Venture capital funding in games leveled out and established a new baseline according to PitchBook’s Q4 2023 Gaming Report. Over the last five quarters, gaming startups have raised between $900 million and $1.3 billion. Similarly, the number of deals closed has generally trended downwards. Fewer than 200 deals closed in each of the last five quarters.

PitchBook Games VC funding Q4 2023

“This level of activity likely represents a more realistic level of investment than the peak years of 2020 to 2022, which attracted nonendemic and ‘tourist’ investors during Web3 and metaverse hype-cycles,” said PitchBook’s report.

PitchBook annual games VC funding

As a result of this new baseline, 2023’s annual funding totals were a significant step back compared to the prior year. In total, venture capital firms invested $4.1 billion into gaming startups across 572 deals in 2023. In comparison, gaming startups raised $14.6 billion (-72% YoY) across 1,083 deals (-47% YoY) in 2022. While 2023’s deal value slightly exceed’s 2019’s $3.8 billion, it is the second lowest annual total since 2017.

Games vc funding median deal value by stage

Consequently, the median deal size fell to $3.6 million in 2023 from 2022’s $4.1 million. Late stage deals were the only category to increase, with a modest bump from $7.0 million to $7.9 million. Otherwise, early stage and venture growth deals contracted, while pre-seed/seed stage deals held steady at $3.0 million.

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Deal value for late stage startups ($1.7 billion) edged out early stages raises ($1.3 billion) in 2023. However, more early stage companies (203) closed deals compared to their late stage counterparts (128).

Excluding venture growth deals which held flat, valuation step-ups fell across all stages in 2023. Last year’s median step up was 1.5-times the previous valuation, well below 2022’s 2.5-times multiplier. This step up decline has hit early stage startups hardest, contracting from 3.0-times in 2022 to 1.5-times in 2023.

Content companies (publishers, developers, studios, games, platforms and gambling) accounted for the a plurality of funding raised and a majority of deals closed. At $1.9 billion across 321 deals, content companies contributed 47% of funding and 55% of deals closed. Development companies (game engines, developer tools and technology services) followed with $1.4 billion (34%) raised across 120 deals (21%).

PitchBook’s report also highlights Backend-as-a-service companies and content moderation as emerging opportunities.

Exits and PitchBook’s Outlook

Across 2023, VC exit activity remained muted totaling $5.5 billion across 38 deals. Notably, the majority of exits are not disclosing transaction value. Outside of Aonic’s $110 million acquisition of nDreams, the remaining 15 exits in Q4 did not disclose the transaction value.

While 2023’s exit market size was up 45% compared to 2022’s $3.8 billion total, the amount pales in comparison to past years. Last year’s total was the second lowest for exits since 2016.

Incentives are shifting for investors, especially those who sought exposure to games during the pandemic. With low interest rates and lockdowns in the rear view mirror, many are grappling with the time and capital-intensive nature of game development. PitchBook expects investors to shift their focus towards familiar business models, like software-as-a-service (SaaS) platforms and developer tools, and away from studios.

The near term outlook for games investing is pointing towards headwinds for startups and cutbacks for established companies. However, PitchBook points to upwards revisions for market sizing estimates towards the end of the 2020s as a reason to be optimistic in the long run.

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