On a Winter Night for Game Investment, Shen Li Wants to Build a NExT 2.0 | Entering the Arena

"Enter the Game" is a regular column of Dark Currents Waves (An Yong Waves). It grew out of our observation that once-reliable operating models are facing new challenges, and the industry rules inherited from West to East have been shattered. People urgently need a new map and new order for innovation and capital. And "entering the game" is the most precious posture of all. "Enter the Game" was born amid transformation. To sum up its subject in one sentence: we hope to find new players and new moves better adapted to a changing environment. This is the twelfth article in the column.

By Shi Jiaxiang

Edited by Chen Zhiyan

The long-dormant game investment market has seen several new players arrive. First, Yuan Jing, co-founder of Moonton Technology, left ByteDance to start a new venture building "a business company for game people," one that "will also run its own fund." Then Shen Li, former general manager of NExT Studios, announced in January that he would launch a company focused on early-stage investment and incubation in the gaming industry.

NExT Studios, founded in 2016, was once hailed as Tencent's least Tencent-like studio. Unlike Tencent's four most famous studios (TiMi, Lightspeed & Quantum, Morefun, and Aurora), NExT Studios maintained a staff of just a few hundred, preferring buy-to-play indie games. It produced well-received titles such as Death Coming, Iris.Fall, and the sound-based mystery game Unheard.

But as the game market sank into a downturn, NExT Studios' original model became unsustainable, and core leadership including Shen Li departed one after another. The distinctive works NExT Studios left behind are still remembered by players. To this day, people still ask whether Unheard will get a sequel.

Shen Li remembers too. Two years after leaving Tencent, he decided to build a NExT 2.0. His new company is called Re³ Lab — the name referencing the element rhenium (Re), which rarely forms independent deposits yet is critically important. Shen Li hopes to use an "investment + incubation" model to unearth game projects with "global uniqueness."

His capital partner is IDG Capital. The veteran fund invested in two of what would become the "Shanghai Four Little Dragons" — Lilith Games and Papergames — in 2013 and 2014.

But because of the abrupt shift in the environment, IDG can no longer easily return to the era when it invested in Papergames or Lilith. Yet for the industry's "young prodigies" — say, Jenova Chen before he made Sky: Children of the Light — they certainly can't afford to miss out entirely. This is precisely the gap Re³ Lab is designed to fill.

According to Dark Currents Waves, IDG Capital was willing to back Shen Li because he has connected with enough game industry practitioners to have taste and judgment in evaluating projects.

Someone who knows him well describes Shen Li as a genuine artsy type: "His resume looks like the good student, but he listens to heavy metal and has tattoos on his arms." He has also logged over 6,000 films on Douban.

Zhang Zhechuan, producer of Unheard, recalls that shortly after he joined NExT, he wanted to make a narrative project where players could explore the mind of a game designer. Shen Li asked if it would be something like The Beginner's Guide. Zhang later joked with colleagues that any boss who knew such an obscure game was not going to be easy to fool.

Entering equity investment at this moment is already a non-consensus move. Making game investments is a non-consensus within a non-consensus.

According to one game strategic investment professional's observation, major game companies have paused game investments for various reasons, while VCs prefer to engage with the game industry through project revenue-sharing rather than equity investment. "The sad thing is, games no longer have a primary market — only project-based investment." The frenzy around Black Myth: Wukong only solved confidence for some people, not the exit problem.

Objectively speaking, though, games remain an industry with excellent cash flow. Once a game launches, if no new products are in development, expenses can be kept extremely low, "with costs recovered on a monthly basis."

This is part of where Shen Li's confidence in Re³ Lab comes from. In his design, after the incubator's upfront investment, it recoups quickly once the game launches, while founders continuously increase their ownership through dividends.

Of course, the incubator model struggles to attract the very best teams. But these are winter times. "Uncle Li's model couldn't have worked five or ten years ago, or even in 2021."

Meanwhile, game incubation sits further upstream than publishing and requires greater risk-taking. "Not taking risks is the biggest risk," the strategic investor above commented.

Shen Li has already begun his new adventure.

