OIO reveals Auckland's Grinding Gear Games sold for more than $100m

Chinese Path of Exile fans at a Shanghai gaming event. The game launched in China in August last year

UPDATE / May 31: An Overseas Investment Office decision approving Tencent's investment in Grinding Gear Games has revealed the purchase price, or at least its lower limit.

The agency green-lit Tencent to take up to a 100% stake in the West Auckland company (in the event, it took 80%) for a "consideration that exceeds $100 million."

$100m is the threshold at which a deal has to be run by the OIO.

Before Grinding Gear Games, the $100m line was most recently crossed by another Auckland tech, PowerbyProxi, sold to Apple.

Like the PowerbyProxi, Grinding Gear Games is keeping all of its Auckland staff, and expanding locally.

EARLIER / May 27: Chinese gaming giant Tencent has taken majority control of New Zealand's largest gaming developer, Grinding Gear Games — maker of the online role-playing game, Path of Exile.

A price has not been disclosed, but this West Auckland startup is making a profit, and has two million players worldwide signed up.

Easily the largest single shareholder in Grinding Gear Games ahead of the deal was co-founder and managing director Chris Wilson who had a 42.76% stake. A Companies Office update puts Tencent on 80%, with Mr Wilson's holding now 13.17%.

Today, Grinding is a big operation. Its location isn't promising: an office building near a Pak N Save in a non-descript shopping centre, which it shares with a couple of government agencies. But when you walk in and see all of its 114 staff on one open plan floor, you can't fail to be impressed.

Wilson has immediate plans to scale up to 130 staff.

Longer term, he sees "hundreds" of new hires and his company taking another floor on its building. Yes, the same building; he wants to stay in blue-collar Henderson, where most of his young staff live. He likes the suburb. 

On one side of the office, all the fluorescent lights are switched off. The staff there prefer it dimmer. In the centre are the only three walled offices (albeit with glass walls), where Wilson and his two co-founders sit. 

There's a projector in a rec room for watching movies, and the soft drinks in the company cafe area are free (in the great tradition of startups, no staff are actually in the rec area when NBR visits, though it was late morning).

While he muses about occupying two floors Wilson, does not want the company to get any bigger. He has no plans for a second game.

Wilson is modest and self-effacing and not keen on being photographed, saying he would prefer Exile to be portrayed as the product of the whole company. He won't say the size of his payday with Tencent, and seems to have no plans to splash out on a new pad or car. "I'm happy with my current house and I don't drive," he says.

A small slice of Grinding Gear Games' office.

I get the impression he doesn't think a heck of a lot about the world outside Exile. He both plays the game — making no attempt to hide his identity — and works on it. A lot. What sort of hours? 

"Honestly, way too many in the early days. It's still more than a full-time job, but becoming more manageable as we scale up the team to help with administrative tasks," he says.

"I like to be very hands-on with the product, so I try to spend more than half my time working on the game. This can push admin tasks into the evening and weekends, but I'm used to it."

While he seems to have only limited interested in material reward, Wilson does think about the bottom line.

The target audience
When I tell him one of my friends, a lawyer, is something of a fan of RPGs, including Exile, and that his wife complains he spends around a third of his life playing them, Wilson's eyes light up.

"That's good that he's a lawyer. He can buy a lot of stuff," he says. 

Exile is free, but has in-game purchases. Wilson says the keenest players spend thousands a year on extras like flasher virtual clothes (the extras are purely cosmetic; you can't pay to get ahead in the game).

Most players are males between 25 and 35 he says, though more female players are starting to come onboard.

I ask what assistance Grinding has had from Crown agencies like Callaghan Innovation. Little, Wilson says. The only leg-up was a modest $9000 from NZTE. Grinding has pulled itself up by its bootstraps from the get-go.

It's ironic in a week where communications minister Clare Curran has asked officials to "map" the gaming industry. 

The early days
Grinding's genesis came when Wilson was playing an online role-playing game, and got chatting to another player who was logged on from Sweden: Erik Olofsson.  

The pair talked about creating their own RPG. But unlike most such chats, it didn't stop at mere fancy. Olofsson — a designer — actually jumped on a plane and flew down to New Zealand to collaborate with Wilson, who was wiling away his post-university years on a series of contract-programming jobs (the third founder was Jonathan Rogers, who featured in an NBR Ask Me Anything session back in 2013. Post-deal, Olofsson and Rogers have 3.41% stakes).

Grinding Gear Games first became widely known in 2012 when the crowdfunded $US200,000 to develop Exile via Kickstarter. 

Another crowdfunding round, in 2013, saw $US2.5m come in through the door as the number of Exile gamers climbed to 140,000 and Grinding Gear staff to 20.

Wilson says Exile now has two million active users worldwide but he won't reveal a mix between those who play for free and those who pay. He does say rabid fans can spend thousands a year on the game through in-game purchases.

"We have been profitable since we commercially released the first version of the game in 2012," he says.

The company quickly got to the top tier, along with along with Wellington's PikPok and Dunedin's RocketWerkz in the top-tier of New Zealand gaming. RocketWerkz also has Tencent backing; the Chinese company took a 25% stake in 2016.

Today, according to the New Zealand Game Developers' Association (NZGDA), Grinding Gear Games is our largest game developer full-stop. It employs roughly 1 in five people who work in the industry.

The deal
The Hong Kong-listed Tencent bills itself as the world's largest online gaming company (in fact, it's giddy market cap of $US503b makes it the world's fifth most valuable company full-stop) but Mr Wilson says Grinding Gear will be keeping it Kiwi.

