GFR Fund has raised $53.5 million for its third fund to invest in the future of gaming, entertainment and consumer technology.

The San Francisco venture capital firm continues GFR Fund’s mission to invest in early-stage companies that are revolutionizing the realms of gaming, entertainment, and consumer tech. With a particular focus on empowering first-time entrepreneurs who possess strong founder-market fit and a fervor for “emerging digital native communities,” GFR Fund III aims to support innovative concepts and technologies.

Approximately one-third of the fund’s investments are allocated to gaming content and tech companies, with another third focused on emerging entertainment companies, including generative AI. The remaining third is dedicated to consumer tech enterprises.

“With Fund III, we’re doubling down on our sweet spot: the future of gaming and entertainment,” said Teppei Tsutsui, General Partner of GFR Fund, in a statement. “We believe that first-time founders with an emerging digital native communities mindset are the best-positioned to build the next generation of gaming and entertainment companies.”

“We are really excited about this GFR Fund III, as we’ve been doing it since 2016. We ended up raising a little bit more than our target,” Tsutsui said in an interview with GamesBeat. “It’s a milestone for us.”

For the newest fund, Tsutsui said the fund will not invest solely in gaming companies. It will invest in games and non-gaming startups too. Fund II invested in RTFKT as a creator driven company.

“It’s not a gaming company per se, but it’s still an interesting entertainment company,” he said. “We also invested in the VShojo, which focuses on VTubers,” or virtual YouTubers who are animated characters.

The new fund will also invest in startups in Europe, Asia or Africa in addition to the U.S.

GFR Fund boasts a track record of successful investments across various consumer sectors, including gaming, streaming, generative AI, creator economy, blockchain, and more. Some of the fund’s notable investments include RTFKT, a producer of unique digital products, which was acquired by Nike in 2022; VRChat, a leading social VR platform; and Omeda Studios, a London-based creative studio specializing in community-driven games.

As for targeted areas, Tsutsui said the focus has always been on founders and products, with a focus on the digital native communities.

“We want to work with the founders who want to build community around the product, or using the community to make the product better,” Tsutsui said.

As for the fundraising process, Tsutsui said it is a challenging time to raise funds but a lot of the existing investors came back to reinvest in Fund III.

“We are lucky enough to have those supporters who believe in GFR,” he said. “We also brought some new institutional investors.”

GFR Fund III is spearheaded by a team of seasoned investors and leading LPs, each possessing deep expertise in the gaming and entertainment industries. This team is led by general partners Tsutsui and Yasushi Komori.

“We’re excited to partner with the next generation of gaming and entertainment founders,” said Komori, general partner of GFR Fund, in a statement. “We offer our founders hands-on support and deep connections to the Asian market, which is home to some of the biggest gaming companies in the world.”

GFR Fund has rapidly developed a community of experienced founders and operators who have chosen to invest in Fund III. These industry insiders provide invaluable insights and support to the portfolio companies.

“I’ve had the rare opportunity to work with GFR as both COO of RTFKT and as a Venture Partner. I’ve seen firsthand the support and industry knowledge the team provides to portfolio companies,” said Nikhil Gopalani, COO at RTFKT, in a statement. “We’re excited to continue to support consumer companies looking to create new experiences at the earliest of stages.”

The earliest fund, dubbed GVR Fund, was created in 2016, as part of Gree VR Capital. The GVR Fund raised $18 million and invested in 23 companies, including VRChat, Spaces, Sliver.tv, Littlstar, Insidemaps, YBVR, Experiment 7, TheWaveVR, Sturfee, InsiteVR, Streem, DottyAR and Torch3D. In 2018, the fund rebranded itself as GFR Fund, as it added augmented reality and virtual reality investments.

Then GFR Fund II raised $20 million in 2019 to invest in virtual reality, augmented reality, esports, livestreaming, artificial intelligence, and blockchain. It’s particularly important for game VCs to raise new funds right now as money is getting tighter and game startups are likely starving for cash. That fund invested in about 31 companies.

Tsutsui said Fund III will likely invest in 30 to 40 companies over three years. It sets aside about 30% of the money to invest in follow-on investments for earlier investments. The fund has about eight people altogether.

The GFR funds have focused on pre-seed investments. Right now, the later stage startups are having trouble raising more money. But there are still a lot of investors willing to put money into pre-seed investments.

“We haven’t really slowed down our investment pace,” he said. “Valuations came down a little bit, but not as low as what we hope it would be. It may still have room for coming down. We see more competition among the funds.

Tsutsui said his advice for game startups is to build a community. There are a lot of tools like Discord or Twitter or Instagram for doing that, and having community support helps a product from a new company take off faster.

“We love those kinds of founders,” he said. “I think founders should build a community first. And they should start small and build on it over time.”

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