In his new office in Shanghai's Xujiahui district, we sat down with Shen Li for a conversation about the current reality of game investment, Re³ Lab's future operating model, and NExT — the long dream he pursued for six years yet never saw completed.

The following is the full interview, edited by Dark Currents Waves:

A Temporary New Path

Dark Currents: What have you mainly been doing in the two years since leaving NExT Studios?

Shen Li: I started by living abroad, just spending time with my daughter. She had just gone to the UK, so I helped her settle in. I didn't actually spend much time on work — I watched a lot of live shows in the UK, catching all the bands I loved in my youth.

Because I was fairly familiar with IDG, and I had experience in the game industry, they invited me to be an EIR, participating remotely in some project evaluations as an advisor.

Dark Currents: Do you feel you got your footing in game investment at IDG?

Shen Li: The shift in perspective was quite valuable.

Previously in the industry, I mainly focused on the project itself — judging whether the gameplay was innovative, whether players would pay for it, approaching things more from a product dimension.

But with investment, you learn to evaluate people. You don't just look at whether their current project succeeds or fails, but whether this person can continue breaking through over the next three to five years. Many game teams only make step-change progress through two or three products. A founder's learning ability may matter more than their current project.

Dark Currents: Then you must understand the current market conditions. Why are you still doing game investment now?

Shen Li: I understand traditional VCs' reluctance to invest in games comes down to two main reasons. First, the game industry is fundamentally a creative industry, making early-stage judgment very difficult. Second, capital exit is extremely hard. Even the Shanghai Four Little Dragons (miHoYo, Papergames, Lilith, Hypergryph) are not publicly listed.

Game companies aren't like traditional internet consumer companies, which may go through periods of not making money and thus need round after round of financing, giving early investors exit opportunities along the way.

But game companies only have two situations: either the project makes money, in which case the next project doesn't need funding because it can self-sustain; or the project fails, and then it's even harder to find money.

But I think the incubator model can partially address these shortcomings. For people with ideas about making games, they come to Re³ Lab, and over 6–9 months, I pay their salaries and help them hire people.

Salaries vary by region. In Shanghai, for example, someone without much experience might get around 10,000 RMB, someone with a few years of experience around 20,000, and very experienced people perhaps 30,000. It's somewhat like seed or angel investing, but instead of giving a lump sum of money.

When the game reaches the "vertical slice" stage, we help them establish an independent company, and that company raises a new round of funding. Re³ Lab's early investment converts to equity. Because we've spent more than half a year with the team, our judgment of the people becomes more accurate.

Dark Currents: This sounds a bit like an FA.

Shen Li: In a sense, yes.

Dark Currents: How do you solve the exit problem?

Shen Li: That's beyond our control. But we've designed an equity and dividend mechanism to achieve returns more quickly.

After launch, projects must distribute profits as dividends first. For example, if our and our investors' contribution is 1 million RMB, then for every 1 million RMB in dividends, the founder's equity increases by 10%, until the founder holds 60% or more.

Dark Currents: This sounds like a model better suited to indie games, where upfront investment is low and you can monetize directly. It wouldn't work for commercial mobile games or AAA titles.

Shen Li: I won't limit platforms or monetization models. But in our logical framework, Steam-type games are indeed easier to support. If you start with very large investment and heavy commercialization, the risk is relatively high for our model.

We want you to target a defined player group whose needs haven't been fully satisfied. This player group doesn't need to be particularly large, and the first product doesn't need to take too big a step — perhaps just tens of thousands of copies on Steam.

But you also need to be ambitious and persistent, and the direction you've chosen needs to be one with imagination.

Dark Currents: What success rate do projects need for this model to work well?

Shen Li: It might be better to look at it from a failure rate perspective. Failure means the project doesn't meet minimum expectations, to the point where the team enters a difficult-to-sustain situation. I hope to keep the failure rate below 50%. That's actually quite a high bar, but I'm confident we can achieve it.

Dark Currents: Where does that confidence come from?

Shen Li: The supply-demand relationship in the overall market. This isn't 2021 when major companies were bidding up teams at high premiums — capital is scarcer now, so I have more choice over teams.

