Forte raises $725M for compliant blockchain gaming platform

Forte has raised $725 million for its behind-the-scenes blockchain game platform, which will enable game companies to create blockchain games that are both compliant and interoperable.

The Forte deal comes shortly after other NFT gaming companies have hit unicorn status (above $1 billion valuation) like Animoca Brands, Mythical Games, Dapper Labs, and Sky Mavis. All those companies are making 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). One of the lead investors here was Sea, owner of Garena, which operates the huge free-to-play game Free Fire.

But I can’t think of other game startups that have raised so much money so early in a company’s history, as Forte is just a toddler at two years old. In an email to GamesBeat, CEO Josh Williams said the company has more than 200 employees, and that team includes experts across games, blockchain tech, and compliance.

Instead of making such games itself, 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. Forte’s job is offloading this work from the game companies themselves and helping them make the transition to blockchain games.

A lot of this is about enabling digital ownership of goods in games. 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.

One of the things that Forte 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.

A huge round

Sea Capital and Kora Management led the round, with participation from powerhouse game and media publishers including Animoca Brands,
Big Bets (Huuuge Games), Overwolf, Playstudios, Warner Music Group, zVentures (Razer), and blockchain partners Cosmos, Polygon Studios, and Solana Ventures, as well as investors including Griffin Gaming Partners, Andreessen Horowitz (a16z), and Tiger Global.

The San Francisco blockchain company plans to use the funds to expand its suite of products and services, accelerate the onboarding of the world’s largest and emerging game and content publishers.

Back in May, Forte raised a $185 million round at a $1 billion valuation led by Griffin Gaming Partners, which is one of the largest game-focused venture capital funds.

Forte’s platform allows game publishers to easily integrate blockchain technologies into their games, enabling features such as seamless, embeddable token wallets, non-fungible token (NFT) minting and selling, payment rails, and other services built specifically for blockchain token economies and the management of digital and virtual assets.

In blockchain-enabled games, players can truly own goods, rather than making pure entertainment expenditures. Players can trade goods and services with each other, and can participate in community economies that reward creativity, collaboration, and skill. These new systems provide game players and communities all around the world with new creative and economic opportunities.

“Over the past 50 years, games have undergone seismic shifts in their business and revenue models, becoming more aligned with players at every turn,” said Williams, in a statement. “First there were arcade games, where players had to essentially pay per minute of play. Then came home console and PC games, where gamers could play as much as they want after paying once. Next, games moved online and the free-to-play (F2P) model allowed gamers to play even triple-A games as much as they want for free, with only optional in-game and in-app purchases.”

He added, “The games industry has grown at each turn as it aligns more and more closely with players, and today it is the largest form of entertainment globally—larger than film and music combined—with nearly $180 billion in annual revenue. We believe we are at the forefront of a new technological wave, and blockchain gaming will be even bigger than all the shifts we’ve seen before. Forte’s mission is to prepare all game developers, big and small—whether you already have a triple-A title with millions of players or you are building a blockchain  game from the ground up—to be successful in this new landscape.”

What Forte does

Forte provides game publishers built-in compliance and security products, ensuring global frameworks for regulated activity including money transmittal, anti-money laundering, tax compliance, and IP protection in order to protect both players and publishers’ businesses and intellectual properties. Another unique benefit Forte enables for publishers is its customizability and interoperability with multiple blockchains. Many Forte partners start off with Forte to introduce NFTs and other tokenized assets both inside and outside their core games and apps, then graduate to long-term business models and revenue streams through in-game economies and player-to-player marketplaces, eventually connecting to Layer-1 and Layer-2 blockchains, providing freedom of choice and maximum liquidity for their players.

“Forte has incredible traction in the gaming space, due in part to the robustness of its technical and compliance solutions,” said Daniel Jacobs, Kora Capital’s founder, in a statement. “We partnered with Forte because of its ethos of building a platform that is simple to integrate without limiting developer flexibility or control, building for the long-term, solving scalability challenges that limit transaction throughput on blockchains today, mitigating high latency and costs associated with blockchain transactions, as well as future-proofing with blockchain portability and cross-chain interoperability. Publishers can grow their businesses with new, innovative technical solutions, and business models. Players are now able to truly own their in-app purchases and virtual goods. This is a win for the entire ecosystem.”

Forte’s economic technology 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

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. Once Rally was established, Chou moved to Rally and Williams focused on running Forte.

In past interviews with GamesBeat, Chou said that he and Williams 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 run by Chou, is doing.

More details

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.

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.

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.

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.

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.

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.

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.

Forte’s platform is invite-only and in private testing now. There are more than 40 game developer partners, and more than 15 million players across partner games. Forte has raised more than $900 million to date.