After a few sluggish quarters, the gaming industry is showing signs of life again on the investment front. In Q1 2024, VCs invested $594 million across 124 gaming deals, a 94% increase from last quarter. M&A was nearly flat, with 40 transactions completed. Let’s take a look at the recent uptick and what it could mean for startups and investors in this space.
Early-Stage Deals Pick Up Steam
In Q1 2024, $265 million was invested globally into early-stage gaming startup rounds. This represents a 65% jump from Q4 2023 and a nearly 4x increase compared to the low point in Q3 last year. While still well below the peak funding levels of 2021, the sequential growth is an encouraging sign. It’s the first in 9 quarters to show growth in investment volumes, following a steady decline since Q2 2022, which hit rock bottom in Q4 last year.
Josh Chapman of Konvoy Ventures sees this as a return to pre-pandemic norms. Unlike other sectors buoyed by COVID tailwinds, gaming’s popularity hasn’t waned as the world reopened. The majority of the growth is coming from early stage deals as pointed out in the Q1 2024 gaming report by Konvoy.
Not everything is pointing up and to the right. While the PC and Console market grew 2.6% in 2023, overall average playtime fell 26% since the start of 2021 according to a recent report by Newzoo.
62% of Gaming studios already using AI
Artificial intelligence is also poised to shake up the gaming industry, creating new opportunities for innovation. The Unity Gaming Report 2024 found that 62% of game developers are already using AI tools, with an additional 29% planning to incorporate AI into their development processes.
To the most part, AI is being used to save time and lower production costs. AI capabilities like automated coding, advanced graphics rendering, and intelligent game design assistants could significantly boost developer productivity. This emerging tech trend has piqued investor interest in gaming AI startups that can unlock these powerful capabilities.
Gaming IP is crossing to TV and movies
Another catalyst for investment is the growing appetite from TV/movie studios to adapt popular gaming IP into shows and films. With proven fan bases and rich storytelling worlds, hit game franchises offer a de-risked path to potential blockbuster content.
The Last of Us series on HBO, Fallout TV show on Amazon, Halo and Mario Bros or Sonic the Hedgehog movies are just a few examples of games transforming into hit TV shows and movies are just recent examples. As this transmission plays out, it unlocks new revenue streams and increases the strategic value of gaming IP.
Can Big Exits Reopen the Floodgates?
While the IPO markets have been relatively quiet, successful debuts like Reddit show there is investor appetite for well-known consumer tech brands. This bodes well for potential public listings from gaming heavyweight unicorns like Epic Games (Fortnite), Valve (Steam), Discord, and Niantic (Pokemon Go).
Big acquisitions could also provide much needed exits and return funds to investors. The public game companies hold about $35 billion in cash and equivalents, signalling a likely return to M&A. And big deals like Microsoft’s $69 billion acquisition of Activision Blizzard are setting a high bar, causing competitors like Sony, Netflix, Amazon, etc to think about their own IP catalog and potential acquisitions. We could see more consolidation plays by major gaming brands and new entrants into the gaming market.
The Bottom Line
Gaming investment activity is on an upswing in 2024 compared to last year’s lows. However, we’re still a long way off from the record levels of 2021 when over $1.9 billion was deployed into early-stage gaming deals in a single quarter (much attributed to Covid lockdowns etc).
While investors have reset their expectations, a few more big exits or a consistent increase in deal flow could help reopen the funding floodgates. The sector’s strong underlying fundamentals, revenue growth, and emerging AI capabilities provide optimism that the latest upswing could transform into a longer-lasting investment cycle. At Remagine Ventures, we’re excited to continue investing in innovative gaming studios, the infrastructure supporting game developers, and gamification of next gen consumer apps. Some of our gaming investments include: Sneaky Panda, Novos, Toya, Rebelbots, Glue Games and a couple of undisclosed deals powered by AI.
I'm a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google's first physical hub for startups.
I'm also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we've built 11 schools and 50 libraries in the developing world.
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