Investors Press Pause On Gaming Startups

TLDR: When it comes to raising money, gaming startups aren’t seeing a lot of play. 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.

Key Points:

• Funding for gaming startups decreased by 79% globally and 86% in the US in 2023 compared to the previous year.
• While startup funding decreased, the broader gaming industry had a successful year with major gaming companies seeing increased share prices and successful game releases.
• Venture investors showed less interest in gaming deals, particularly at the late stage and for large rounds.
• Changing spending habits and the shift to activities outside the home contributed to the downturn in funding for gaming startups.
• There is optimism for a more favorable investment climate in 2024 as the funding numbers are so low that any improvement will be significant.

When it comes to raising money, gaming startups aren’t seeing a lot of play. 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. Funding for gaming startups decreased by 79% globally and 86% in the US in 2023 compared to the previous year.

However, the broader gaming industry had a successful year. Major gaming companies, including Take-Two Interactive Software, Electronic Arts, Nintendo, and Sony, ended 2023 with increased share prices. Microsoft also completed the largest acquisition in industry history by acquiring Activision Blizzard for $68.7 billion. Hit games like Zelda: Tears of the Kingdom (Nintendo), Star Wars Jedi: Survivor (EA), and Marvel’s Spider-Man 2 (Insomniac Games) were released and major franchises like Mario and Zelda contributed to Nintendo’s profits for the year.

Venture investors showed less interest in gaming deals, particularly at the late stage and for large rounds. In 2023, there were no late-stage venture rounds of $100 million or more for digital gaming companies. IPO filings and public market debuts were also lacking. This is in contrast to 2022 when Epic Games secured $2 billion in financing and Thatgamecompany landed $160 million in Series D financing.

The decrease in funding for gaming startups can be attributed to changing spending habits and the shift to activities outside the home. During the pandemic, homebound consumers spent more time and money on video games. However, as the pandemic waned, consumption shifted to activities outside the home. The downturn in funding for adjacent categories like Web3 and metaverse has also impacted gaming startups.

Looking ahead, there is optimism for a more favorable investment climate in 2024. Even a historically subpar year will show improvement compared to the low funding numbers of 2023. Additionally, new game releases provide opportunities for startups to go viral and attract investor attention.