Mihoyo, a Chinese game development and publishing company and the mastermind behind the renowned cross-device title Genshin Impact, is leveling up its game by delving beyond its core focus. The subject of interest? Its investments.
While investing is common practice in the gaming industry—consider Tencent’s acquisition of Riot Games to leverage the popularity of League of Legends, or its minority stake in Fortnite maker Epic Games, and Microsoft’s acquisition of Minecraft creator Mojang Studios, as well as Electronic Arts’ purchase of Respawn Entertainment, the studio behind Titanfall and Apex Legends—Mihoyo’s investment strategy is distinct.
After striking gold with the unprecedented success of the Honkai titles, Mihoyo began investing in the anime, comics, and gaming (ACG) sectors, enhancing its game development and publishing services, among other areas. Mihoyo’s interest in Beijing-based Well-Link Technologies offers an illustrative example.
According to CNBC, Mihoyo is an investor in Well-Link, a company specializing in real-time cloud rendering—a technology it has harnessed to help launch the cloud version of Genshin Impact. This technology enables the delivery of smooth gaming experiences with minimal local storage and hardware requirements by leveraging multiple cloud servers for image creation.
At the turn of the decade, the widespread success of Genshin Impact on the international stage nudged Mihoyo into a second gold rush. The game took only six months to rake in USD 1 billion in player spending on the iOS and Google Play app stores and just 40 months to cross the USD 5 billion mark, according to data from Sensor Tower and Data.ai.
The game’s success also propelled Mihoyo’s revenue to roughly RMB 10.1 billion (USD 1.3 billion) in 2020, with a net profit of RMB 5.7 billion (USD 784.7 million). This marked a significant increase from its revenue of around RMB 424 million (USD 58.3 million) in 2016 and RMB 587.9 million (USD 80.9 million) in the first half of 2017, as per a prospectus submitted by Mihoyo to the China Securities Regulatory Commission (CSRC) during a brief IPO pursuit in 2017. Thereafter, Mihoyo more than tripled its revenue year-on-year in 2021 before experiencing a slight dip the subsequent year.
Venturing into deep tech and taking on LP roles
Breaking the market duopoly of Tencent and NetEase gave Mihoyo the financial standing to diversify its investments, with notable ventures into areas unrelated to gaming. These investments include funding rounds in deep technology fields such as artificial intelligence, semiconductors, and even carrier rockets:
- Raysolve, a company that develops micro LED technology for augmented reality wearables, was funded by Mihoyo in December 2023. Mihoyo participated in the company’s pre-Series A3 funding round alongside lead investor Meridian Capital as well as 37 Interactive Entertainment.
- Enkris Semiconductor, specializing in gallium nitride—a compound semiconductor material—attracted Series C funding from Mihoyo in December 2023, according to Crunchbase data.
- GravityXR, a chip and hardware solution provider for extended reality technology companies, received funding from Mihoyo twice in 2023, for its pre-Series A+ and Series A rounds, announced in April and August, respectively.
- Energy Singularity, a deep tech startup focused on commercializing fusion technology, secured RMB 400 million (USD 55 million) in its inaugural round of financing, completed in February 2022. Mihoyo co-led that investment alongside Nio Capital, with support from HongShan’s seed fund and Lanchi Ventures. Mihoyo reupped its stake in the company in May 2023, participating in Energy Singularity’s RMB 400 million pre-Series A round.
- MiniMax, a generative AI technology company, completed its pre-Series A round in July 2022, with Mihoyo among the investors.
- Orienspace, a space tech startup developing commercial launch vehicles, raised USD 59.9 million of Series A funding in a Hike Capital-led round completed in May 2022. Mihoyo reportedly participated in that round.
- Soul, a metaverse-based social networking platform, closed a USD 167 million equity funding round in July 2021, jointly led by Mihoyo and Tencent.
Since 2021, Mihoyo has expanded its venture capital activities by undertaking limited partnerships (LPs), participating in at least four identified investment bodies:
- Boyu Capital, founded in 2011, is one of China’s largest private equity investors that has since expanded into stocks and real estate. Boyu has backed the likes of Ant Group, Animoca Brands, and more. Mihoyo invested in Boyu in 2021, according to a news report published by 36Kr.
- Summitview Capital, one of the earliest semiconductor investment institutions in China, has over 200 projects in its portfolio, comprising listed companies like GigaDevice and Wingtech. Mihoyo invested in Summitview also in 2021.
