2020–2022 The Most Exciting Time in the Gaming Industry

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Jan, 2023 2020–2022
The Most
Exciting Time
in the Gaming Industry

Executive Summary

Summary: Highlights

— Whereas Public Offerings and

Late-stage VC activity almost halted,

M&As and Early-stage deals may see

fewer transactions and at lower

valuations.

— Despite the short-term turbulence,

the deal activity will remain strong: there

is potential for a few signiﬁcant deals to

occur in 2023, as the industry continues

to consolidate, supported by strong

investors’ interest and enough cash to

pursue transformative deals.

— The past three years have marked

a cycle of robust investments and

growing deal activity, which has far

exceeded previous periods, and

transformed the industry landscape.

— As economy cools down and the

gaming deal activity follows the trend,

we have passed the peak wave, and are

now gradually entering a new phase of

the investment cycle.

Tremendous Growth of Interest

in the Video Games Industry

Executive Summary

Deal Activity in the Gaming Sector
$B

— There’s been a truly unparalleled

inflow of investments in the industry

recently, surpassing any previous

historical levels in both number (over

1460) and value ($28B) of deals.

— We’ve seen an emergence of many

new gaming funds and multiple

fundraising campaigns closed. This,

together with many VC tech funds

establishing dedicated gaming practices

(e.g., a16z, Lightspeed), will support

investments in the sector going forward.

— Though current environment suggests

we may see fewer deals and lower

amounts in Late-stage rounds,

Early-stage activity will continue

growing, as many funds are looking to

deploy massive amounts of dry powder.

There’ve also been some shifts in

the investor focus recently:

— Mobile gaming reached its hype peak

in 2020–21, but has since notably

declined in 2022, driven by post-IDFA

reality.

— PC & Console and Cross-platform

game developers experienced

increased interest from investors.

— While Web3 was a major trend back

in 2020–2021, AI startups are holding

massive appeal currently.

— Corporate activity is constantly

growing, as valuations decrease and

many strategics hold substantial

amounts of cash.

Executive Summary

Unprecedented Influx of

VC & Corporate Investments

Select Private Investments Deals

Corporate & VC Investments Activity
$B

— M&A activity saw continued growth,

reaching its peak in 2022, with over

$41B in the closed deals’ value and

additional ~$70B of announced deals.

— But it is expected to slow down in

the coming year, which is likely to be

caused by a decrease in exit valuations

and a lack of scalable targets.

— Nevertheless, we believe the M&A

activity will stay at a healthy level, well

above pre-pandemic levels.

— As valuations came down, and some

companies struggled to scale their

products, many strategics are exploring

investment opportunities to enhance

portfolio and obtain new talent and

expertise.

M&As: Reached Peak,

Now Cooling Down

Executive Summary

Select Notable Closed M&A Deals

Closed M&As Activity
$B

— Public takeovers have become

a common phenomenon for the market

recently. This trend seems to continue in

2023 with the most recent Playtika bid

for Rovio.

— One more notable trend in the M&A

market is a shift from public acquirers

(with much lower trading multiples than

12 months ago) towards private

acquirers (with enough cash ﬁrepower).

— Additionally, there has been

a preference shift in focus, from mobile

studios (representing ~50% of the deal

value in 2021) towards PC & Console

developers and mobile assets purchases

recently.

Executive Summary

Public Offerings Coming to

a Halt, Challenging Year Ahead

Select Public Offerings Deals

Public Offerings Activity
$B

— Furthermore, the overall

macroeconomic environment,

characterized by growing inflation and

rising interest rates, has also impacted

institutional investors’ appetite for

gaming and platform and technology

sectors.

— We expect partial recovery in

the second part of 2023.

— The peak of Public Offerings was

reached in 2021, while the following

year was marked by a decline in activity.

This trend is expected to continue in

2023, with the IPO and SPAC windows

remaining closed, and PIPEs becoming

less frequent due to low trading

multiples.

— Share prices of gaming companies

undergoing IPO or SPAC recently have

signiﬁcantly decreased compared to the

closing price of the ﬁrst day of trading.

— Additionally, the issue of new shares

has become an increasingly expensive

option to ﬁnance the deals (as trading

multiples continue to struggle).

Together with
White Label PR
, we have

tracked the most media-covered deals

for the period of 2020–2022, ranking

them based on the number of

mentions in media outlets with 1M+

monthly active users (MAU), within

a one-month range after

the announcement.

To make this data as objective as

possible, we did not consider duplicate

articles and only used the deals with

disclosed transaction value in this

methodology.

Executive Summary

Top 15 Closed Deals with the Biggest

Global Media Coverage

— There’s, however, a noticeable change

in the sectors balance among women-

and mixed-led companies, with Platform

& Tech leading with 54% (43 companies

out of 79), leaving Gaming second (42%,

33 companies). Back in 2021, Gaming

dominated other sectors with 54%

(42 companies out of 78).

