2023 Q3: Glimpse of Normalization

Nov, 2023 2023 Q3:

Glimpse of

Normalization

Gaming Deals Report

2

Highlights:

2023YTD saw the lowest deal value activity since the pandemic period

Executive Summary

Note: (*) closed transactions only, excluding the acquisition of Activision Blizzard by Microsoft for $68.7B announced in Q1’22 and closed in Q4’23

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Key Closed Transactions to Date

Executive Summary

— Late-stage rounds continue to experience

compression, partially explained by the drop in

follow-up investment rounds and uncertain

exit perspectives in the current market.

— Early-stage rounds have been less affected

by macro-volatility, as reflected in the number

of deals, which stay mainly in line with

the prior periods at pre-COVID levels.

Q1–Q3 by Year

Executive Summary

4

Corporate & VC Investment Activity

Private Investments:

getting back to pre-COVID levels

— Dealmaking activity has fallen from record

heights during 2021–22 as the market slows,

and the investment landscape has witnessed

a notable downturn since 2023.

— YTD 2023 capital raised by gaming compa-

nies was 4x times lower than avg. of 2021–22

during the same period ($2.3B vs. ~$9.1B),

with the number of deals shrinking by ~23%.

— The challenging macroeconomic and

gaming market environment have notably

affected investors’ appetite, shifting

investment focuses and making investors

more selective with funding new ventures.

Nevertheless, the market seems to stabilize

and may see further growth in the coming

year as Corporate VCs become more active

and look for new growth opportunities.

— Beginning in 2023, the M&A activity

witnessed a notable decrease, with total exit

value approaching $8.5B, 3.8x times below

avg. amount of the previous two years.

— The main contributors, accounting for over

75% of the overall value, were acquisitions of

Scopely by Savvy Games Group ($4.9B),

a public takeover of Rovio by SEGA (~$0.8B),

Q1–Q3 by Year

M&As:

moderate dealmaking activity with long-term growth prospects

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Executive Summary

Closed M&A Activity

which have enough gunpowder to drive

further inorganic growth.

3. Much stronger Early-stage funding

environment vs. five years ago, with many

new gaming-specialized VCs and CVCs

(Krafton, NetEase, Riot) deploying capital into

new ventures and creating new unicorns.

the sector ’s structural growth when viewed

over a longer time horizon:

1. Massive unspent dry powder of private

equity investors looking to get a presence

or increase allocation to the entertainment

market.

2. Large cash piles on balance sheets and

stabilizing stock prices of strategic investors,

and acquisition of Techland by Tencent

(undisclosed).

— The M&A market in 2023 is showing results

significantly below the high values of 2021

and 2022. This trend excludes the notable

completion of the Activision Blizzard

acquisition for $68.7B in Oct’23, a deal

announced in Jan’22. Despite the recent

slowdown, it’s essential to recognize

— Excluding AppLovin’s $1.5B loan

refinancing, Public Offerings activity remains

the weakest area of the entertainment

industry with a ~29% YoY decline in Q1–Q3,

with 2023 on track to be the worst year amid

the increasingly harsh conditions.

Public Offerings:

remain quiet, with the IPO window remaining closed

Q1–Q3 by Year

6

Executive Summary

Public Offerings Activity

— Higher-for-longer interest rates, the mixed

performance of recent US-listed largest IPOs

(e.g., Arm, Klaviyo, Instacart), and struggling

public market valuations of recently listed

gaming comps have raised questions about

entertainment IPO prospects in

the nearest future.

— To date, the most notable public offering

and fixed-income transactions have been

AppLovin ($1.5B loan refinancing), Take-Two

($1B senior notes), Keywords ($0.4B credit

facility), and Bilibili ($0.4B secondary

equity offering).

— Since 2022, the gaming industry hasn’t

seen any meaningful size public listings,

except for Azerion (current market cap of

~$0.1B vs. initial $1.2B), which recently sold

its Youda games portfolio to Playtika and

FaZe clan, which recently has been acquired

for ~$18m (vs. $0.7B valuation at listing).

