How Razer’s startup fund will serve its mission to reach all gamers

Razer is for gamers, by gamers. The maker of gaming hardware is all about providing products for hardcore gamers, and it believes that the larger mainstream public will like those products as well. It’s just like Apple targeted creative professionals in its early years, and then grew into serving everyone, said Min-Liang Tan, CEO of Razer, in an interview with GamesBeat this week.

And Razer will also serve gamers by widening the ecosystem around them through its new zVentures project, a $30 million venture fund that will invest in startups working on cutting-edge technology. It’s all part of Tan’s mission to make gamers gravitate to Razer’s brand and its affiliated partners. We talked with Tan about the startup fund and the philosophy behind it, as well as Razer’s brand mission, and the prospects for future investments and technologies that gamers will care about.

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Here’s an edited transcript of our conversation.

GamesBeat: A question that’s often asked about very enthusiast-focused companies is how hard do you want to go after the more mainstream audience? Do you want to stick with the hardcore folks that you have already or somehow try to make their behavior more mainstream?

Tan: Apple, when it first started, they had a single-minded focus on the creative professional. On musicians and so forth. Music and creativity are very fundamental facets of human beings, though. That’s percolated up through everyone. MacBooks are great for music production, but lots of people are buying them for other reasons, too.

At Razer we believe that gaming is much bigger than movies and music. It’s proven. I don’t think there’s a need for us to go mainstream, but inevitably the mainstream will come to us given that premise. One of the fundamental precepts we appeal to is entertainment. Basically, people like to have fun. Gaming is probably the most engaging form of entertainment today.

We’re focused on the high-performance gamer, but we’re also looking at any ways we can provide a more immersive or fun experience. That’s why we’ve invested in OSVR. We acquired Ouya back in the day. We’re looking at the mobile segment very closely, but to try to figure out how we’ll bring the Razer experience to the mobile space. Today, mobile games aren’t fantastic. They’re great fillers. But we’re seeing great companies like Kabam try to solve that core game experience on mobile. That’s where we have a great chance to reach our core user group, and also a much broader user group. Things like Z Ventures will help us do that.

Apple has grown from creative professionals – designers and musicians – to one of the largest companies in the world. We’re focused on gamers, on entertainment, people who like to have fun. We’re providing the best experience with that. Again, I don’t think we’ll go mainstream, but look at Pokemon Go. The mainstream will find its way to understand that there are two billion gamers worldwide, whether they call themselves gamers or not.

We don’t want to focus on the mainstream for its own sake. Our targets are set internally. We’re a private company. The founders have always been very focused on getting the right investors, the right people to drive this business with us. We’ve been lucky to have a long-term vision together. We’ve built a brand with a pretty big reach.

GamesBeat: Tell us about your new zVentures fund.

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Min-Liang Tan: This is a fund for startups by a startup. That’s the single line on zVentures. We’ve put $30 million off our balance sheet. We’re looking at early stage startups, everything from $100,000 to $1 million. This is separate from corporate M&A. Potentially we could follow on with stuff like that as a company.

Our differentiation from the traditional VCs is that instead of us being a purely financial company, we’re actually a startup that’s going through all the rigors, all the trials and tribulations of every startup. We’d like to be able to give that feedback and help on the fly to a company. Some have trouble with supply chain. That’s exactly the same problem we had 24 months ago, so we know who they should speak with. Or a company says, “I’d love to get my product into Best Buy.” We say, “Great. We know the buyer. This is what to do.”

Three things we think we can bring a huge amount of value, outside of just knowledge—one, our user base. We have one of the biggest active user bases out there among gamers on our own platform at Synapse, as well as social media. Even now, when articles are written about Razer, we tweet them out. We drive a massive amount of gamers to read them and get excited. Likewise, we believe that these gamers who are tech-savvy, who are evangelists, can benefit from the technology of other startups.