— 35% of all companies with mixed and

women-only leaders are from the US,

while UK-based companies made 7%

(6 companies). Turkey and Canada take

third place with 5 companies each, which

is 12% combined.

Note: (1) to our best knowledge, no

companies that closed gaming investment

deals as targets in 2021 and 2022 were

led by non-binary, or gender-neutral

founders, or by person of other genders. If

we did make a mistake, however, please

let us know at
digest@investgame.net

— The presented gender diversity data

includes info on the founders and

leaders of the gaming companies that

raised funding or were acquired.

— The YoY balance has practically not

changed: while in 2021, 90% of the

companies were led by men (750 out of

830), in 2022 this percentage has

slightly decreased to 89% (634 out of

712).

Gender Diversity

Executive Summary

Gender Breakdown
1

Gaming

Deals with Targets represented by Video Game

Publishers and / or Developers

Gaming

Gaming: Highlights

Gaming

Gaming: Closed Control M&A

Targets Geo

Strategic Investors Continue

to Seek Inorganic Growth

Gaming

— Over the last 3 years select strategic

companies have collectively taken part

in more than 420 deals, with a total

value of $137B.

— Platform holders increasingly

acquiring content providers to enhance

their supply: Microsoft is in the grueling

process of buying ABK, Sony bought

Bungie, and even Netflix has joined

the race, buying several gaming studios.

Select Active Strategic Investors

— PC & Console publishers expanding into

Mobile gaming to boost own growth, with

T2 buying Zynga and EA acquiring Glu and

Playdemic, among others.

— The most active buyer among

privately-held companies was Scopely,

making 10 deals of more than $1.5B total

value (buying GSN Games for $1B).

— Gaming tech providers support

the consolidation trend, with Unity —

ironSource and AppLovin — MoPub deals

among the biggest.

— Early-stage deal activity remained

resilient in 2022, with $0.8B invested

across 109 deals (vs. $1.1B across

156 deals in 2021).

— Seed and Series A deal sizes

demonstrated notable decline over

the second half of 2022, as we’ve seen

less outsized rounds in the recent

quarters. Nevertheless, the number of

deals improved recently.

— We expect the deal activity to remain

more or less stable in 2023, as many

gaming VCs are sitting on massive dry

powders, with Early-stage rounds less

correlating with macroeconomic

pressure, and many new gaming startups

coming along.

Early-stage Investments — Lots

of Fuel for Future Unicorns

Gaming

Early-stage Gaming Deals

Total

$2 440m

370 Deals

Note: (1) based on the internal weighted

average ranking system (see p. 24);

(2) based on investments in Gaming

with the disclosed deal value (no Web3

gaming deals included)

Gaming

Most Active VC Gaming Funds for 2022

— The end of 2022 was a bit calm, as

many funds stopped active investing

and paused to reshuffle its investment

strategy; some funds have refocused its

strategy split from actively ﬁnding new

targets to allocating more money

towards follow-on rounds of existing

portfolio companies.

— The hunt for Early-stage gaming

companies is still strong, with valuations

coming down, making investments even

more attractive. These days funds try to

increase the round sizes at early stages,

so that studios have enough burn-rate

for the next 24 months at least.

— We expect the deal activity to remain

more or less stable in 2023, as many

gaming VCs are sitting on massive dry

powders, with Early-stage rounds less

correlating with macroeconomic

pressure, and many new gaming

startups coming along.

Gaming VCs Sitting on Billions of

Cash Ready to be Deployed

Gaming

Notable Fundraisings

— The studios looking for new funding

have recently experienced some minor

struggle issues; however, the teams
with

solid background are still of active

interest (cross-platform, AI, tech deals

are currently on trend vs. mobile and

Web3, which now experience lower

interest).

— All in all, multiple gaming funds have

conﬁrmed plans to fundraise soon or are

already in the process of closing

the fundraising campaign — meaning

more VC deals in the foreseeable future.

Total

$6 210m+

Late-stage Deals:

Uncertain Year Ahead

Gaming

Late-stage Gaming Deals

Total

$7 575m

62 Deals

— The deal count consecutively

declining on a quarterly basis suggests

this trend may persist in 2023, what

with the current economic headwinds

and market corrections.

— Only 16 deals have been done in

2022, of $0.9B total disclosed value,

compared to 31 deals of $4.2B value

back in 2021, representing a 2x decline

in the deal count, and a whopping

4.7x fall in the deal value.

— Late-stage VC funds are currently

slowing down they capital deployment,

amid lower exit opportunities as well as

declining exit valuations; VCs will be more

accurate and uptight with new late-stage

opportunities in 2023.

