2023: Striving for Elevation

Feb, 2024 2023:

Striving for Elevation

Gaming Deals Report

Highlights:

a relatively slow year for deal-making activity

2

Executive Summary

Note: (*) closed transactions only

3

2020–2023 Recap:

select largest transactions closed to date

Executive Summary

emerged Early-stage gaming funds (30+ new

funds appeared since 2020).

— Looking at 2024, we see a rebound

in fundraising activity, with January alone

contributing $1.7B value (incl. Disney’s $1.5B

investment in Epic Games and Build a Rocket

Boy’s $110m round), suggesting that the

worst may be behind us.

2020–2023 Full Year

Executive Summary

4

Corporate & VC Investment Activity

Private Investments:

turbulence persists

— However, this year, the industry may

witness a rise in Late-stage down rounds

and shutdowns as numerous studios struggle

to show solid performance in conduction with

lofty valuations of previous rounds raised in

2020–22.

— At the same time, Seed funding for newly

opened studios is expected to maintain

— The highly inflated activity observed

in 2020–22 was corrected, reaching its lowest

point by the end of 2023.

— Despite the lower capital amount raised

in 2023 ($2.7B), driven by weaker Late-stage

activity, the deal volume remains solid, above

the pre-COVID level supported by an infusion

of new fresh capital brought in by newly

momentum, presenting investors with better

entry terms.

— Investors are seeking strategies for inherent

risks tied to content’s “hit-driven” nature,
which

led to a noticeable uptick in the gaming

ecosystem area in recent years — a trend likely

to persist in the coming years.

M&As:

pulling out of “nose-dive” maneuver

— Recent positive trends in public comps

earnings results, massive dry powder of PEs

earmarked for gaming sector investments,

the convergence of seller-buyer valuation

expectations, and the IPO exit window

remaining close collectively all point towards

a more vibrant M&A environment.

sector centers on continuing the current

market slump for another year.

— Looking into 2024, we expect a potential

uptick in deal-making activity (recent

example: Jagex acquisition by CVC/Haveli

for rumored $1.1Bn), especially

if macroeconomic conditions stabilize.

— After reaching a zenith in 2022, M&A

activity in 2023 settled at the modest value

of ≈$9.5B (excluding the MSFT-ATVI deal

for $68.7B announced in Jan’22)

with 2x times lower number of closed deals

vs. average across the previous three years.

— The prevailing uncertainty in the M&A

2020–2023 Full Year

5

Executive Summary

Closed M&A Activity

— However, persistent fears of recession,

ongoing platform updates (e.g., Google

Privacy Sandbox, new App Store guidelines,

the Unity Runtime Fee), and policy (antitrust,

loot boxes laws) changes may hurt financial

investors’ appetite.

— Throughout 2020–2021, the gaming

industry became increasingly attractive

to investors, driven by its substantial growth.

Public companies successfully raised

PIPEs to fuel aggressive M&A strategies,

while numerous businesses pursued public

listings to capitalize on market momentum.

— In 2022, the evolving macroeconomic

Public Offerings:

first signs of improvement

2020–2023 Full Year

6

Executive Summary

Public Offerings Activity

landscape and restated earnings projections

presented significant obstacles for

companies seeking to go public (IPOs,

SPACs) or secure funding (PIPEs, Debt)

at attractive terms.

— After a notable downturn in 2022, public

offering activities within the sector remained

subdued in 2023, generating just $4.2B,

starkly contrasting the $24.5B raised

in 2021, marking a nearly sixfold decrease.

However, 2023 indicated moderate recovery

with growth in value (+16% YoY) and deal

count (+87% YoY).

— Despite the IPO window remaining closed,

the combination of improving earnings

results, halted Fed rate hike, and anticipated

rate cut in mid-2024 signals a potential

resurgence in public market activity this year.

— With public listings being on pause

for two years, companies increasingly view

IPO as an essential tool to provide investor

liquidity while retaining operational control,

leading to a notable deferred demand that

could resurge if market conditions improve.

Gaming

Deals with targets represented

by video game publishers and developers

Highlights:

facing pressure

8

Gaming

Note: (*) closed transactions only.

with Seed rounds being less dependent

on the exit environment and the strong

attractiveness of the gaming fundamentals,

investors will continue to invest in the space.

