AVCJ Awards 2022: Deal of the Year – Small Cap: Well-Link

Most China venture capital investors slowed their pace of deployment in 2022 amid economic and policy uncertainty and the suspicion that valuations would adjust downwards. Entrepreneurs also showed patience, conscious that flat rounds and down rounds are beginning to proliferate.

Well-Link Technologies, a provider of real-time cloud rendering solutions for game developers, is the exception to the rule. Despite having enough cash in reserve to sustain operations for five years within the existing scope, the start-up closed a USD 40m Series B extension in September 2022. This not only offered room for exploration and expansion into new parts of the industry value chain.

“Some of our peers may have ‘laid down’ last year, but we kept the pace stable and even increased investments in some sectors. We are one of the few VCs that was still actively deal-sourcing. If you can see opportunities in the next 5-10 years clearly enough, and you have the conviction, now is the best time to deploy,” said Mingming Huang, founding partner of Future Capital.

Future Capital led Well-Link’s CNY 400m (USD 56m) Series B in December 2021, supported by Shunwei Capital, CDH Investments, Xiaomi, and video game developer miHoYo. It re-upped in the extended round, alongside CDH, with Temasek Holdings taking the lead.

Huang’s faith in the resilience of the gaming industry was echoed by a People’s Daily article last November. Citing the European Parliament’s resolution to formulate a long-term strategy and support for the industry, it concluded that video games have become a key driver of scientific and technological innovation in fields such as 5G, semiconductors, and artificial intelligence.

The positive vibes didn’t end there. In an unusual move for state media, the article noted that following the implementation of restrictions intended to curb video game addiction, the industry’s “barbaric growth” phase had ended and now China should focus on seizing the initiative from global competitors.

“Technologies developed in cloud gaming have spilt over to other industries, even enterprise services with more operators migrating to the cloud,” said Qizhi Guo, a senior partner at CDH Investments. “Chinese companies are competitive globally, and moreover, video games have become a kind of Chinese cultural export. Half the revenue generated by the game Genshin Impact is from overseas.”

Building momentum

Well-Link earned its current reputation by producing a cloud version of Genshin Impact, a role-playing game developed by miHoYo. It quickly became a benchmark for cloud-based games and helped Well-Link post a fourfold year-on-year increase jump in revenue for the first nine months of 2022.

The company has created strong industry tailwinds. According to IDC Consulting, China's cloud game market was worth CNY 4bn in 2021, up 93% on the previous year. Meanwhile, iiMedia Research projects the market will be worth CNY 98bn by 2023.

Cloud-based gaming is not so much about convenience for end-users – although that is a factor – as making games accessible to users who don’t have high-performance computers. This extends to providing a better experience for those who play games on mobile phones intermittently during the day.

But for Matt Guo, WellLink’s founder and CEO, the most transformational aspect of cloud-based gaming is that it eases the burden on developers. Most developers base their planning on expected advances in computing power and rendering capabilities in the two years prior to a game being released. Ambitions are effectively curbed by conservatism. With cloud games, the only limit is one’s creativity.

While Well-Link’s key service is a third-party real-time rendering solution provider, its ambitions stretch beyond software. The company has moved into the hardware space, establishing a dedicated server – called Siland – that it claims can help game developers reduce rendering costs by up to 25%.

“Ordinary servers are for general-purpose use and are adapted to a suite of various needs. Cloud gaming requires very high rendering power, and for a general server to meet such requirements, it must be configured to the highest level, which pushes up operating costs for game developers,” said CDH’s Guo.

“Siland is a customised, dedicated server for cloud gaming. It removes unnecessary functions and realises a substantial reduction in overall cost.”

Well-Link’s objective is to provide all the resources and tools needed for game development on a single operating system. Last August, it released a movie-like cloud-native game demo The Grass of Genesis to showcase such a capability. Investors regard this as another step into the intellectual property space, which would further enhance the company’s competitive moat.

Business and imagination

Well-Link’s Guo divides the company into two parts: business and imagination. The business side is driven to generate revenue and turn a profit as soon as possible, reassuring investors and other stakeholders. Imagination is not burdened by such near-term considerations; it is programmed to be the future growth engine. The latest funding round can serve both of these purposes.

New business concepts being explored include providing computing power for the future digital world or metaverse. A near-term plan for Well-Link is to capture a meaningful share by serving as an infrastructure builder for virtual reality (VR) and artificial reality (AR) applications.

The Grass of Genesis is notable for introducing movie industry capabilities to cloud game production, which should smooth the way to creating more realistic environments for VR and AR-enabled interaction. Consumer demand is already strong – shipments of VR and AR headsets reached 11m units in 2021, up 92.1% year-on-year, according to IDC – but it is expected to step up a level.

“One of our basic judgments is that in the future all our physical world will be digitalised and mirrored in the digital world – a fully immersive world based on 3D real-time rendering. In the next 10 years, there will be billions of people who live and work in such a digital world,” said Huang.

Instant rendering of virtual worlds means business meetings can take place in grasslands in the foothills of the Alps and car buyers can get up close and personal with new vehicles while absorbing all the specifications.

While China is a powerful global manufacturing base, supported by extensive infrastructure and supply chains, Huang believes the country can establish similar advantages in the digital world. He equates “water, electricity, and coal” in the digital world to computing power – and Well-Link’s Guo views the potential market scale in a similar way.

“The visual interaction of all walks of life brought by real-time rendering is the biggest opportunity of web3,” he said.

Pictured: Thomas Lanyi of CDH Investments (left) collects the award from Alvarez & Marsal's Utsav Garg

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• Topics
• Greater China
• Technology
• Early-stage
• China
• Temasek Holdings
• CDH Investments Management
• Future Capital
• artificial intelligence
• gaming
• AVCJ Awards