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Investors Press Pause On Gaming Startups

Per Crunchbase data, seed- through growth-stage investment in companies tied to the gaming industry hit a multiyear low last year. Large, pre-IPO rounds all but disappeared, and early-stage action remained muted.

For perspective, we charted out global investment for the past six calendar years below. It shows that funding in 2023 was down 79% from the prior year.

U.S. investment, charted below, posted an even steeper decline. Funding fell a whopping 86% year over year in 2023.

Not an industry in decline

Although startup funding nosedived, the broader gaming industry didn’t have a particularly bad year.

The largest publicly traded gaming companies, including Take-Two Interactive Software, Electronic Arts, Nintendo and Sony, all ended 2023 with share prices well above where they began. And in October, Microsoft finally consummated the largest acquisition in industry history, snapping up Activision Blizzard for $68.7 billion.

Hit games also piled up, including Zelda: Tears of the Kingdom (Nintendo), Star Wars Jedi: Survivor (EA), and Marvel’s Spider-Man 2 (Insomniac Games). For Nintendo, profits from its Mario and Zelda brands added up to one of its best years ever.

Notably, however, the largest success stories go to well-known, large-cap players in the gaming space. Given the stickiness of established franchises, perhaps it’s a tough environment for newcomers to compete.

Large round pullback

Venture investors’ recent lack of interest in gaming deals is particularly apparent at the late stage and for jumbo-sized rounds.

In 2023, there were no late-stage venture rounds of $100 million or more for digital gaming companies, per Crunchbase data. IPO filings weren’t happening either, nor were public market debuts.

In 2022, by contrast, capital flowed more freely. Epic Games, which remains a private company although it is aging out of the startup label, picked up $2 billion in a financing co-led by Sony. Thatgamecompany of Santa Monica, California, landed $160 million in Series D financing co-led by Sequoia Capital.

Newer companies also shared in the largesse. LootMogul, a metaverse gaming platform, and Limit Break, which combines Web3 technology, NFTs and games, each landed $200 million in 2022. Both were less than 2 years old at the time.

For last year, changing spending habits likely had an impact. During the depths of the pandemic, homebound consumers spent more time and money on video games. More recently, however, consumption has increasingly shifted to activities outside the home.

The downturn in funding for adjacent categories — in particular Web3 and metaverse — has also spilled into gaming. Startups plugging offerings such as NFT integration in gaming or metaverse games were hot in 2021 and 2022. Now, not so much.

Better fortunes in 2024?

Looking ahead, optimists can point to a few factors that could result in a more favorable 2024 investment climate.

For one, the 2023 funding tallies are so low that even a historically subpar year will show a marked improvement. The quiet funding environment of 2023 also doesn’t mean investors were sitting out deal vetting.

In this notoriously hits-driven business, there are always new titles coming out with potential to go viral. And historically, quite a few of those result from the creative energies of startups.

Reference: https://news.crunchbase.com/venture/gaming-startup-funding-down-2023/