The second thing is our experience with hardware and software. Both of which are completely different disciplines. The software side, we’ve built one of the biggest software platforms for connected gamers. On the hardware side, there’s a renaissance in hardware today, but you realize that a lot of companies haven’t really scaled, except for a few. Outside of initial Kickstarter success, they then need to figure out supply chain management, logistics, inventory management, prototyping, design for manufacture, design or quality, EVT, DVT. We ship millions of devices every year. That’s the experience we want to bring to our partners, instead of them having to grow with us.

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Finally, our global distribution network. A third of Razer’s business is in North America, a third is in Asia, and a third is in Europe. We believe we can bring that to bear for startups out there. Instead of them saying, “We’ll try our best to get into one channel,” we can say, “Within three or six months we’ll help you get to all the channels globally.”

GamesBeat: What will the startups share in common?

Tan: We’re very focused on gamers. We don’t believe that a company can be all things to all people. That’s usually how companies get distracted along the way. If we think something is cool, we’d love to be able to bring that technology to our partners. A good example is what we’ve done with Lenovo. They wanted to bring fully built desktop PCs. We said, “Great, we’ll co-brand with you and help bring your tech to our user base.” This is relevant to that, bringing new products and software to our users.

Where we’re also different from traditional VC funds, we don’t have a fund life. We don’t have carry. Really, for us, it’s what kind of value we can bring to these customers, to our startups, and potentially for us as customers to our startups. All the times I’ve pitched with companies, with cool technology, this is one of the ways you get great financial return, if and when there is an exit. Although that’s not our top priority.

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The themes we’re looking at—while we recognize there are probably a lot of companies out there that are better at what we’re doing, we want to focus on companies where we can bring value. If we can’t bring value, regardless of how excited we might be about future financial progress, we’re not going to invest. We’ll only invest in companies where we can value add. We’ll help them interface within Razer, access our network of suppliers and customers and investors, and give them credibility in the space very quickly.

We’re looking at internet of things. We’re already one of the world’s biggest consumer IOT companies. We have more than 20 million connected devices out there, more than 20 million connected users coming online to our platform every day. Software analytics. Manufacturing. AR and VR, through OSVR. Of the $30 million we’re committing, $20 million is for investments in startups at this point. $5 million is for content at OSVR, of which we’ve already started announcing about three games so far and more later. Esports, robotics, definitely areas we think are relevant for our users now and in the future.

We intentionally called it zVentures as opposed to Razer Ventures, because we’ve had so much interest from our partners to work with us. We don’t think we’ll have a formal LP system any time soon, but we have a lot of partners who want to co-invest with us, and so we thought this would be a good time to call it a stand-alone entity.

GamesBeat: How long did you have the idea? Did it take very long to set this up?

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Tan: The funny thing is, we’ve already been doing investments in startups. This is a way to formalize that and put together the know-how of venture capitalists who’ve joined the company. We want to formalize the process of making these investments and helping them along, as opposed to just investing and forgetting about it. We’ve been doing that for the past couple of years and we’re still driving this along.

At Razer we tend to do new things a lot faster than other companies. We create new categories. Given how most startups today are taking much longer to go public—startups are getting larger. They have much larger war chests along the way. Some of the other companies have started doing this, but more to enable ecosystems around them. On the other end of the spectrum, you have really large tech companies that have been around a long time, like Intel Capital. They have corporate venture funds.

We may be one of the first movers, but I do believe that we’ll see a lot more startups doing this. It’s a great way to stay in touch with the community, to give back to the community. I’m excited by it.

GamesBeat: With hardware, do you worry about conflict of interest, competing with your own startups?

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Tan: We would invest in hardware companies if it’s relevant to our user base, if we think we can add value. I talk about IOT today because most of the hardware companies—if it’s purely hardware we probably wouldn’t have any value add. At Razer we’re great at the software layer, the firmware layer, the hardware layer. We can educate the people at a startup on all those facets. That’s the focus.

GamesBeat: It would seem like AR and VR might be the most active category now for investments.

Tan: We’ve done an investment in a VR company before. Esports is very active for us. We’re actively looking at a couple of companies in each of these categories, except maybe for advanced manufacturing engineering. We’re looking at IOT, game software, esports, robotics, software analytics, and some crossovers as well, like analytics for esports. We’re pretty active in looking at different things.

