According to games VC fund Konvoy Ventures’ report, the games industry has opportunities to grow, but funding has not bounced back quite yet.
Games funding market overview
In the first half of 2024, private funding for games (i.e. private equity, growth equity, corporate minorities, PIPEs, and VC funding excluding M&A transactions) totals $2.89 billion. While this exceeds 2023’s annual total of $2.80 billion, this was a result of Disney’s $1.5 billion investment into Epic Games. If this outlier is excluded, H1 2024’s remaining $1.39 billion in funding is down 9% YoY compared to H1 2023’s $1.53 billion total.
Likewise, VC funding for games is also continuing to decline. In the second quarter of 2024, venture capital firms disclosed $492 million of investments into games startups. This is down 20% from Q1 2024 and 7% from Q2 2023. In fact, this is the third lowest total of any quarter since 2020. The first half of 2024’s $1.09 billion represents a 20% from the same period in 2023.
Similarly, the number of VC funding placements has fallen. The 104 deals closed in Q2 2024 is down 22% from Q1 and down 12% from the same quarter last year.
Slowing rate of decline
While these declines are significant, the pace of decline is slowing. Private games funding fell 87% from H1 2022 to H1 2023 compared to the 89% growth from H1 2023 to H1 2024. If Disney’s investment in Epic Games is excluded, the growth becomes a 9% decline.
Both disclosed VC funding and deals closed follow a similar pattern with steeper declines between 2022 and 2023 compared to the change from 2023 to 2024.
Early stage funding concentration
While VC funding remains muted in general, Konvoy highlighted two trends shaping the market.
On the positive side, a higher proportion of deals are making up 80% of disclosed VC funding. In 2024, 22% of deals accounted for 80% of (disclosed) allocated venture capital. This is nearly double 2021’s rate, where just 12% of deals accounted for this same 80%. According to Konvoy Ventures, this higher distribution of funding is healthier for VC market.
However, the firm also points out how uncommon growth and late VC funding rounds are in 2024. Since Q1 2022, 89% of games VC funding placements went to early stage startups.
Together, this suggests that growth and late stage startups are struggling to raise subsequent investment rounds. While funding is more distributed, it’s because fewer large deals are getting closed (or disclosed) to take up a disproportionate amount of capital. Likely, the companies that would have raised these missing Series B or later deals last raised before U.S. interest rate hikes began in March 2022.
And this trend isn’t likely to stop any time soon. In the last quarter, a16z Games and Bitkraft Ventures have raised a combined $875 million to invest in early stage games startups.
Konvoy Ventures full Games Industry Report, available now, includes regional data as well as highlighting key trends shaping the market.
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