It's game time again for gaming startups.
After several weak quarters, funding for companies in the games industry is slowly returning this year, driven by a resurgence in early-stage deals and optimism about the ability of small studios to churn out hits. There is.
In the first quarter of this year, investors poured $265 million into early-stage rounds of gaming startups worldwide, according to data from Crunchbase. This was a 65% increase from the fourth quarter of 2023, and almost four times more than the third quarter, when investment hit a multi-year low.
For perspective, we've charted our gaming-related early-stage investments by quarter for the past few quarters below.
Josh Chapman, managing partner at Konvoy Ventures, a gaming-focused startup investment firm, isn't surprised to see that number even higher.
“I think the industry has bottomed out from a funding standpoint, and we're now getting back to pre-COVID norms,” he told Crunchbase News.
Chapman said gaming's popularity has not waned, unlike other sectors such as takeout and connected fitness, which have rebounded during the pandemic and then slowed down.
It is true that income is on the rise. According to Statistica, the global video game industry's revenue will reach a record of over $400 billion in 2023, and this year it is predicted to exceed $450 billion. Meanwhile, the global population of mobile gamers is estimated to be approximately 2 billion.
Dry powder for startup investing also received a boost last week when venture mogul Andreessen Horowitz announced he had raised $600 million for a gaming-focused fund. The fund was part of a total of $7.2 billion in financing across multiple new investment vehicles.
Who is being funded?
To some extent, we are also seeing a resurgence of big rounds. So far this year, investors have backed his two nine-figure rounds for gaming startups, according to Crunchbase.
The biggest raise was from Edinburgh-based Build A Rocket Boy, which raised more than $110 million in Series D funding in January. The company is working on an immersive gaming platform, a high-end game series, and a suite of design tools for user-generated content.
Also in January, Irvine, Calif.-based Second Dinner Studios secured $100 million in Series B funding led by Griffin Gaming Partners. The game development studio is behind the popular game Marvel Snap, which has been downloaded more than 22 million times since its launch in 2022.
Chapman believes we are in a bullish period for independent game developers. Lately, they've proven they can compete with the big boys. According to Konvoy, in 2024, five of the 10 highest-grossing titles on gaming hub Steam will be created by indie studios: Palword, Granblue, Last Epoch, Lethal Company, and Enshrouded.
Chapman said the large-scale layoffs and spending cuts implemented by major gaming brands in recent quarters have pushed some long-awaited releases behind schedule, adding to the focus on titles from smaller studios. This is said to be the cause. Indie companies also benefit from easy-to-use developer tools and place a premium on creative talent over technical proficiency.
So when will the exit come?
It's not the worst environment for exit either. The tech IPO market remains relatively quiet, but Reddit's well-received debut last month shows there is investor appetite for big-name companies and consumer properties.
It helps that the gaming industry now has a list of companies that are large enough and have strong brand recognition to launch potentially successful IPOs.
The most anticipated of these is Fortnite creator Epic Games, which has remained private since its founding in 1991. The company doesn't need the cash, he raised his $1.5 billion from Disney in February, but it certainly checks all the boxes. If it chooses that path, it will likely lead to a massive IPO.
Valve, another major gaming company founded in the 1990s, is also on the shortlist. Slightly newer companies on the list include Discord, founded in 2015, and his 2010-founded Niantic.
We may also see some large startup acquisitions. It's clear that public companies are being hit with a lot of money, as evidenced by Microsoft's $69 billion acquisition of Activision Blizzard. Cash-rich technology and media giants with gaming divisions could also easily direct some of their reserves to private companies. Major gaming brands could do something similar.
It's still a long way to the top of the mountain
While there is room for optimism regarding a slight increase in gaming-related startup funding, it remains well below its peak.
2021 was a record year for global venture investing, with more than $1.9 billion invested in early-stage gaming deals in the last three months of the year alone. To return to this level, investments would need to increase more than six times from current quarterly funding levels.
But investor expectations have changed. In the current situation, a continuous increase in the number of deals and total funding is encouraging enough for investors, but a few big exits will not hurt.
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Illustration: Dom Guzman
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