On the heels of PitchBook’s Gaming VC market report, the agency has revealed a deep dive into market phase traits. Echoing its prior report, the agency expects 2023’s muted enterprise capital funding ranges — $4.3 billion or 72% lower than 2022 — to proceed into 2024. Nonetheless, the forms of startups and funding sources are altering.
Evaluating video games VC market segments
During the last twelve months, 56% (294) of closed funding offers went to content material builders, adopted by developer instruments and companies. Publishers, builders and studios comprised the biggest subsegment with 190 closed offers.
![Pitchbook VC gaming deal value count TTM January 2024](https://venturebeat.com/wp-content/uploads/2024/02/Screen-Shot-2024-02-20-at-6.49.44-PM-1.png?w=800&resize=1554%2C1138&strip=all)
Whereas content material is king by way of closed offers, growth startups have a head-start in constructing enterprise worth. Per PitchBook information, the median pre-money valuation of growth startups totaled $35.0 million. This was adopted by adopted by entry ($32.2 million) startups. In the meantime, content material completed second lowest at $17.5 million.
Zooming in on subsegments, know-how companies ($475.0 million) had by far the best median pre-money valuation. It is a large step up for the subsegment since PitchBook’s final deep dive, however just a few high-value offers inflated the subsegment’s whole.
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Valuation step-up information reveals the downward strain on startups. In PitchBook’s prior deep dive that included information from a frothy 2022, eight sub-categories posted step-ups of two.0-times or larger, together with 4 above 3.0x. Now, solely {hardware} (2.8-times) and developer instruments (2.2-times) noticed pre-money valuation step-ups over 2-times. When firm stage is factored in, pre-seed/seed developer
instruments (6.2-times), early-stage {hardware} (3.1-times), pre-seed/seed esport corporations (3.0-times),
late-stage publishers, builders & studios (3.0-times), and early-stage playing offers (3.2-times) had been notable outliers.
Closing the funding hole between content material and growth
PitchBook expects the fundraising hole between content material and growth startups to shut as a consequence of a altering investor panorama.
“The height fundraising years of 2020 to 2022 lured nonendemic traders as Web3 and Metaverse hype peaked. This ‘vacationer’ capital — alongside the right storm of low rates of interest and customers caught inside throughout a pandemic — has formally cleared, and plenty of traders that sought publicity to video games are liable to grapple with the prolonged growth timelines and capital-intensive nature of growth,” stated PitchBook’s report.
As a consequence, PitchBook expects these nonendemic traders to re-evaluate their publicity or pivot in the direction of startups with extra acquainted software-as-a-service (SaaS) enterprise fashions.
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Whereas nonendemic traders transfer on to the subsequent hype practice, PitchBook is much less assured that company VC has bottomed out. Company investments carried out marginally higher than the general gaming VC market over the past yr. In the meantime gaming CVC participation has trended upwards since 2018. Nonetheless, traditionally lively CVC companies, corresponding to Tencent and NetEase, confronted elevated regulatory hurdles and geopolitical headwinds in 2023. Equally, Web3 company traders like Animoca Manufacturers and a wide range of decentralized autonomous organizations slowed funding exercise final yr.
Total, PitchBook’s information means that startups and their traders are in a bind. Funding is down whereas PitchBook’s VC Exit Predictor information paints a difficult near-term outlook for public listings. With exits seemingly off the desk and each incumbent gaming corporations and tech giants with money to spend, PitchBook expects a reasonable uptick in each M&A and CVC exercise throughout 2024. Alternatively, founders will be part of a rising variety of down rounds — 10 disclosed in 2023 — as valuations reset.
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