Gaming investment activity remained muted overall in Q1 2024 according to InvestGame’s latest report. While there are some early signs of the market improving, investors have remained cautious in an unstable macroeconomic environment.
Games investment activity Q1 2024
In the first quarter, disclosed private investments in gaming companies totaled $2.2 billion across 103 deals. At first glance, this is a major improvement from Q1 2023’s $1 billion invested across 147 deals. However, Disney’s $1.5 billion investment into Epic Games accounted for nearly 70% of last quarter’s deal value. Without this outlier, private investment totals fell 30% from the same period last year, though average deal size remained stable.
Mergers and acquisition deal values remain volatile, though the pace of closed transactions has been stable for the last year. Notably, private equity deals are on the rise. Instead of acquiring new companies, many strategics are divesting assets and laying off staff. Others are shifting towards co-investing with other partners, rather than outright acquiring start ups.
Similarly, public offerings — in gaming and overall — remain muted. The last significant gaming IPO was in mid-2022. Since then, many companies have postponed going public. This is largely due to high interest rates and disappointing post-IPO performance of companies listed in 2020-2021. However, Reddit’s recent debut and Stellar Blade developer Shift Up’s pending IPO could open up exit opportunities.
Early-stage stays strong amid exit pressure
As exit options remain elusive, investors are increasingly reluctant to fund later-stage companies. Gaming start ups have closed fewer than 10 Series B or later deals per quarter for the last two years. This is down 40% from the average of the preceding two years (Q2 2020 – Q1 2022).
However, gaming investment activity has stayed relatively strong for earlier-stage start ups, particularly pre-seed and seed-stage. While Series A deals used to account for the majority of early-stage disclosed deal value, this is no longer the case. According to InvestGame, pre-seed and seed-stage game developers and publishers out-raised Series A counterparts every quarter since Q4 2022. In Q1 2024, pre-seed and seed studios raised 2.7-times as much capital as their Series A peers.
Part of this shift is a result of the growing number of early-stage gaming-focused venture funds. In the last five years, more than 45 gaming-focused funds opened their doors. The vast majority of these focus on early-stage investments, with fewer than 10 stage agnostic firms.
While there is still an appetite for early-stage investments, VCs are taking a more cautious approach. This includes backing fewer companies at higher check values, syndicating investments, adding downside protection terms into deals. Additionally, VCs are increasingly starting to partner with corporate strategic investors. These deals mitigate risk through shared funding and securing a potential exit strategy for VCs.
InvestGame’s full Q1 2024 report — including additional data on PC, console and mobile markets — is available now.