Private funding and M&A activity in the gaming industry slowed to a crawl in 2023 according to InvestGame’s latest report.
Games VC funding in 2023
Last year, venture capital and private investments totaled $2.7 billion across 403 deals. This is a dramatic 75% decline in deal value compared to 2022’s $10.7 billion annual funding total. Notably, the number of deals did not contract as much, falling 21% from 551 deals. As a consequence, the average deal size was slashed by a third, falling from $19.4 million in 2022 to $6.7 million in 2023.
InvestGame describes this muted market as a correction to inflated activity during the pandemic. Deal volume continues to remain higher than pre-Covid levels, however there are fewer late-stage deals to boost deal value totals.
In 2023, early stage companies out-raised later stage counterparts. Early stage gaming companies raised $511 million (-41% YoY) across 136 deals (+23%). In contrast, late stage companies secured $367 million (-58% YoY) across 12 deals (-29% YoY). Even within early stage funding, investors are gravitating toward seed rounds (+2% YoY) compared to Series A startups (-61% YoY) that need to show a track record of growth.
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Exit strategies: M&A and public offerings
Late stage companies are also facing pressure from a cooling M&A market. On paper, 2023’s $78.2 billion across 121 transactions looks promising compared to 2022’s $40.8 billion across 231 transactions. However, 88% of 2023’s total comes from Microsoft’s Activision Blizzard acquisition. Excluding this outlier, M&A deal value fell 75% to $9.5 billion and deal volume was cut in half.
Unlike private investments and M&A, public offerings are showing signs of improvement. After a major downturn in 2022, public offerings grew 16% in value to $4.2 billion and 87% in count to 43.
2024 is off to a strong start thanks to Disney’s $1.5 billion investment into Epic. Even so, there could also be a wave of Late stage down rounds and shutdowns if studios cannot meet investor expectations. M&A markets could see an uptick if macroeconomic conditions stabilize, but recession fears, platform updates and public policy changes are notable headwinds.
InvestGame’s full report includes details on industry sectors, geography and investment trends and is available now.