- Tongge Ventures, established in July 2022 by Goertek, counts Mihoyo among its LPs alongside ByteDance, 37 Interactive Entertainment, ZhenFund, and CICC Capital. Tongge has a total commitment of nearly RMB 556 million (USD 76.5 million) for venture capital activities, according to a disclosure by the Shenzhen Stock Exchange (SZSE). It has invested in at least ten companies to date, including HongShan-backed AI company Infinigence as well as Qingdao-based semiconductor equipment company SRI-I. Mihoyo committed RMB 100 million (USD 13.7 million) for an 18% stake.
- Shanghai Yuanchuang Future Fund, established with around RMB 512 million (USD 70.4 million) in initial funding, is backed by Mihoyo and ten other partners, including Bilibili and SenseTime.
Despite its new investment directive, Mihoyo has not scaled back its gaming-related investments. For instance, in 2022, it backed Unity’s China-based regional venture, Unity China, alongside other local partners like Alibaba, China Mobile, and Douyin Group.
Mihoyo’s ventures include mixed developments, such as a joint venture with Ruijin Hospital, affiliated with Shanghai Jiao Tong University, the alma mater of the company’s co-founders. This venture focuses on developing and clinically applying brain-computer interface (BCI) technology, including treatments for depression. Industry insiders believe this move also targets the advancement of metaverse gaming. The lab is run by professor Lu Baoliang, a former instructor of Mihoyo’s co-founder and CEO Cai Haoyu.
Mihoyo has also co-established EmotionHelper with professor Lu to explore “emotional artificial intelligence technology” with the aim of improving human health and human-machine interaction (HCI) experiences. It remains unclear if EmotionHelper is connected to the joint venture with Ruijin Hospital.
Mihoyo’s investments are noteworthy given its gaming roots and substantial R&D expenditures driven by its commitment to product quality. In 2021, Cai told Chinese media outlet GameLook that Genshin Impact requires an R&D budget of at least USD 200 million annually to refresh its content and features. The company also reinvests a significant portion of its profits from released titles into new product development.
Mihoyo has primarily been able to manage financial outlays of this scale due to its outsized profits. For example, the company recouped the initial cost of developing Genshin Impact within two weeks post-release. In 2022, the company’s data indicated its main business (games) generated RMB 27.3 billion (USD 3.7 billion) in revenue, recording a net profit of RMB 16.1 billion (USD 2.2 billion)—that averages out to a daily net profit of over RMB 44 million (USD 6 million), while bearing in mind this report precedes the release of Honkai: Star Rail, which has largely replicated the success of Genshin Impact in profits and user numbers.
The Hurun Research Institute ranked Mihoyo 12th on its “Global Unicorn Index” for this year, which measures the wealth of unlisted companies founded in the new millennium globally. With an estimated wealth of USD 23 billion, Mihoyo ranked highest among all gaming companies on the index, and is one of only three gaming entities to have made the top 100 of the list, ahead of Pokemon Go creator Niantic (in joint 67th place) and South Korean mobile game firm Haegin (in joint 83th place).
Why is Mihoyo diversifying beyond gaming?
Mihoyo’s diversification strategy makes theoretical sense, given the gaming industry’s fair share of one-hit wonders—companies that thrived off the success of one or few major titles before faltering due to subsequent lackluster releases. Take Midway Games for instance, which developed the Mortal Kombat franchise in 1992 but struggled with losses as the majority of its other titles underperformed. The company eventually went defunct in 2014.
Moreover, Mihoyo’s expansion strategy centers on the creation of an immersive virtual world that will unite its products, with the aim of accommodating a billion users by 2030. The company outlined this approach in 2022 when Mihoyo unified its products under its Hoyoverse brand.
While there are merits to this strategy, it entails a significant degree of integration that homogenizes aspects of its products, particularly in art style and game mechanics. In the long run, this effect could diminish the staying power of its game titles and result in product cannibalization.
Exemplifying this effect is Mihoyo’s latest release, Zenless Zone Zero, an action roleplaying game that brings a sci-fi twist to the anime-inspired art style that players of Genshin Impact and the Honkai titles have grown accustomed to. While the new release set new records in terms of pre-registrations and early downloads, it generated around USD 24.6 million in revenue within the first five days post-release—dwarfed by the results of predecessors Genshin Impact and Honkai: Star Rail, which brought in USD 35.3 million and USD 55 million, respectively, within the same timeframe following their launches.
With the high bar that Mihoyo has set with earlier titles, coming short at some point was expected, if not inevitable. Even so, Zenless Zone Zero’s numbers are healthy by industry standards and should offer little cause for concern, particularly as Mihoyo seeks diversification through its investment activities while continuing to deliver immersive, high-quality gaming experiences to players all around the world.