictionless as possible for developers (everything they need is there) and players (things just work). This is what it has been doing for the last couple of years.

Rather than charge fees for blockchain transactions, Forte makes money in an interesting way.

“We make a market between the cryptocurrencies and the virtual currencies that players and publishers want to use in their games,” Williams said. “We provide that inventory that provides us with a sort of balance sheet to do market making. There are no transaction fees, but we can inventory assets and purchase more when prices are lower to provide more liquidity and sell more when prices are higher in the ecosystem, and that provides a revenue stream for us over time.”

He added, “When a user wants to cash out, they would have to wait for a coincidence of wants where there is another player who wants to buy the same type of good at the same time, in the same price range. But it would be a less liquid market. And publishers would have a smaller economy as a result. So what we’ve built out is an automated market maker. That market maker doesn’t need to charge fees as it basically uses collateral and inventory assets. So it keeps an inventory of assets with which it can use to generate revenue.”

It can buy cryptocurrencies and other tokens in bulk, and it can provide liquidity in a game instantly to players who want to sell something. Rather than wait for a buyer to emerge for that seller, Forte will buy the item and then immediately give the buyer some money. Forte can then sell the item to someone else. During this process, Forte can arbitrage the items, making money by buying in bulk for low prices and selling for higher prices. This is an automated process. Williams referred to it as automated market making.

The hardest but perhaps most critical aspects of the above are liquidity and compliance. Forte believes it is alone in focusing directly on these problems. But if people can’t exit out to real-world currency at any time, and do so in a regulatory compliant way, then there will be too much friction for blockchain games to succeed, Williams said.

Forte built its platform to be blockchain agnostic to maximize liquidity. It is partnering with multiple Layer 1 blockchains (like Ethereum or Bitcoin) and it is obtaining the necessary money transmittal licenses and educating policymakers so developers can make a game that people can play and earn income from. It is also using the companies that make Layer 2 solutions, where transactions can happen much faster and with lower costs.

Lastly, Forte is focused on the revenue at the liquidity layer. This way developers and players — who are higher in the stack — don’t have to pay fees to use Forte’s technology. The automated market makers address a lot of the pitfalls Forte sees in existing financial and DeFi marketplaces.

It uses the Interledger protocol, which enables liquidity across any blockchain. Under the hood, that’s how transactions can settle seamlessly from the user’s point of view.

“The whole point of all this is to just really remove friction from the user experience and make token assets work the same way that digital goods and virtual currencies work in games today,” Williams said.

The growth wave

Williams said in an interview that 25 game developers with more than eight million players are actively using Forte’s technology. More than five million NFTs have already been minted (or recorded on the blockchain) and used in games.

“We’ll rapidly scale up to support the customers,” Williams said.

Game projects in active development include new experiences from industry pioneers such as Will Wright, creator of The Sims, and Jeff Tunnell, founder of Dynamix, the studio behind Starsiege: Tribes. Previously announced developer partners include Hi-Rez Studios, Penrose, nWay, GC Turbo, Other Ocean, Kongregate, Magmic, and DECA Games. Williams said the company is helping those developers create games that take advantage of the unique aspects of cryptocurrencies and NFTs.

“What we’re going to do with this financing is continue to scale,” Williams said. “Globally, we have a pipeline of a bunch of games today that are actively integrating with our platform. That audience of players in those games exceeds 100 million monthly active users aggregated across all those games. We think the world’s largest publishers are waking up to the potential of blockchain economies, and token economies in games. And so we will really rapidly scale up to support the current customers.”

New and existing investors including Union Grove Venture Partners, Andreessen Horowitz, Battery Ventures, and Canaan also participated in the round. The first institutional round (Series A) will give the company money to accelerate the development of its end-to-end blockchain platform, which lets developers create fungible and non-fungible tokens (NFTs), and build scalable token-based game economies.

Forte has more than 100 employees, including people from companies such as Unity, Ngmoco, Riot Games, Electronic Arts, Sony, and Rockstar Games. Griffin Gaming Partners was founded in 2019 by Tuosto; Peter Levin, a former executive at Lionsgate; and Phil Sanderson, a venture capitalist with more than two decades of experience in game investing. Griffin recently raised more than $250 million for its fund. But you can see that it made a huge bet on Forte.

“Forte is differentiated in that they interoperate with many of those other partners,” Tuosto said. “We do think Forte has incredibly compelling potential. We think it’s the right team and the right strategy. As for blockchain gaming, we think that this industry transition has the potential to be completely disruptive. When we think about the market for in-app purchases, this market came to be almost by chance, if you look at the early days of mobile. You know, paying $1 for a download of Angry Birds. It  became clear that the model that was so popular in Asia of free-to-play economics made much more sense. Now we think that this is one of these rare moments in time where there’s potential for the market to be an order of magnitude larger, if you unlock the potential of these game economies that already have enormous engagement.”

One of the things that Tuosto believes this model will enable is what I call the “Leisure Economy,” where we all get paid to play games. This is where people like streamers and user-generated content creators can amass fans and make a living selling goods to or entertaining those fans. They can make a living from the games that they love and generate a return on the time they invest in those games through the rise in value of their investments, such as NFT items. This economy also benefits the game companies.

“You can enable modders to modify your game and to have a revenue stream from the monthly sales and give your game more longevity,” Tuosto said.