Dark Currents: It sounds like everything depends on VCs investing too little in games, as if this model could only be born in winter.

Shen Li: It really could only emerge at this stage of the game industry. Because if the supply-demand market were on the demand side, those seeking investment would have many options, and strategic investors and VCs would offer high premiums.

Now it's a window of time. For me, the first two to three years need to be faster on the investment side, with more focus on post-investment management later. When the game market recovers, there will be opportunities to exit.

Old People Build the Stage

Dark Currents: Re³ Lab operates as a company rather than a fund. What is IDG's relationship with you?

Shen Li: We're like a typical startup — IDG holds a minority stake, I'm the majority shareholder. We initially considered whether to do this inside IDG, but later leaned toward independence. This ensures we can make decisions with a longer-term mindset, and the decision-making process is faster.

Now, when entrepreneurs come for the first time, they meet directly with me and our whole team. Whatever questions they have, we tell them directly. Everyone internally can also quickly discuss based on completely equal information. If there are second or third meetings, it's the same — we still meet together, discuss quickly internally, and make decisions.

Dark Currents: Compared with direct VC investment, what kinds of projects are naturally suited to come to you?

Shen Li: Relatively young people who've worked two or three years. They have an idea in their head, don't have much capital accumulated, aren't interested in the hassles of starting a company like finance, tax, legal, and hiring, and hope to get more industry experience and support along the way.

For example, young teams focused on gameplay creativity may not have particularly strong engine-level capabilities and don't want to spend a lot hiring for them — in our incubator, they'd get something like an R&D mid-platform to help. The same applies to later-stage publishing support.

Dark Currents: You mentioned earlier that when a game reaches the "vertical slice" stage, you help establish an independent company. What specifically does "vertical slice" mean?

Shen Li: You could say that on one hand, the core gameplay loop has been fully realized, and on the other hand, a local portion of the game has reached final quality.

At the same time, the production pipeline for scaling up, various production standards and specifications, have been clearly defined. Simply put: no directional uncertainty, just need to open n production lines and scale.

Dark Currents: Six to nine months seems hardly enough to reach that stage.

Shen Li: It's somewhat challenging, but how challenging depends on how much innovation and exploration is involved. If you're just doing some innovation on theme, it won't take particularly long. If the gameplay exploration itself is more extensive, then 6–9 months isn't fixed — it can be extended.

Users don't have such high demands on final production polish for differentiated products — maybe 80 points is okay.

Like the film industry: one kind is Hollywood blockbusters needing special effects and top actors, and another is telling unique stories, where high-spec, big-budget production matters less.

Of course, if something seems completely unviable, we might end it after three months.

Dark Currents: After reaching vertical slice, when you help find funding, do you have expected sources?

Shen Li: One category is individuals who've made money in the game industry, like retired game industry executives.

Another is traditional VCs. Our model lets VCs bet with a vertical slice as foundation, plus dividend rights. So the previous situation where VCs wouldn't invest in games might change. Before, they could neither see the future clearly nor had short-term revenue guarantees. Now at least short-term guarantees are stronger, and this team has the desire to succeed — this industry still makes money.

Dark Currents: The incubator model may require people willing to be stepping stones to succeed. Your team are all industry veterans — is that suitable?

Shen Li: Our model is "old people build the stage, middle-aged people do the work, young people point the direction." All new ideas come from young people — it's just that they don't have that much work experience yet, and when they hit specific problems, they might pay greater costs. So let middle-aged people help them solve problems, and old people contribute resources (laughs).

Dreaming Once More

Dark Currents: AI games have been especially hot lately — are you more interested in that kind of project?

Shen Li: I currently see two types of teams. One is people originally from AI without much game experience, trying things based on imagined game needs.

For example, using large language models to make NPC dialogue richer in RPGs, but actually when you play RPGs you want NPCs to give you valuable information directly. Often starting from AI, they don't sufficiently consider what game players actually want.

The other type is people originally from games, crudely using AI, and AI's own problems get carried into the games.

I think the change AI games bring is somewhat like the shift from 2D to 3D games — it's actually adding a dimension. When games first supported 3D, they were mostly 2D gameplay with 3D presentation. Through much exploration, we eventually got dual-analog movement and fully 3D mainstream gameplay like shooters, driving, and sports. Only then did people feel 2D gameplay was something from a previous era.