At the same time, Series A startups may find

it more challenging to raise subsequent

rounds due to a lack of necessary growth

track record or relatively high valuation

of previous rounds.

2020–2023 Full Year

Early-stage Gaming:

signs of stabilization

9

Gaming

Early-stage Gaming Activity

— This increased competition led to inflated

rounds in average size ($4.6m in 2020

vs. $8m in 2021) and valuations, during which

the most significant Early-stage investments

were announced — Probably Monsters

$200m, Playco $100m, Tripledot $78m.

— By mid-2022, the activity has stabilized

against the backdrop of changes in the gaming

market and the macroeconomy:

the average check amounted to $13m,

and the deal-making activity remained

above 2020 (34 avg. deals quarterly in 2023

vs. 26 in 2020). We saw fewer Series A

(–61%) and more Seed (+2%) rounds.

— The gaming market continues to be

an exciting and growing one, so new

successful startups still emerge:

— Rapid market consolidation during

2020–Q1’22 with a record-breaking

aggregated exit value of $75.4B across 508

exits (M&A, Public listings) led to increased

interest from LPs and, subsequently,

the formation of a new wave of gaming-

focused funds (25+ Early-stage funds).

Gaming

10

Most Active VC Gaming Funds for 2023

Note: (1) based on the internal weighted

average ranking system (see p. 23);

(2) based on investments in Gaming

with the disclosed deal value (no web3

gaming deals included)

— With the rapid increase of megadeals

($1B+) in gaming M&A, totaling $116B across

18 transactions in 2020–2022, which notably

affect substantial Late-stage rounds

elevating the overall deal value — such as

Epic Games’ $4.8B (2020–22), Roblox’s

$670m (2020–2021), Scopely’s $540m

(2020), and Dream Games’ $460m

(2021–22) — investing in Late-stage gaming

companies emerged as an attractive

opportunity for PE firms and Late-stage VCs.

— The Late-stage fundraising encountered

significant challenges starting H2’22,

with rising interest rates, a closed IPO

window, and lower exit multiples.

This resulted in a downturn, with 2022–23

experiencing the least substantial Late-stage

activity compared to 2020–21 (29 deals

Late-stage Gaming:

early success and late struggle

2020–2023 Full Year

11

Gaming

Late-stage Gaming Activity

vs. 47 deals, $1.3B deals value vs. $6.7B,

respectively).

— Only a few companies that raised funds

before 2022 achieved significant results

and successfully secured new rounds

(e.g., Epic Games’ $1.5B, rumored to be

at a 30% lower valuation). Consequently,

the gap between studios and Late-stage VCs

widened as uncertainty regarding exit

prospects and challenges

in the public market rendered Late-stage

rounds a less attractive option for VCs.

— Nonetheless, 2024 might become a turning

point. We expect a modest growth of

Late-stage investments with generally

improving public markets and improving

earnings of strategic investors, opening up

opportunities for M&As.

Corporate Gaming:

the shift from pure solo investments to co-investments

2020–2023 Full Year

12

Gaming

Corporate Gaming Activity

studios, strengthening its P&L, and securing

options to acquire new IPs after the successful

launch of game releases.

— Corporate funds are open to sharing risks

with VCs, considering the elevated risks

of Early-stage investments. Сoncurrently, VCs

are diversifying their risk exposure through IP

due diligence conducted by Strategics

and reducing the capital invested.

— In 2024, we foresee a continued reduction

in solo investments by Strategics, primarily

attributed to turbulent cash flows, optimizing

fixed costs, and eventually “carving out”

in-house project development. Many

gaming comps consider “outsourcing”

the development of new IPs via WFH

contracts (fixed to flexible costs switch),

making minority investments into promising

— Despite a notable decline in the deal value

in 2023, the deal count remains close

to 2022. In 2023, there was a substantial

shift among Asian investors towards

co-investment with gaming VCs. This move

aims to diversify Corporate risks and secure

additional support for the growth of invested

studios (e.g., Sony, Krafton, Tencent, LEGO

co-investing with VCs and PEs).

Gaming:

closed VC deals by targets geo 2023

Gaming

13

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

AI in gaming:

evolution, not disruption

2020–2023 Full Year

14

Gaming

Closed AI deals

during the development.

— Since 2020, we haven’t seen any quarter

without at least one deal involving AI.