All staff will stay and it will stay local. In fact, there are plans to boost numbers to 130 over the coming year.

Wilson, Olofsson and Rogers will stay on. 

It was Tencent — already the Chinese publisher for Exile — who made the first approach, and negotiations took a full year.

Wilson he and his fellow co-founders negotiated for themselves. They only brought in lawyers to look over the final terms of the contracts. As with other areas, like HR and accounts, they learnt as they went.

The game is served from a strong of IBM data centres around the world, and there's no change anticipated on that front, either. "They're probably not the cheapest, but they're reliable," Wilson says. There was no strategy it to go with Big Blue. Rather it was a case of Grinding's original provider being bought out by another, which was in turn taken over by IBM. 


A scene from Grinding Gear Games' signature title, Path of Exile.

Welcomed by the industry
"This is fantastic news for the team at Grinding Gear Games," NZGDA chairman Michael Vermeulen says of the Grinding-Tencent deal.

"It's is a great fit. Tencent is the largest games publisher in the world, has a strong reputation and is known for respecting the creative independence of the companies they invest in."

Mr Vermeulen says the investment in Grinding Gear Games is also an endorsement of the quality of the New Zealand video games industry in general.

"International publishers and investors have been increasingly interested in New Zealand-made games but our challenge as an industry is to build more studios of scale so we can take advantage of those opportunities. Interactive gaming is a growing global market that New Zealand businesses can successfully compete in with the right support," he says.

"The video games industry is the largest entertainment industry in the world, valued at $US108.9 billion. New Zealand’s games industry was worth $524 million in 2016/17, of which $100m was exports of New Zealand creative software."

If Chris Wilson has his way, it will get a lot bigger over the next few years.


13 · Got a question about this story? Leave it in Comments & Questions below.


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13 Comments & Questions

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A game that depends upon micro-transactions to make money is a game model that looks highly vulnerable to regulation. Already several EU locales have banned "Loot Boxes" as a form of gambling. See the investigation into EA's Star Wars Battlefront 2 for an example of how this is being perceived.

I'm not the target audience (I do however have many thousands of hours put into gaming), but I'd be highly wary of Pay-to-Win schemes like this surviving in the long term.

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I've made a separate comment on this game not being Pay-to-Win, but to address your comment about loot boxes; these are not the main items available for purchase. Cosmetic effects can be purchased directly. Loot boxes are used for new collections of cosmetic effects, and after a period of time those cosmetic items are purchasable directly.

Presumably a ban on loot boxes in important jurisdictions would be a financial hit to GGG, but without the sales data it's impossible to say how much that would cost them.

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There is nothing pay-to-win in Path of Exile.

(Edited)

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"Wilson says the keenest players spend thousands a year on extras like flashier virtual clothes (that saves on toil - or "grind" in gaming lingo - to earn gear yourself)".

The text in brackets is not correct - the reporter appears to have misunderstood the nature of in-game purchases in Path of Exile. The "flasher virtual clothes" you can purchase in Path of Exile are cosmetics, which only change the appearance of the gear your character is wearing. No actual gear can be bought for real money - it all has to be earned yourself in game (and the appearances you can buy are only available through the store - they cannot be obtained for free in-game).

Path of Exile is not Pay-to-Win, and this is an important part of its appeal to gamers. The only paid elements that give an advantage in the game are features that make it easier to trade items between players and make it easier to sort and manage the items collected in game.

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Congrats on the level up, hope there will be more achievement parties again soon. Don't worry about the article writer being biased about West Auckland. They are probably jealous of all the wineries, beaches people can swim in, the train service and lower rental costs out there. Seriously good to see more NZ tech start ups with a value proposition get kudos. With games a fast growing international market & a lot of competition eking out your own patch is epic.

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The game is not pay to win at all. All the "loot crates" you can buy are purely cosmetic and do not offer any ingame advantage. That's what draws a lot of people to the game on top of it's high quality gameplay.

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It certainly wasn't my intention to convey that people can pay to gain any gameplay advantage. Apologies for the confusion.

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Is there any chance to revise that part of the article? So there's less misinformation swaying the opinion of potential new players. I have already seen someone believing it's "Pay to win" and not everyone reads the comments.

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should then you fix the statement that is vague at best and misleading at worst? You can't get any in-game power without grind, flashy clothes or naked, everyone goes through the same grind.

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Any reason for the choice of "Exile" and "Grinding"?

The game is commonly called either "Path" or "PoE", never heard it referred to as "Exile".

Similarly, Grinding Gear Games is traditionally abbreviated to "GGG".

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Overall, this is a good article. It paints everything in a positive and mostly accurate light except for this:

"Exile is free, but has in-game purchases. Wilson says the keenest players spend thousands a year on extras like flasher virtual clothes (that saves on toil — or "grind" in gaming lingo — to earn gear yourself)."

These micro transactions are purely cosmetic or for 'quality of life'. They do not help you win the game.

Please fix that part of the article to something like this:
"Exile is free to play but subsists on in-game purchases. Wilson says the most enthusiastic players spend thousands a year on extras like flashier virtual clothes or spell effects. None of these micro-transactions are in the genre of 'pay-to-win' which, in part, leads to the game's allure."

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It was not my intention to imply that. Have re-worded.

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This company is a great example of how useless Callaghan was under Steven Joyce. They should be camped on the doors of companies like this trying to help them as much as possible. Especially if they lend the money to the company or even a split of debt and equity. That way Callaghan would multiply its pool of funds and help even more NZ companies

Instead they lend to losers like Pacific Edge - a public company for goodness sake. They help companies that don't need the help and give away the money

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