Current AI games are also like traditional game gameplay with some AI presentation layered on. We need to go through much new exploration before we can truly add AI as a dimension that brings a new world to games.

Returning to incubation: we won't require all teams to add AI in some category, but I strongly support such exploration.

Dark Currents: What do you think is the game industry's biggest problem right now? I asked Zhang Zhechuan, producer of Unheard, and his answer was: basically no more dividends to reap.

Shen Li: China's game industry right now is somewhat like the overseas console market long ago: only the biggest and smallest have opportunities — AAA and very creative small productions — with little in between. This means there's a missing middle point on the growth path, with fewer and fewer mid-budget games.

This is also what worries me about Re³ Lab. I don't want invested teams' first game to still be a handicraft workshop and their second to jump directly to 300 people. I hope the next game is 50 people, with a project budget around tens of millions of RMB. But it's hard to see opportunities for this kind of game in the market, and raising money at this scale is also very difficult.

Perhaps our model can support teams through the first step, but if the second and third steps need to be bigger strides, they'll still face considerable challenges.

Dark Currents: What would count as success for Re³ Lab? Or to put it more painfully, what would cause it to fail?

Shen Li: My goal is to bridge the gap between social capital and entrepreneurs in the game industry, especially for newcomers and people with differentiated ideas. If through this model, more social capital flows into the game industry, that counts as success.

Failure would be if the projects we invest in have very high failure rates, failing to achieve rational capital allocation where more capable people get better support.

Dark Currents: Hero Games previously invested in Kuro Games and Black Myth: Wukong, but is now shifting toward self-developed games. Many game people's ideal is to make their own hit game rather than sit in the passenger seat. Is turning to investment a lack of confidence?

Shen Li: Perhaps everyone gets satisfaction in different ways. I realized early on that I'm a content consumer, not a content creator. I watch many films, listen to much music, play many games. Spending a little time consuming what others spent a long time creating — I feel that's incredibly worthwhile.

But I've never had a particularly strong desire to make my own thing. Actually I've had many opportunities to become a game producer, but I never felt particularly motivated, including during the NExT period.

You could see NExT as a machine I designed. This machine has its own operating rules, producing very diverse things — that's the greatest satisfaction for me.

Dark Currents: Was building NExT's system more gratifying than personally making Unheard?

Shen Li: Of course ultimately you need some products to validate it.

Actually before NExT, I was always a technical leader. Later at Tencent, there were several previously innovative teams — some making games, some drones, some hardware, all sorts. Maybe at the time my boss felt these teams weren't very reliable, all failures, so just put them all together. Anyway, it couldn't get worse (laughs).

Many people think NExT was a studio Tencent established specifically to build reputation. That's completely wrong. You could see NExT as a story about how teams that were previously overlooked by others managed to be seen and survive within a large system.

Dark Currents: Your current entrepreneurship, including the labels outsiders give you, all show deep traces of NExT. How would you evaluate the NExT experience?

Shen Li: I once used a metaphor: NExT's journey step by step really was like having a dream.

Although toward the later period, my internal responsibilities at Tencent were already quite extensive, I still felt NExT was my greatest source of satisfaction. It was like a game I was making myself — you design the gameplay, you think about player retention. In this process, I discovered my joy was right here. You could say NExT was utopian, but it was also strongly logic-driven behind the scenes. I was constantly fixing bugs.

NExT had its own problems. The biggest was mismatched people and unequal rights, responsibilities, and benefits during the process. There were also resource allocation problems, because creative work starts with few people, but when scaling up for production, teams would enter strong competition with other incubating groups, making later projects hard to greenlight. So part of the thinking behind Re³ Lab now is to solve the previous predicament. This is also my hope for Re³ Lab: NExT 2.0.

I want to do another experiment, from NExT Made to Re³ Supported.

Re³ Lab is currently recruiting for its first cohort. Those with incubation or investment needs are welcome to send pitches to bp@re3lab.com

Image source: Provided by interviewee