By Alexander Lee • July 24, 2024 •
Ivy Liu
After a strong start to the year, venture capitalists’ interest in gaming and esports appears to have flagged in the second quarter of 2024.
The past year has been a challenging period for the gaming industry. On one hand, gaming is more culturally ascendant than ever before, with the number of gamers worldwide skyrocketing in 2023. On the other hand, game publishers have been forced to pivot their business models due to the rise of free-to-play games, resulting in a record-breaking wave of layoffs during which over 10,000 game developers lost their jobs in the first half of the year.
Given the mixed signals listed above, it’s not surprising that prospective investors have been inconsistent about their approach to gaming this year. In spite of venture capitalists’ present wariness around gaming, VC funding of game start-ups had increased by 81 percent quarter-over-quarter between Q4 2023 and Q1 2024.
Earlier this week, the gaming-focused venture capital firm Konvoy Ventures published its quarterly report on VC investment in the gaming space. Here are some of the key takeaways.
Gaming VC funding has dropped by 20 percent quarter-over-quarter
After a resurgent first quarter of 2024 that saw VC firms pump $601 million into gaming, venture capital funding of gaming start-ups has come back to the ground in the second quarter, decreasing to $492 million — which is still a significant increase over the $332 million of VC capital invested into gaming in Q4 2023. Aside from Q4 2023, however, the $492 million figure for this most recent quarter represents the lowest amount of VC investment in gaming for any quarter since the pandemic-depressed Q2 2020, according to Konvoy’s data.
One type of VC funding that continued to flourish within the gaming industry was early-stage funding, which hit a 12-month high in Q2 2024. The overwhelming majority of the past quarter’s VC funding of gaming start-ups came from early-stage funds.
“Early-stage venture is still relatively active because you have a lot longer of a life cycle or expectation of when you should see returns on those dollars going in,” said Konvoy managing partner Jason Chapman. “So, as a VC, if I’m putting money to work in early-stage, there’s not really a realistic expectation that I’m going to return that capital in under five years, and often seven years is the target.”
Venture investment in gaming is flourishing in Asia
Despite global VC funding of gaming start-ups decreasing in Q2 2024, one region in which venture capitalists remain ready and willing to invest in gaming is Asia. Gaming venture capital funding in Asia ballooned from $100 million in Q1 2024 to $283 million in Q2, hitting a 12-month high for VC funding of gaming start-ups in the region. ($140 million of that funding came from Web3 gaming company Zentry’s recent funding round in May.)
The continued growth of gaming investment in Asia reflects investors’ growing awareness of the considerable differences between the Eastern and Western gaming and esports markets. Although gaming and esports companies might be struggling in the West, Eastern audiences have more thoroughly embraced both gaming and esports, making investing in gaming in the region a relatively sure bet.
“When the chips are down, people flock to safety, and to more secure and more developed markets,” Chapman said. “So, investing in China or Japan or South Korea is a heck of a lot more comforting than investing in South Africa, right?”
The gaming market is projected to reach $189 billion in 2024
Although VC funding in gaming is broadly down in Q2 2024, Konvoy’s report still projects that the gaming market will continue to grow by 3.5 percent year-over-year between 2024 and 2029. That includes a market cap of $189 billion by the end of the year — and, theoretically, a market sized at $225 billion by 2029.
Konvoy’s prediction is on the optimistic side, though not unrealistic. It is challenged by the fact that the global gaming market actually plateaued or slightly decreased in size between 2021 and 2022 — a period now considered a “recovery year” by some industry observers. However, Konvoy is confident that the boost that gaming received from the COVID-19 pandemic will continue to carry the industry forward in the coming years.
“People don’t leave the gaming ecosystem; every single person in this world has this innate desire to play,” Chapman said. “And this is the most cost-effective and accessible form of play available to the entire world.”
https://digiday.com/?p=550650
