In the first quarter, gaming VC activity may have finally settled into a new normal — though it’s a leaner, more selective market, according to an analysis by PitchBook.
Q1 funding dipped 3% QoQ to $1.2 billion across 134 deals, the lowest deal count since mid-2019. As early-stage investments continue to shrink, investors grow increasingly discerning, and the M&A and exit environment remain muted, there are still bright spots: investment surged into back-end gaming infrastructure and AI-powered platforms, with standout deals like Bria’s and Beamable’s Series As.
Meanwhile, leading platforms like Roblox and Discord doubled down on in-game advertising strategies, signaling a potential adtech renaissance. This report dives into the investment trends, macroeconomic headwinds, and key deals and players shaping the gaming sector. Overall, it was a mixed quarter.
Q1 deal activity extends the current equilibrium
Gaming VC investment decreased slightly in Q1 2025 to $1.2 billion (-3% QoQ) across 134 deals (-5% QoQ). Excluding Disney’s outlier investment in Epic Games in Q3 2024, deal activity has largely stabilized since H1 2023, averaging $1.3 billion across 172 transactions per quarter, albeit with pressure to the downside on deal volume.
Deal count in Q1 was the lowest quarterly figure since Q2 2019, underscoring that investors are increasingly discerning as the industry awaits the next platform shift, focusing on distribution innovation in the interim while grappling with the lack of breakout hits from exuberant funding between 2021 and 2022. Exit pathways remain largely blocked, with closed VC and PE exits generating $128 million in disclosed value across 13 deals.
Tariff headwinds shift
U.S. President Donald Trump’s sweeping “Liberation Day” tariffs announced in April came after months of speculation about the ultimate depth and breadth of levies expected from the administration. Global gaming hubs Vietnam, China, and Japan were ensnared, as was the rest of the world, roiling markets in uncertainty and driving the CBOE Volatility Index, or VIX, upward.
The worst of the impact was avoided due to the announcement of delays and deals. Gaming’s primary exposure to the tariffs is in hardware and peripheral components, which amount to a $40 billion market.
One degree removed, toymakers and intellectual property (IP) holders, like Mattel and Hasbro, saw their stock prices plunge following these announcements. Platforms that have leaned into digitization—for example, Microsoft’s Game Pass for Xbox and Hasbro’s licensing of Monopoly IP—continue to have a hedge against exogenous shocks, like tariffs, by lessening their dependence on global supply chains, demand volatility, and manufacturing.
After revealing specs for the Switch 2, priced at a higher-than-anticipated $450, Nintendo then delayed preorders in the US and now faces a diminished sales outlook in the near term. Hardware manufacturers that shipped the product throughout the first Trump administration do have some experience shifting supply chains, but the geopolitical climate has increased in complexity.
Consumer groups, like the Consumer Technology Association and Entertainment Software Association, have voiced their opposition throughout the past five months, warning that game consoles could become 40% more expensive. An emergent risk is the threat of tariffs targeting digital products like movies and television shows made outside of the U.S., PitchBook said.
One degree removed are video games, which have a global development footprint and a fraught regulatory relationship to begin with, as evidenced by China’s close grip on game license approvals. Though these tariffs represent a nonzero risk, we view them as less likely compared with levies on electronics and hardware, PitchBook said.
Among consumers, market bifurcation remains pronounced
Aggregate retail sales undulated in Q1, signaling potential weakness in consumer demand. Sales sputtered in January but jumped in March due to anticipation of future price increases. The economy’s underlying bifurcation remains pronounced: Top-decile earners accounted for nearly half of domestic spending, while spending totals decline across all other brackets.
In gaming, this translates to companies marketing premium product bundles across hardware and software. Preorders of the Switch 2 numbered in the millions, despite a $450 price tag, while flagship titles like Mario Kart World now cost $80. PlayStation sales in Q1 were buoyed by the $700 PlayStation 5 Pro, and the industry continues to speculate about Grand Theft Auto VI’s price point, which may well be augmented by its inclusion in a premium bundle.
Early investment activity faces continued pressure, late-stage activity stabilizes
Pre-seed/seed VC activity in gaming continues to face downward pressure. Q1 2025 produced 44 deals, the lowest count since Q3 2018. As a portion of all gaming VC activity, pre-seed/seed activity bottomed at 25.7% of rounds in Q1 2024, but the absolute count of deals continues to shrink and currently sits in the low-30% range. Early-stage deal volume continues to undulate.
Conversely, late-stage and venture growth activity has trended upward from 17.6% at the start of2022 to nearly 33% at the start of 2025.