— Top 15 deals represent around 80%

of the total value of announced and

closed deals during the last 3 years.

— Public takeovers took almost half of

the top 15 deals (by value), with

the largest announced deal being

Microsoft taking ABK private.

Gaming

Remarkable Deals of the Latest M&A Wave

Top 15 M&A Control Deals in Gaming by Size Over 2020–2022
$m

Note: (1) the latest publicly

available twelve months numbers;

(2) based on the upfront deal value

Note: (1) based on the internal weighted

average ranking system (see p. 24);

(2) based on gaming investments with

the disclosed deal value (no Web3

gaming deals included)

Gaming

Most Active VC Gaming Funds for 2020–2022

Corporate: Attractive

Valuations to Drive Growth

Gaming

Corporate Investments

Total

$3 215m

133 Deals

— Corporate activity saw a decreased

deal count in 2022 (30 vs. 71 in 2021),

as well as deal value ($228m vs.

$558m), considering we leave out

massive $2B raised by Epic back in

April.

— This activity may reignite in 2023 due

to lower valuations — strategics hold

substantial amounts of cash on hand,

and can and most certainly will use it for

further investments.

— Tencent and other Chinese companies

have not been very active in 2022 due to

excessive regulation scrutiny; however,

since the regulation is now softening, it

seems like 2023 will be easier for them,

and we can expect more investing activity

from Chinese gaming strategics; Western

heavyweights shall be on par, as

the market will recover.

Web3 Gaming

Web3 Gaming Deals

Web3 Gaming

Web3 Gaming Deals

Total

$7 283m

420 Deals

— The graph says it all — Web3 gaming

investor hype is at an all-time low, and

for good reason.

— 2022 deal volume is still up +31%

YoY and the deal count is up +102%,
but

don’t be fooled as investor sentiment

going into 2023 isn’t correlated with

these numbers. Developers are also

increasingly skeptical about jumping

into the space.

— Broadly speaking, investors have gotten

smarter about Web3, 2023 deal activity is

going to be highly selective, most

developers won’t be able to raise on

selling dreams, and it’s back to

fundamentals on both sides of the table.

After a turbocharged 2021, investment in

Web3 gaming companies grew slightly from

2021 to 2022. That said, funding levels

diminished in the back half of 2022. In 2023,

interest appears to be waning as the market

for token launches has collapsed (driven by

crypto industry blow-ups), investor rigor

increases as FOMO dissipates, and everyone

waits for further evidence of what successful

Web3 gaming will look like.

The current state of Web3 games leaves

much to be desired. Most hits so far were

short-lived off the back of models that
proved

to be unsustainable and are lacking in

gameplay. Fortunately, there’s a new wave of

building ongoing. 2023 might not be the year

in which breakout Web3 games take the

industry to the next level, but the quantity

and quality of building is far improved.

Infrastructure progress has mostly been

a bright spot, and there’s more to look

forward to. Whereas Web3 games are largely

back to square one, infrastructure

developments — from blockchains, Layer 2s,

wallets, and developer tools — have made

steady progress. Hacks and poor UX are

examples of where there’s more work to be

done, but Web3 games continue to be better

technically supported than anytime prior.

There is still a tremendous amount of

regulatory confusion regarding crypto at

large, which affects crypto-infused gaming.

Irregular enforcement is commonplace,

which is not ideal, and it’s hard to say exactly

what 2023 will bring. When it comes to

platform rules, it’s been hit and miss; in

2023, we expect more ongoing tension with

Apple’s App Store, more launches on the Epic

Games Store, and a continued emphasis on

browser-based gameplay.

Hype around land-based virtual worlds was

enormous. Enthusiasm (and price) has since

plummeted from their highs, and leading

land-based virtual world platforms like

Decentraland
or
The Sandbox
still have to

prove they can attain and retain
exponentially

higher user activity. We question the current

economic models and their ability to
compete

with other non-land-based virtual world

platforms, but we’ll learn more as
The

Sandbox
in particular fully opens to creators

later this year.

As play-to-earn games proved unsustainable,

so have the guilds that built their businesses

leveraging these games. As a result, most

guilds are going out of business, and a few

are hunting for ways to pivot — either building

tools, leaning into esports, or ﬁnding other

ways to leverage their large communities.

Web3 Gaming Deals

Web3 Gaming

In 2023, we’re excited to watch new games

launch, new game design and economy

models be experimented on, more

companies of all sizes get involved,

increasing collaborations across the industry,

improved tooling / interfaces for developers

and players, and of course all the unexpected

events to come.

This Executive Summary is a part of

“The Great Reset: Your 2023 Guide to Web3

Games” by Naavik and Delphi Digital. Please

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