TLDR:
– Investment in gaming startups hit a multiyear low in 2023, with funding down 79% globally and 86% in the US compared to the prior year.
– Despite the decline in startup funding, the broader gaming industry had a good year, with large publicly traded gaming companies and hit games performing well.
– Investors showed less interest in gaming deals at the late-stage and for large rounds in 2023 compared to the previous year.
– Changing spending habits and a downturn in funding for Web3 and metaverse startups likely impacted the funding environment for gaming startups in 2023.
– Optimists expect that 2024 will be a more favorable year for gaming startup investment.
Investors Press Pause On Gaming Startups
Investment in gaming startups faced significant declines in 2023, with seed- through growth-stage funding reaching multiyear lows, according to data from Crunchbase. Global funding for gaming companies was down 79% compared to the previous year, and U.S. funding saw an even steeper decline of 86%. This decline in startup funding occurred despite the broader gaming industry having a successful year, with large publicly traded gaming companies and hit games performing well. Notably, however, the biggest success stories in the gaming industry often go to well-known, established players, making it difficult for newcomers to compete.
Investor Interest Shifts Away From Gaming Startups
Investors’ interest in gaming deals, especially at the late-stage and for jumbo-sized rounds, has noticeably declined. In 2023, there were no late-stage venture rounds of $100 million or more for digital gaming companies. Additionally, there were no IPO filings or public market debuts in the gaming industry. This is in contrast to the previous year, where capital flowed more freely, with companies like Epic Games and Thatgamecompany raising significant amounts of funding. The change in investor interest may be attributed to shifting spending habits and a downturn in funding for adjacent categories like Web3 and metaverse startups.
Challenges for Gaming Startups in 2023
One possible reason for the decline in funding for gaming startups in 2023 is changing consumer behavior. During the height of the pandemic, homebound consumers spent more time and money on video games. However, as restrictions eased and activities outside the home became more accessible, gaming startups saw a downturn in funding. Additionally, the decline in funding for Web3 and metaverse startups also spilled over into the gaming industry, as startups offering NFT integration or metaverse games faced a lack of investor interest.
Optimism for 2024 Investment Climate
Despite the challenging funding environment in 2023, there are a few factors that could lead to a more favorable investment climate for gaming startups in 2024. Firstly, even a historically subpar year would show a marked improvement compared to the low funding tallies of 2023. Additionally, investors were likely not sitting out deal vetting during the quiet funding period of 2023, as there are always new titles coming out with the potential to go viral, many of which result from the creative energies of startups. Overall, there is hope that 2024 will bring better fortunes for gaming startups in terms of investment.
