PitchBook Analysis: Gaming VC Market Insights and Projections
PitchBook has released a comprehensive analysis of the gaming venture capital (VC) market, revealing notable trends and projections for 2024. The report highlights a significant drop of 72% in venture capital funding for the gaming sector, totaling $4.3 billion, compared to the previous year. However, certain segments and types of startups are experiencing shifts in investment sources despite the overall decline.
Of the funding deals closed in the last twelve months, 56% were in content development, making it the most popular category. Deals related to developer tools and services followed closely behind. Among these, publishers, developers, and studios witnessed the highest number of closed deals, reaching 190.
In terms of valuations, development startups emerged with a higher enterprise value, boasting a median pre-money valuation of $35.0 million. On the other hand, content startups had the second-lowest median pre-money valuation at $17.5 million. Technology services experienced a significant surge in pre-money valuation, mainly due to a few high-value deals.
The report discloses a decline in startup valuation step-ups compared to previous years, except in the hardware and developer tools segments, which witnessed valuations surpassing two times the pre-money valuation. Startup stages also played a significant role in valuation improvements, with early-stage and pre-seed/seed segments in developer tools, esports, hardware, and gambling standing out.
PitchBook predicts that the fundraising gap between content and development startups will narrow as investor dynamics change. The report suggests that the inflated investment seen in the gaming sector from 2020 to 2022, driven by non-endemic investors attracted to Web3 and Metaverse hype, is now being recalibrated. These investors are expected to shift their focus to startups with more traditional software-as-a-service (SaaS) models due to the recognition of the gaming sector’s development demands and capital-intensive nature.
In terms of corporate venture capital (CVC) investments, they slightly outperformed the broader gaming VC market in the past year. There has been an upward trend in gaming CVC participation since 2018. However, challenges such as regulatory and geopolitical obstacles have affected historically active corporate investors, resulting in a slowdown in investment activity from companies like Tencent, NetEase, and Web3 corporate investors.
As funding becomes scarce and public listings become more challenging, startups are facing tighter financial circumstances. PitchBook foresees a potential increase in mergers and acquisitions (M&A) and CVC activity in 2024, along with an uptick in down rounds as market valuations adjust, as indicated by PitchBook’s VC Exit Predictor.
Overall, the gaming venture capital market has experienced a decline in funding, but certain segments and types of startups are still attracting investments. The changing investor landscape, along with anticipated M&A and CVC activity, suggests a dynamic and evolving gaming industry in the coming years.
Analyst comment
This news can be evaluated as negative for the gaming venture capital market. The report highlights a significant drop of 72% in venture capital funding for the gaming sector compared to the previous year. However, certain segments and types of startups are still attracting investments. The market is expected to see a narrowing fundraising gap between content and development startups, as investor dynamics change. The report also predicts a potential increase in mergers and acquisitions and corporate venture capital activity in 2024, indicating a dynamic and evolving gaming industry.
