Interview with Chen Yuetian of FirePhoenix Capital: Only 3% of 167 high-quality gaming companies have transitioned to Web3—how do investors assess timing in a given sector?
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Interview with Chen Yuetian of FirePhoenix Capital: Only 3% of 167 high-quality gaming companies have transitioned to Web3—how do investors assess timing in a given sector?
Both Web2.5 and Web3 need flagship products to attract more Web2 gamers; otherwise, they'll keep circling within the ecosystem, endlessly割 each other.
Navigating Web3 tides with focused insightsOn July 30 during Shanghai's ChinaJoy, Wuwandao invited Chen Yuetian from FirePhoenix Capital to engage in an exchange with 66 S1 entrepreneurs about crypto gaming. As a seasoned investor with 10 years of experience in the gaming industry, having spanned Web1, Web2, and Web3 eras—and backed projects such as StepN and Mask—what insights does Chen Yuetian offer on the transformation of China’s gaming industry toward Web3? What are his views on the Web2.5 versus fully on-chain game debate?
Below is a selection of key excerpts from the Q&A session:
Wuwandao: Why have you focused your investments specifically in the gaming sector?
I graduated from Fudan University in 2008 with a degree in software engineering, right at the peak of the global financial crisis. At that time, many of my classmates aimed for jobs at investment banks or consulting firms—mostly foreign enterprises. Chinese internet companies weren’t yet strong, so although I received an offer from Baidu, I chose not to go. Instead, I joined Morgan Stanley’s IT department as a management trainee. I was one of only two undergraduates in that cohort; the rest were master’s or PhD graduates from Tsinghua, Peking, Fudan, Jiaotong, or USTC—all extremely talented. I worked in R&D but quickly realized I couldn’t compete with them in coding. Still wanting to stay in finance, I started studying for the CFA in 2010 and began applying for jobs. In 2011, I joined CyberAgent in Japan as an investor, then moved to Innovation Works a year and a half later. 2013 marked the true beginning of China’s mobile gaming boom, as there was massive investment and M&A activity in mobile games during the first half of that year. Many game developers benefited greatly from this wave. During ChinaJoy 2013, I met countless game producers in nearby cafes. I first met miHoYo when their game "Houkai Gakuen" launched in January 2013. I’ve since closely followed their journey—from a five-person team to a company of thousands, evolving from Houkai Gakuen to Genshin Impact. From 2013 onward, I primarily invested in ACG and otaku culture-related startups. Starting with my first deal at Innovation Works, I invested in over twenty companies. Later, I co-founded Chenhai Fund, investing in numerous gaming and broader entertainment ventures. In 2017, through my wife—who works as an LP funding venture funds—I was exposed to blockchain. She received pitches from many Silicon Valley crypto funds like Polychain and Paradigm, which she found fascinating. At the Shanghai Blockchain Conference in August that year, I met many people and witnessed the now-famous scene where He Yi and Zhao Changpeng pitched to Professor Zhang Shoucheng about launching a cryptocurrency exchange. It sounded incredibly novel at the time. After that, I began making personal investments in blockchain. If you’re familiar with the angel investing community in China’s mobile internet space over the past decade, you’d know it has gradually disappeared—those who made money left the scene, and those who didn’t naturally faded away. I’m among the few who still actively invest personally. That’s why many know me as someone who continues to back startups, leading promising projects like Mask Network, RSS3, Jay Chou Bear, and StepN to come my way.
In 2021, I launched FirePhoenix Capital. Since I own 100% of the fund, I only do what I love. When setting the fund’s direction, I chose Crypto Games because I noticed that while the crypto community is vibrant, they don’t fully understand how the gaming industry actually operates—giving me a comparative advantage. In 2022, Chinese game startups suffered terribly. Game licensing had been suspended for over a year, and overall investment in gaming essentially halted by late 2021. I saw this as a perfect opportunity to leverage crypto to unlock China’s vast, high-quality game development capacity. In the first half of this year alone, I’ve already invested in over a dozen such projects.
Wuwandao: Do Chinese Web2 game teams have a chance to transition into Web3?
