In Q1 2023, venture capital deployment into the gaming sector increased 10.7% QoQ, with 140 deals completed in the first three months of the year worth $1.1B, per Pitchbook's Q1 2023 Gaming Report. Despite the slight uptick, deal values were still down 75.7% YoY, while deal counts were down by 56.4%. The deal count increased by 20.7% QoQ in Q1. Judging by the increased deal count numbers, the uptick in gaming sector VC funding will likely continue into the following quarters. The notion is supported by Konvoy's Q1 2023 Gaming Industry report, which estimates the global gaming market to reach $201B this year, up 9% from the $184M market size in 2022. Early-stage VC investments in the gaming sector are concentrated around content development startups, whereas operations, access, and experience segments dominate late-stage funding. Within the gaming sector, the content segment secured nearly half of the total funding at $504M. The second largest share of funding went to gaming development tool startups, raking in $321.8M of the total. The majority of the gaming sectors deals involved startups in the angel, seed, and early stages. Notable deals inked in the first quarter include Character.ai's Andreessen Horowitz-led $150M Series A round, Believer Entertainment's $55M Series A funding, and LandVault's $39.4M early-stage funding round. Median pre-money valuations of all stages were up since their values in 2020. In Q1, median valuations across all stages was $27.9M. Only venture growth stage startups showed a drop in valuations, with valuations across all other stages remaining relatively stable. Median pre-money valuation step-ups decreased from 1.2x to 1.0x, suggesting that growth-stage startups might have to contend with flat rounds. With the exception of venture growth startups, median deal sizes increased across the industry to $5M, up from $2.2M in 2020. Median deal sizes across all other stages have seen a modest year-on-year increase since 2020. Nine exit deals worth $200M were completed in the recent quarter. The decline in exits is due to the closed IPO and SPAC markets. With a drop in IPO activity, struggling startups in the gaming industry will be looking at M&A options to keep their company afloat, especially as scaling games in this highly competitive industry remains a challenge for new entrants. Gala Sports' $164.2M IPO was the only notable gaming sector IPO completed within the quarter. Notable M&A transactions within the sector include the acquisitions of Vindex, DMarket, and BattleSnake. Despite doubling the preceding quarter's tally of $100M, exits values remained paltry compared to 2020 and 2021's totals, when the sector saw a surge in activity due to COVID-19 pandemic restrictions causing residents worldwide to stay indoors. As a result, consumer spending on consoles, games, streaming platforms, and other gaming-related technology increased. Consumer spending has since receded from the pandemic-induced highs. In Q1 2023, consumer spending in the gaming industry was down 5% YoY to $4.6B in the U.S. market. |