GamesBeat: I’m thinking of doing a couple of roundtables on this topic. There’s an interesting intersection of games and real life right now, like with Deus Ex and human augmentation.

Tan: We did an investment in Open Bionics. We provided the interface layer for that hand, the camera and stuff like that. Human augmentation is exciting on a couple of levels. We believe that the first guys who actually embed technology in the human body are probably going to be young, tech-savvy, evangelists. They’re right along the lines of our gamer audience. I’m talking about outside of prosthetics – augmentation for its own sake. It’s all about leveling up, right?

That’s one of the moon shot things we’re very excited about. If you want to put something in your body, you’ll want to do it with a company that’s proficient in both hardware and software. That’s one of the areas we’re actively investing.

My personal take is that human augmentation is probably going to get done a lot faster than humanoid robots, for one very basic reason, which is batteries. Battery technology hasn’t improved that much in the past couple of years. To be able to power a lot of these robotics, you need a really large battery, which ends up requiring a big non-humanoid chassis. Bipedal humanoid robots are hard to do, not because of balance or anything like that, but because of battery packs. It’s cool to do it in a two-meter radius, but if you want real mobility, augmentation is the key to these things in the short to middle term.

GamesBeat: The other intersection I’ve seen was everyone who wants to do smart cities, and then Watch Dogs came out.

Tan: Given that I’m from Singapore, smart nations, smart cities, it’s a huge topic at this point there. It’s a small enough city to roll a lot of this up. Singapore is a very smart-city kind of platform.

GamesBeat: It makes sense in some ways. Games and science fiction inspire technology, inspire new startups.

Tan: Of course, the third game in the trilogy would be Overwatch, when the robots and humans and everything else all fight for control over the world. [laughter]

GamesBeat: Do you think $30 million will last a certain amount of time? A year or two?

Tan: We’re investing off balance sheet anyway. If there’s a need to put in more, we will. If we have a good track record, we shouldn’t have a problem raising additional capital. Right now we’re looking to have this deployed in the first 24 months. This is outside of our own corporate M&A activities, which we’ll be doing along the way.

The key for us is the bandwidth internally to be able to support the startups out there, rather than just deploying the capital. As I say, we don’t have a fund life. There’s no pressure for us to invest. There’s no compensation based on how many deals we do like a traditional VC. We see ourselves as a partner. The difference is, we’re also not retired startup people giving sage advice or anything. We’re literally the same startup, but in a different phase. We’ll be able to give very contemporaneous advice to startups out there.

This is the big disruption. The startups we invest in will have real-time, good feedback. They’ll have the leverage of our existing network. If they needed to meet the Singaporean government tomorrow, we’d say, “Great, fly on over. You can set up in our facilities there.” If they need to be in Hamburg tomorrow, boom. We have 10 offices worldwide. We work with some of the top game companies in the world – Tencent, Blizzard, EA. We can get you face time with all the right execs, in technology or anything else.

GamesBeat: Is there an example you’d already point to, an investment you guys have made?

Tan: Earlier this year, or late last year, we invested a six-figure sum with Sensics, which is one of the founders of OSVR. They’re based in Maryland. They do VR experiences for theme parks, as well as some military stuff. They don’t do gaming. But as I say, they’re one of the founding members of Open Source VR. They’re behind a lot of great VR experiences everywhere.

Although it’s retrospective, we’ll probably say that this is one of the portfolio companies we’ll monitor and see how we can help them through manufacturing. They didn’t have any know-how in manufacturing at all. We said, “Okay, we can do that end to end development together with you guys.”

GamesBeat: Is the measure of success just growth?

Tan: Growth of our startup companies. That’s really the metric for us. Of course, if they get good products out, that’s a huge plus.

GamesBeat: How does this align with any larger strategy? What is Razer’s larger strategy right now?

