As with many other industries, the gaming sector has faced its share of issues this year as startups struggle to secure funding. Pitchbook has just released its Q3 2023 Gaming Report, looking at VC trends and emerging opportunities in gaming. It should come as no surprise that there was a decline in funding; however, there is still funding going into game studio startups and investments focused on gaming analytics startups. Foley had the privilege to advise on an investment into the multiplayer game moderation platform GGWP, which was announced in July 2023.
Below, we look at some of the highlights from the Pitchbook report.
Deal Count and Deal Value
Gaming startups saw a decline in the total number of deals and deal value in Q3. For the quarter, there were 113 deals valued at $857.0 million, representing a decrease of 10.3% in deal count and 35.3% in deal value. This is a significant decline YoY, with deal value down 67.5% and deal count off by 50.2%.
Pitchbook points out that despite the QoQ decline, the past four quarters have generated between $800 million and $1.1 billion in investment. Gaming investment in 2023 is currently on pace to narrowly exceed 2019’s $3.7 billion invested.
What Subsets Are Investors Targeting?
Pitchbook’s data shows the content segment had the largest share of investment activity, with $514.2 million across 66 deals. The content segment accounted for more than double the next highest segment, development, with $247.7 million invested. All other categories totaled only $35 million in investment.
Early vs. Late-Stage Deals
VC investors are currently focused more on early-stage deals, which totaled $353.0 million, narrowly ahead of late-stage deals totaling $299.0 million. The report notes that this is a reversal of the two previous quarters, which saw investors investing more in late-stage deals.
In Q3, early-stage and seed/pre-seed deals accounted for more than 70% of all VC deal activity in the gaming sector. Venture growth deals declined significantly. Such deals accounted for more than 30% in 2020 and 20% in 2021. However, they represented only 5.8% of deals in 2023. Late-stage deals, meanwhile, showed an impressive increase, jumping from 23.9% of deals in 2022 to 46.1% YTD in 2023.
Investment might be down overall in the gaming industry, but that has been the case with most industries. Over the past two years, economic conditions have caused investors to pull back on dealmaking. But there is a lot of dry powder to be deployed in the gaming space. Pitchbook points out in a recent article that mainstream investors have “bulked up their gaming presence in recent years,” and much of the money remains to be invested.
Large recent deals and major exits in the sector, along with more distribution channels and AI-augmented game development, leading to more intuitive and less capital-intensive game creation, are laying the groundwork for renewed investor attention to the gaming industry.
Gaming is an imaginative and transformative industry at the forefront of technology adoption, development, and application, often in unforeseen ways. Investors will no doubt continue to fund the exciting innovation coming out of the gaming industry, and we are watching for a return to an increased level of investment as global economic conditions continue to level out.