Our team selection logic focuses on tapping into existing production capacity—we want to identify and bring in the most outstanding talent. We believe the best Chinese game studios haven't entered crypto yet. The top-tier teams are still absent, so our job is to find them. Thus, in the first half of this year, we focused on studios that received funding from NetEase, ByteDance, Tencent, miHoYo, Bilibili, Lilith, or Eagle Flight around 2020–2021. We reviewed all business registration changes and identified 167 such companies. We tracked down contact details for each, meeting every founder in person for two-hour discussions to assess their current status. After visiting 120 of them, our first observation was that most had already shut down. Only fewer than five survived by securing around 30 million RMB just before or after Chinese New Year 2023, giving them a temporary lifeline—some managed to survive until licenses or game launches came through.
Of the remaining 30–40 teams still operating, what are they doing? They’re waiting for licenses, with tight cash flow—often just a few million RMB left, barely enough to last a few months. Today, game talent is expensive, averaging 25,000 RMB per person per month. A 50-person team faces monthly labor costs of 1.25 million RMB—and double that if outsourcing art. Most of these teams stubbornly believe they’ll eventually get a license. I present them with data: There are 400,000 game-related companies in China, with 80,000 founded and 30,000 shutting down annually. Assuming each game involves 20 supply chain companies, dividing 400,000 by 20 means there are roughly 20,000 games in development each year. Yet only about 80 licenses are issued monthly—just 1,000 per year. This means 95% of game teams are destined never to receive a license.
I don’t know why everyone remains so confident they’ll be the lucky one. I tell them: finish your product and launch quickly. If you need capital support, equity fundraising won’t work—there are too few investors, especially for game equity, since exits are rare and returns minimal. From a capital efficiency standpoint, it simply doesn’t make sense. During our research, we found many game studios raised 45 million RMB or even over 100 million RMB in 2020–2021, yet still collapsed. Game development cycles are too long, and talent too costly. The days when you could build a hit like “Dota Legends” in six months with 6 million RMB are long gone. We advise these studios to explore new directions. I say: if you need funding, consider transitioning to Web3, where capital is relatively abundant. But you can’t raise Web3 money for a Web2 game—you must redesign your business model around NFTs and tokens. Second, you need to study deeply yourself. Me teaching you won’t help. If someone can invent a new gaming business model using tokens and NFTs, that would be a world-class innovation—akin to Cygames’ “Bahamut no Tsurugi” in 2012 pioneering the gacha monetization model, which spawned giants like Da Men Zhang, Lilith, and miHoYo.
Your core business model must break through. Crypto provides the tools, but no one knows exactly what kind of product to build with them. Do you want to be the one creating a globally transformative innovation? Many studios say they’re willing to try, but insincerely—they just want funding to finish their product as-is. They expect us to hand them money. So we observe them over time. They must show progress, generate new ideas, and demonstrate genuine commitment. Only then do we select the best from this group.
Out of the original 167, only about six have successfully transitioned to Web3. The main barrier is mindset—many don’t believe it’s viable or hold stigmatized misconceptions about Web3, thinking “let’s just not bother.” Another factor is insufficient pressure—not desperate enough to force themselves to seek survival. Their dreams aren’t strong enough, their determination lacking, and external pressures not severe enough. They absorb secondhand opinions without truly engaging, entering, or transforming into Web3.
A clear trend now is that indie game developers are more open to crypto. This year’s ChinaJoy featured a significantly larger indie game section. Many former employees of major studios, laid off but still passionate about game creation and self-expression, have gathered small teams to continue building. As previously mentioned, pressure drives them toward Web3 for survival. Others genuinely see crypto as a real opportunity and choose to enter.
Our experience shows: “Don’t persuade.” Just inform them about Web3, then observe their reaction. Persuasion is useless. Forcing someone in won’t work if they don’t believe. In the end, your capital will be wasted.
Wuwandao: How do you view the relationship between Web2.5 GameFi and fully on-chain games?