Gaming

Deals with targets represented

by video game publishers and developers

Highlights:

getting through challenging times

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Gaming

Note: (*) closed transactions only, excluding the acquisition of Activision Blizzard by Microsoft for $68.7B announced in Q1’22 and closed in Q4’23

— VC fundraising was primarily on halt, with

only a few funds announcing fundraisings:

Play Ventures ($78m) and GEM Capital

($50m). Consequently, VC funds have

become more selective in their investment

strategies. As a result, the average studio

fundraising process has become longer and

at less favorable terms.

Q1–Q3 by Year

Early-stage Gaming:

moderate seed activity and fewer outsized Series A rounds

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Gaming

Early-stage Gaming Activity

— The number of large-size deals ($10m+)
has

significantly dropped to only five in Q1–Q3’23,

compared to 23 and 18 deals in 2021 and

2022, respectively.

— CVC provides an extra boost to Early-stage

activity by co-investing with VCs and

improving the deal risk profile while getting an

early presence on the cap table and securing

strategic partnership terms (e.g., ROFR).

— Although Early-stage investment activity is

still below 2021–22 levels in value and

volume terms, there is a positive dynamic

compared to the pre-COVID period.

— Pre-seed and Seed rounds have remained

steadfast, while Series A deals have

decreased by 2.6x compared to the average

number of deals in 2021–22 (12 vs. 31).

— Investments in the PC
 
&
 
Console and

Multiplatform segments have notably

increased compared to the avg. number of

deals in 2021–22 (55 vs. 45), while

investments in mobile gaming have slightly

declined (43 deals compared to the average

of 48 deals in 2021–22), reflecting recent

industry tailwinds and challenges on

mobile vs. other platforms.

Gaming

10

Most Active VC Gaming Funds for Q1–Q3’23

Note: (1) based on the internal weighted

average ranking system (see p. 15);

(2) based on investments in Gaming with the

disclosed deal value (no web3 gaming deals

included)

Late-stage Gaming:

overcoming harsh conditions and market challenges

— Ascending interest rates, weaker exit

environment, and increased focus on solid

financials have raised the bar for fundraising

and led to a harsh deal-making environment:

2023 reached the lowest point with roughly

$300m capital raised across 8 transactions.

— Many Late-stage startups raised capital

during the prosperous 2020–22 years,

allowing to wait out “winter ” amid the

current harsh fundraising terms.

— Moreover, the prolonged macro volatility,

liquidity crunch, and pullback of

nontraditional investors will decrease

chances of consequent fundraising for

“newcomers” that raised Seed and Series A

at the peak of valuations 2020–22

Q1–Q3 by Year

11

Gaming

Late-stage Gaming Activity

and are forced to return to market due to low

cash reserves. This will likely lead to down

rounds, premature M&As, or bankruptcies.

— Low Late-stage activity will likely persist

through the remainder of 2023.

Nevertheless, we still may observe rounds of

promising studios, such as $100m

Candivore’s Series C and $90m Second

Dinner ’s Series B rounds closed in Q3’23.

Corporate:

strategic investors go less solo, more co-op

Q1–Q3 by Year

12

Gaming

Corporate Gaming Activity

— In the last years of growth, many

companies were heavily increasing their

headcount, investing in R&D, and making

more experimental investments. However,

many companies tried to cut expenses during

the correction, leading to thousands of

layoffs, dozens of canceled games, and

a severe decline in investment activity.

— Despite the substantial decrease in deal

value, it is noteworthy that Asian strategic

investors like Tencent, NetEase, Krafton, and

others are actively continuing to invest, not

only within the Asian region but also in

companies from Europe and America. We

anticipate that this trend will persist in

the upcoming quarters.

— For the last two years, strategic investors

from the Western region have scaled down

their corporate investments. We attribute this

decline to the continuous turbulent

conditions in public markets, ongoing internal

restructurings, and changes in development

pipelines.

— In 2023, many Strategics
 
/
 
CVCs switched

to co-investment with VCs, making

substantially fewer investments that
strategic

investors fully cover. We categorize such

co-investing rounds as Early-stage or

Late-stage deals in this report.

