Games VC funding down 68% YoY per PitchBook Q3 report

The games venture capital market continues to contract according to PitchBook’s Q3 gaming report. Last quarter, VC firms closed 113 deals for a disclosed $857.0 million.

Both the number of deals and deal value fell compared to the previous quarter and Q3 of 2022. The number of deals saw a more modest contraction, falling 10% QoQ and 50% YoY. Perhaps more worryingly, disclosed deal value fell 35% compared to Q2 and 68% from Q3 2022’s total.

Additionally, the first three quarters of 2023 saw a severe decline compared to the same period last year. Deal count is down 54% for the year to date, while disclosed deal value is down 76%.

Currently, 2023 is on pace to narrowly outperform 2019’s $3.7 billion funding total with $3.1 billion invested in the first three quarters. The last four quarters have ranged between $800 million and $1.1 billion in disclosed investments.

Macro VC funding trends

Unlike the previous two quarters, early stage deals accounted for the largest portion of VC investment according to Pitchbook data. In total, early stage companies accounted for $353 million (41%) of disclosed funding. Previously, late-stage companies led in all categories, but closely followed early stage startups this quarter, attracting $299 million (35%) of allocated funding.

Early-stage and seed/pre-seed companies closed over 70% of VC placements in 2023, however these companies attracted a slightly smaller proportion of allocated capital — 48.1% — compared to previous years. The value going to venture growth deals contracted more significantly, accounting for 5.8% of deals in 2023 compared to 30% and 20% in 2020 and 2021 respectively. As a result, late-stage companies accounted for a much higher proportion of venture capital, increasing from 23.9% in 2022 to 46.1% YTD in 2023.

While exits have remained muted compared to 2021 and 2023, last quarter saw two significant acquisitions — Sega’s $778.1 million acquisition of Rovio and Playtika’s $300 million M&A deal for Innplay Labs — as well as eight exits of undisclosed value. With these deals and Savvy Games Group’s $4.9 billion of Scopely closing this quarter, exits totaled $5.2 billion.

With one quarter to go, exit value has already surpassed 2022’s $3.7 billion. Q3 2023 was the first quarter where exit deal value exceeded $1 billion since Q2 2022. However, deal value continues to be concentrated in a small number of deals. With a cooled off IPO market and high interest rates, PitchBook expects exits to stay subdued in the short term.

Pitchbook’s emerging opportunities

PitchBook also contrasted the outlook of data analytics startups with those in Web3 gaming.

Analytics startups experienced a major market contraction with only $65.6 million invested year to date in 2023. However, the firm expects app tracking transparency, additional tooling for new platforms and personalization via generative AI to drive future investment.

In contrast, PitchBook says the web3 ecosystem finds itself in the proverbial “trough of disillusionment.” While PitchBook crypto research expects the market size to approach $40 billion by the end of the decade, macro questions are still unanswered. Recruiting net-new players remains difficult but there are incremental legal and app store policy wins supporting growth.