All of FirePhoenix’s previous investments fall under Web2.5—using tokens and NFTs to transform business models. Recently, a new path has emerged: fully on-chain games. While blockchain computing performance continues to improve, the increased capacity lacks corresponding products to utilize it—meaning there’s redundant compute power and capital. New public chains need applications, hence the push for full-chain narratives. Clearly, some people are actively promoting the full-chain vision. But in my view, it’s definitely not about porting today’s high-fidelity, highly responsive games directly onto the chain.
Current public chain performance is roughly equivalent to 1990s-era 386 processors—or even lower. From this perspective, retro-style games or emulator-based titles could reasonably be deployed on-chain. TPS will inevitably keep rising—that’s irreversible. China is the world’s largest gaming market, already surpassing the U.S. The world’s biggest gaming company is Tencent, far ahead of Blizzard or Nintendo—Nintendo doesn’t even match NetEase. Below Tencent are Google, Microsoft, Sony, then NetEase. Among the world’s top five, two are Chinese. MiHoYo is poised to become the third. China possesses the world’s finest game development talent, exploring various frontiers—some of which are ready for Web3.
I believe both investors and founders must cultivate one crucial ability: imagination for the future. Both Web2.5 and fully on-chain Web3 need flagship products—to attract mainstream Web2 gamers. Otherwise, we’ll just keep circling within our bubble, endlessly extracting value from each other, which is meaningless. We must bring in more users and more assets, collectively building a richer Web3 world. Only by expanding the ecosystem—whether via Web2.5 or full-chain—can we create real impact. The greatest contribution to the industry is bringing in new participants.
Wuwandao: How should investors judge the timing (timing) of a sector?
Regarding timing, I’ve climbed the ranks from frontline analyst to investment manager, director, employee partner, equity partner, and founding partner. I know exactly what junior analysts and managers should do, so I systematize and teach this knowledge to my team—enabling them to replicate my approach, freeing me to focus on higher-level work.
We require each investment manager to source at least 200 projects annually—without relying on third-party referrals or FAs. You must proactively discover them yourself. If you depend on FAs, they’ll always spot deals earlier—which defeats the purpose, especially in early-stage investing. We encourage cold outreach, phone calls, and in-person visits to fully understand each company’s product, team, market, and financing needs. Each case is summarized into a one-page memo, presented weekly at team meetings for feedback. This systematic process continuously sharpens our team’s skills.
This process is the best way to judge sector timing. For example, why did we move so fast on Nefeel’s angel round? Because our groundwork was already done. In July 2019, I identified cloud gaming as a promising sector. I scoured China and visited over 20 cloud gaming startups in one month—but none were compelling. We analyzed how cloud gaming might disrupt upstream players, concluding cloud providers would be affected. Visiting Alibaba Cloud, Baidu Cloud, and Kingsoft Cloud, we were referred to a startup called Nefeel. We met the team in the morning and wired the investment that afternoon—because we’d already done our homework. Only by meeting hundreds of projects can you develop intuition for great sectors, standout companies, and optimal timing. After 12 years in investing, I’ve personally met with well over 2,000 companies. As discussed earlier, for full-chain games—which remain scarce—we’ll likely need to seek them out ourselves. Following our strategy, I’d target emulator teams and indie developers whose projects don’t demand high graphical performance. For Web2.5 projects, we welcome referrals.
Wuwandao: Do you think we’re currently at the bottom of a capital winter?
Yes, I believe we’re at the low point—but the sky will soon brighten, probably within about a year. You must endure the bear market. Our fund’s fundraising thesis explicitly states we expect a bull market starting in 2024. The Bitcoin halving cycle is fascinating: first, market sell pressure decreases, pushing prices up; second, the halving aligns with the U.S. election cycle, often triggering economic stimulus policies. From this angle, a 2024 bull run is foreseeable. Not to mention, with interest rates so high and Bitcoin still holding around $30,000, any rate cuts could be explosive.
I tell all teams around me—whether founders or investors—hang in there. If you endure, you’ll witness the dawn. Now is the hardest part: capital is scarce, but production inputs are cheap. The more who give up, the more undervalued resources—talent, traffic—become available. Survive the winter, and you’ll reap the rewards.