Gaming:

closed VC deals by targets geo Q1–Q3’23

Gaming

13

Note: total sums of the Early-, Late-stage, and Corporate deals for each region

— Though we now observe a massive buzz

around everything AI-related, artificial

intelligence is the theme that has been

present in the gaming industry for quite

a while. To better understand the trend

growth, we tracked all deals with

the targets involved in AI.

AI in Gaming:

analyzing the surge in the startup scene

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Gaming

Closed AI Deals

— Also, in web3, the startups had to make the

blockchain a part of their games. When

it comes to AI, many studios use

the technology to speed up the production

process rather than introducing some

innovation to the product. We will monitor the

market and see where it will lead the industry.

— This year shows an increased interest in

AI-related startups in size and number of

deals. Q3’23 was especially strong, with

an unprecedented 21 deals for a total

amount of $268.1m. The year ’s largest deal

was a $76m round of Inworld AI led by

Lightspeed Venture Partners.

— Nevertheless, we can hardly compare this

surge with the earlier blockchain gaming

boom. The growth in the number of AI-related

deals hasn’t been as pronounced as in

previous years. However, the trend continues

to increase, which may become the beginning

of something bigger.

Esports

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Appendix

Methodology & Glossary

The private data contained in this report

is based on information from sources

believed to be reliable, but we can’t

guarantee accuracy and completeness.

Sources include public media, our business

partners, data provider S&P Capital IQ, and

market insights.

InvestGame tracks closed transactions

(unless otherwise noted) in the Video Games

industry, with target companies having core

business operations related to the Video

Games market. We do not track pure

gambling, betting, and non-gaming

blockchain
 
/
 
web3 companies.

Late-stage VC

Corporate

Early-stage VC

Fixed income

IPO, SPAC

PIPE, other

Deal Types Overview

Control

Minority

— Control M&As
 
—
 
mergers and acquisitions

resulting in the change of control

(50%+ ownership)

— Minority M&As
 
—
 
sale of a minority stake

in the business

— Early-stage VC
 
—
 
pre-Seed, Seed, and Series

A rounds with a lead VC fund

— Late-stage VC
 
—
 
Series B, Series C,

and later-lettered venture rounds

— Corporate Investments
 
—
 
investments with

a lead investor being a corporation

— IPOs
 
—
 
the process of a company going

public, including IPOs, SPACs, and direct

listings

— Fixed-income
 
—
 
debt-related instrument

with fixed payments and interest payments

— PIPE, other
 
—
 
private investment in public

equity, direct share issue, and other

transactions with publicly traded stock

Deal Type Terms Glossary

Target’s Sector Overview

Hardware

Other

Cash-related

PC
 
&
 
Console

Multiplatform

Mobile

Outsourcing

VR/AR

Platform

Tech

VR/AR

Blockchain-powered

The information, opinions, estimates, and

forecasts contained herein are as of the date

hereof and are subject to change without

prior notification. We seek to update our

research as appropriate.

Gaming

Platform

& Tech

Other

M&As

Private

Investments

Public

Offerings

VC Ratings Calculation

For both the Deals Number and Deal

Value lists, we prioritize as follows:

60%
 
—
 
Lead Deals

number
 
/
 
value;

40%
 
—
 
Total

number
 
/
 
value.

Since the funds do not usually

disclose publicly their individual

participation in a particular round

(even if some occasionally do), we
do

not take into account the exact cuts.

We prioritize the overall number and

the sum of the deals while still

placing importance on the value and

the count of lead deals.

This report is intended for general

information purposes only and is educational

in nature; it is not a solicitation or an offer to

buy or sell any financial instruments or to

participate in any particular trading strategy.

Nothing in this document constitutes

a personal recommendation, or a piece of

legal or professional advice.

You agree not to copy, revise, amend, or

create a derivative work, provide it to any

third party, or commercially exploit any

InvestGame research. You shall not

reproduce data in any form or by any means

without the prior written consent of

InvestGame.

We would love to thank our dear friends at

MGVC
,
Taylor Wessing
, and
White Label PR

for supporting this report. Please note that

this support did not affect the integrity or

fairness of the data and analysis.

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Digest

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LinkedIn

16

Disclaimer

Appendix

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