Tan: As I’ve said, we’re not a company about all things to all people. You can’t do that. Trying to develop everything in-house, having that “not invented here” syndrome, is endemic to many traditional companies being disrupted. This is a great way for us to give back to the community, but still keep a finger on the pulse of what’s cool out there. If we see something our user base would find exciting, we can partner with them and bring it to our users, whether it’s new products, new services.

Consider a gaming software tool, an analytics company that can do things for gamers. By themselves they might get it out there in beta for 10,000 or 20,000 users. We could flip a switch and they’d have access to 20 million active users overnight. That would benefit us as an investor, as well as benefiting our customers with great new content or tools.

If it’s an IOT company or hardware company, they might spend their first two years getting the product out, three years getting domestic distribution, five years getting international. We could short-circuit that entire process in three months and go straight to global distribution. That’s the value we bring across, which a traditional VC firm probably couldn’t do. That’s the catalytic effect we want to bring. When they’re successful, we’re very successful from an investment perspective.

Not only can we bring value, but we can master our own destiny. We’ll be able to see returns from the work we do for the company.

GamesBeat: How is Razer going to beat the likes of Alienware or Logitech or Turtle Beach? How do you aim to win in the long term?

Tan: First of all, we don’t really see them as traditional competitors. That’s the number one thing. Many of these are traditional companies that have created — take Logitech for an example. We don’t really compete with Logitech. They’re a traditional company built around what they’re good at, which is making mice and keyboards. They have different categories — mice and keyboards for productivity, for gamers, for designers. But what happens is, you have product designers there that probably can dedicate an hour in their day to thinking about gamers.

For us it’s different. We’re thinking about gamers all the time. With greater affluence, I believe that people gravitate to solutions and brands and products that understand what they do in that phase. Gamers gravitate toward us. An action sports person would say, “GoPro understands me more than just a company that makes great cameras.” That’s a theme playing out in recent years. Focus on what you’re great at.

So we don’t have traditional competitors in the sense that there isn’t really another company that puts the gamer in the middle and has multiple categories around them. Looking at Alienware, they make gaming laptops, but they don’t make gaming peripherals or gaming software. We do. Logitech makes gaming peripherals, but not laptops or software. On the software side you have plenty of examples. We’re the lifestyle brand. We’re the Nike of esports, because we’re so dominant in that area. Thinking about anything gaming-related, we’re the company.

We don’t necessarily see a need to “beat” these other companies. One reason why is because there are two billion gamers out there today. Gaming is bigger than movies or music. In music you have all these mega-labels. In movies you have the mega-studios. Gaming, we’re just getting started. You have different geographies – the U.S., Asia. You have companies rising out of them that we’ve never heard of. The market is so big that there’s opportunity for everyone.

GamesBeat: What do you think of as your biggest successes so far?

Tan: Our biggest successes have created new categories for gamers. We invented the high-performance gaming peripheral space. We made the first gaming mouse. We did a good job not just resting on our laurels. We could have focused on peripherals, but we moved on. We needed to do more.

We looked at a market that most people said was dead, the PC market. We believed it was a space for gamers. We revolutionized the space. We said, “This is the world’s first gaming laptop,” and a lot of people got very unhappy about that. But today, if you look at the complete ecosystem since we launched ours, everyone has moved to the thin, light, powerful gaming laptop. We created that space. Intel is incredibly happy with us, of course.

What we used to call connected devices and software, what’s basically now IOT—we looked at millions of hardcore gamers and focused on shipping them hardware products that can connect back to the cloud. We get a lot of data that helps us design better products for them. We can give them feedback, stats and heat maps on how they play things like League of Legends. We’re one of the world’s largest consumer IOT companies, with a depth of big data. Not only do we have the big data, but we’re making use of it to make better products and make more informed decisions. We aren’t in just a single slice.

We’ve been good at innovating not just with products, but in the category space, and for the industry in general. Even with Z Ventures, we think this is a massive step as far as having a startup fund within a startup. We’re going against the grain of disruption, against the idea of what corporate venture funds should be. We believe we’ll see others follow in our footsteps.