The rationale for these trajectories is varied. Over the past three to five years, fewer investments have been made across venture, adversely affecting gaming downstream. As the quality bar and opportunity cost of these transactions increases with the zero-interest-rate period further in the rearview mirror, fewer deals close. As we indicated in our 2025 Consumer Technology Outlook, fewer funds are actively backing gaming startups as emergent trends, like Web3 and the Metaverse, decelerate and few success stories have emerged from previous fundraising cycles.
Competition for user attention is as intense as ever, with short-form video on social media eating into user attention, leading games ossifying their position at the top of the charts across mediums, and the overall supply of content coming at a pace inconsistent with consumer demand. And yet, dry powder certainly exists.
Several investors closed new funds in recent months: Arcadia Gaming Advisors announced an inaugural fund for $100 million, led by Tripledot Studios co-founder Akin Babayigit; Play Ventures raised $140 million for its third fund in November; Laton Ventures closed a $50 million fund in February; and Kameha Ventures announced a debut $25 million gametech fund in March. However, for many investors, the lack of breakout hits from well-funded companies has eroded confidence in the industry.
Those who successfully secured early-stage financing may find themselves re-entering a fundraising cycle with a completed product but no commercial traction, which intersects with this investor skepticism.
Exit pathways underwhelm
PitchBook’s 2025 US Venture Capital Outlook noted that exit activity is top-heavy, concentratedamong only two deals—CoreWeave’s IPO and Google’s acquisition of Wiz—which accounted foran outsized portion of liquidity. While several high-visibility startups have filed for IPO, tariff andmacroeconomic uncertainty clouded the outlook throughout Q1 as platforms such as Klarna,StubHub, and Discord delayed their processes, PitchBook said.
The gaming industry reflects these trends to an exaggerated extent. Quarterly exit activity was subdued: 13 deals produced $128 million in disclosed exit value. M&A activity fared slightly better, producing 31 acquisitions and $2.3 billion, though both figures are pacing below 2024’s $15.3 billion across 118 deals. When recently announced deals finally close, the top-line figures will also be top-heavy, counting deals such as Scopely’s purchase of Niantic for $3.5 billion and Discord’s eventual IPO. Only three other companies in our curated vertical are currently in IPO registration.
Looking ahead, few gaming unicorns exist, which mitigates the demand for liquidity from the unicorn backlog across venture. Incumbents are moving to fortify balance sheets and focus on distribution innovation as the current console cycle ages. While select strategics signal a willingness to be acquisitive, such as Savvy Games Group’s comments regarding the PC/console market, this disposition is the exception, not the norm.
Gametech activity is buoyed by AI
We previously suggested the delta between content and backend software-as-a-service (SaaS) deals would narrow. While we fully expect content to be the industry’s growth driver, investor interest in SaaS continues to hold. On a trailing 12-month basis, development startups accounted for 164 transactions totaling $2.5 billion in deal value compared with 313 deals and $2 billion for content startups (excluding the Disney-Epic Games deal and Infinite Reality’s $3 billion later-stage deal in Q1 2025).
This interest is propelled by rapidly improving generative AI and large language models that investors hope will reign in spiraling AAA development costs, promote SaaS-based business models instead of the boom-or-bust nature of game development, and offer exposure to the broader game industry’s nearly $200 billion market.
Notable Q1 rounds include GPU platform Ubitus K.K. raising $29.5 million, digital-agent platform Altera’s $31 million raise, game-server platform Beamable’s $13.5 million Series A, and visual-generation platform Bria’s $40 million Series, PitchBook said.
Seeking marginal gains in monetization, the industry looks to advertising tech (adtech)
While video game advertising spending is pushing $50 billion, this ranks well below advertisingspending for categories like social media or retail media and concentrates in the mobile gamingecosystem.6 Historically, advertising technology in games has been constrained by severalfactors, including nonstandardized ad units, complexity in measuring the commercial impact ofin-game ad units, and few programmatic advertising opportunities. In Q1, several announcementsunderscored this strategic imperative.
Roblox announced a partnership with Alphabet to add rewarded video ads, and Discord announced Video Quests on its mobile app (with a pilot coming in the summer), similarly leaning into rewarded video ads. In our Q1 analyst note on gametech, several of the largest YoY increases in PitchBook’s Exit Predictor outcomes were for adtech companies, including InMobi and Superfine.
PitchBook views this development as both difficult and inevitable. The industry has untapped potential for advertisers that will be addressed over time as gaming continues to expand its reach and visibility. However, the problems of ad units and their measurement remain unsolved and will thus mitigate adtech’s near-term reach until solutions are found, PitchBook said.
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