Also, I believe in moving around. Last year in Singapore, I realized there’s much happening there that we’re unaware of—and vice versa. This second half, I’ll visit Tokyo, the U.S., and Dubai. Through movement, you realize a merchant’s value lies in bringing new information across regions to create comparative advantages. Don’t assume networks are hard to build—foreigners find any news about China novel. They wonder why their media portrays things so differently and may want to see for themselves. Engage more with international peers to recognize your own strengths. Staying confined within China, you might feel hopeless—but I believe overseas offers tremendous opportunities.
Wuwandao: What traits or behaviors in founders earn extra points from you?
My biggest realization this year is that great things take ten years to achieve. This insight comes entirely from observing miHoYo. I met them in 2013 at Jiaotong University’s incubator—five people in a tiny office. Watching them grow into a giant, I learned perseverance is paramount. 2013 saw a massive wave of mobile game investment, yet miHoYo struggled the most—approaching countless investors across China, all of whom declined. Only such adversity tests a team’s true初心 (original intention).
Take Suji from Mask Network—he’s incredibly persistent. Why did metaverse capital keep funding him? Because he sold his house during tough times. When a founder sells everything believing in the mission, others think: “We’re just investors—we don’t risk it all. But you’ve bet your entire life. We’ll back you a little.” So初心 (original intention) matters deeply.
You’ve heard many stories—myths or real events. In life, everyone faces countless choices. The core difference between heroes and villains lies in whether, at critical junctures, you abandon your初心 or choose the right path over the easy one. To persist without quitting, continuing to fight—that’s rare and precious.
miHoYo’s ultimate goal is to build a virtual world for one billion people. I don’t think they’re exaggerating. They genuinely aim to create it—not satisfied with becoming China’s second-largest game studio behind NetEase. They envision something greater, a vision formed in their youth, sustained through storms. If I meet such a team, I’ll absolutely support them. If you’ve bet your entire life on this, what’s a little capital from me?
Wuwandao: How do exceptional founders unite their teams?
Most successful teams I’ve seen consist of people who already know each other—former classmates or colleagues. Without such relationships, it’s hard to entrust significant parts of your company to strangers.
So first, former classmates or coworkers are indeed better suited. Second, shared long-term vision, having endured hardships together—and also shared success and profits. But after sharing profits, some may choose to rest or pursue other paths. At that point, the company must restructure—some friends may need to leave. Sometimes founders can’t bear to let go of old comrades. But life isn’t only about career. People face different challenges and may no longer be in the right state—they should leave when necessary.
Third, honesty and transparency matter—no tricks, just trust. I used to believe capability precedes trust. Now I realize, for building a decade-long company, trust comes before capability.
Wuwandao: How should venture investors choose directions in rapidly changing markets? How to set goals and pace?
From observing most startup failures, I see two major patterns:
First: Lack of execution—great vision, but inability to deliver tangible results;
Second: No clear goals—working hard but without knowing what to achieve.
I suggest founders be cautious when engaging investors. Investors form impressions—there’s a “personal brand” involved. Your reputation among investors should benefit you. Similarly, our venture fund maintains a certain image among LPs. Avoid chasing trends. Most founders fail to execute or lack goals because they don’t know what they truly want, lack persistence, and waver at every market fluctuation, jumping back and forth—ending up achieving nothing.
An investor may stay in the industry for 8–10 years, potentially crossing paths throughout your entrepreneurial journey. If you constantly shift directions, investors remember your track record. If you abandoned past ventures halfway, why should they believe you’ll succeed this time? The structures of investors and founders differ fundamentally. Founders focus solely on their venture; investors chase trends, making strategic bets because they manage capital to distribute across industries. Investment requires diversification—a completely different logic from entrepreneurship. Something reasonable six months ago might seem unviable today, prompting immediate withdrawal. Don’t blindly trust VC media narratives—the landscape shifts too fast, dictated by investors’ job nature: they must scan broadly, not dive deep.
Wuwandao: Thank you, Yuetian, for sharing your insights on gaming venture investment. We’ll launch Season 2 of Wuwandao Creator Camp this September, focusing on Web3 gaming. We’d love to have you return and engage further with our teams!
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