The current state of games investment

21.09.2023 - 15:15 / gamesindustry.biz

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While the games industry benefited from a surge of interest and investment during the pandemic, the market correction and global economic uncertainty means the environment for seeking finance has changed dramatically in just a couple of years.

At last month's GamesIndustry.biz Investment Summit in Seattle, a panel of experts discussed the investment landscape at the moment – a conversation we will continue at the next summit in London on Thursday, October 12.

Kowloon Nights content manager Anlu Lui observed that investors are currently being a lot more cautious due to the "tough economic environment," adding: "For equity investments, investors want to see strong organic growth and positive cash flows as opposed to growth via acquisitions, as it may not be sustainable. On the publishing and project financing side, investors are more cautious about team background, also less prototype funding and signing fewer first-time teams."

Hiro Capital's investment director Joe Yuan added that everyone has been slower in the ecosystem.

"Investors are taking longer to issue term sheets and complete transactions, strategics have been slower on M&A and reducing valuations as many of the big buyers are digesting acquisitions of the past, and publishers are being careful about filling up their pipeline with the right deals," he explained. "This means companies need to make their runway stretch further and show more detail on their progress as they look to close additional funding."

Matt Bilbey, a venture partner at London Venture Partners, observed that seed stage funding is still very much active – in fact, he said that valuations are now back in line with 2018/2019 levels. However, the scope for later stage funding continues to be the biggest challenge when it comes to both venture capital firms and publishers.

"Later stage investors want more proof points and evidence of traction, whether that is in the community or early testing," he said. "Or they are piling into more predictable business models like B2B. In the current landscape investors feel the need to look at a lot of details, then it often leads to analysis paralysis, and we see this a lot at the moment. Investors are keen to engage, have a lot of data requests, then dig in deeper and deeper, and in the end they just don’t get there."

He noted that last year saw drastic changes in the type of companies and projects that received investment. Towards the start of 2022, money was still pouring into crypto, eSports, VR, PC-first content, multiple strategies on mobile, cross-platform games and so on. By mid-2022, most of these were "judged not worthy of investment", with the