But 2023 was groundbreaking regarding

the deal count, showing more transactions

than two prior years. This was driven

by the new disruptive neural networks like

ChatGPT and Midjorney, which influenced

many industries besides gaming.

— On the one hand, it seems like the rise

and the fall of web3 taught the market

to be more cautious about trends

and novelties. On the other hand, drawing

a parallel between the current surge

and the earlier blockchain gaming boom

might be wrong.

— First, unlike blockchain, AI tech has been

steadily moving towards the mainstream,

— Despite widespread excitement

surrounding AI and what it gives and will

bring to the market, artificial intelligence

has been a longstanding theme in the gaming

industry. To better understand the trend

growth, we tracked all deals with the targets

either involved in AI technology development

or claimed to be working closely with AI tech

not suddenly booming. Second, AI can be

implemented in the traditional production

process and doesn’t require the invention

of new gameplay mechanics. And most

important, the business model is different:

there is no rush for short-term profits on NFT

sales and token launch. It’s a long-term

investment to cut the production cost

and improve development efficiency.

Decade in Gaming:

closed M&A deals with $100m+ EV

15

Gaming

Ecosystem

Deals with targets represented by other

sectors in the gaming industry

declined when attracting new audiences

(for Platforms) and entering the market

(for Tech) became increasingly challenging

compared to the gaming sector. Notably,

only one megadeal was observed during

this period: IronSource’s merger with Unity

for $4.4B, aimed at synergies between

businesses and to effectively compete

with large competitors.

in Platforms & Tech surged, with a combined

total value of closed deals reaching $17.1B

across 306 transactions. Notably,

almost 75% was contributed by a series

of megadeals, with 5 Platform deals

surpassing $5.6B in total value and Tech

deals exceeding $7.2B across five

transactions.

— During 2022–23, investment activity

Platform & Tech:

the end of consolidation

2020–2023 Full Year

17

Ecosystem

Closed Platform & Tech deals

— Methodology: InvestGame classifies

Platforms as any resources/tools

for communications with or between

the players. Tech includes companies

built around technical solutions related

to the gaming industry.

— During the rapid growth of the gaming

industry in 2020–21, investment activity

— With the current state of the sector

and a high dependence on discovering new

high-growth products, we foresee

that the trend of AI-related deals (29 deals

in 2023) will be one of the critical drivers

of future growth. There is a high potential

to witness the emergence of a new Platform

or Tech Unicorn.

Blockchain in Gaming:

not thriving, but alive

2020–2023 Full Year

18

Ecosystem

Closed web3 deals

— This time, we focus not on what we have

lost but on what is left on the market.

Though 4.4x times lower than 2022, 2023

is still 19.5x higher than 2020 in total deal

value. The number of deals shows a similar

dynamic.

— Once the market understood

that the rapidly growing profits of web3

games were a short-term phenomenon

that couldn’t be sustained for long,

many investors stopped their blockchain

initiatives. However, quite a few VCs

and Strategic investors keep allocating

their resources to blockchain in gaming.

— As a result, 2023 turned web3 into a more

niche market: fewer developers, more

— The plummeting of investment and M&A

activity in web3 gaming has been analyzed

many times and is still being discussed.

We also had a deep dive on that topic made

by Naavik for our
2020–2022 Report

and highly recommend you to read it.

selective investors, and lower rounds.

Apart from the crypto winter ’s end, there are

still more challenges to bring web3

to the mainstream: lowering the entry barrier

for new players, solving regulatory problems,

and, most importantly, turning innovative

tech into an engaging gaming experience.

— 2022 was a peak in Esports’ investment

activity; we saw one of the most important

deals in Esports — Saudi Arabia Public

Investment Fund spent $1.05B to acquire

ESL Gaming, one of the world’s most

prominent and most influential Esports

organizers. Saudi Arabia became the Esports

capital for some disciplines, especially Dota

2. Additionally, in 2022, FaZe Clan

Esports:

struggling more than others

2020–2023 Full Year

19

Ecosystem

Closed Esports deals

— Esports has been a part of the gaming

industry for many years. During the

lockdown, it gained a new surge in popularity,

bringing more audience and showing

significant growth in viewership. However,

there was a generally unanswered question

on how to monetize this audience.

went public through SPAC with a valuation

of $725m, but it was eventually acquired

for $18.5m in 2023.

— From Q4’22, we see that the Esports

industry eventually failed to build an effective

business model that could monetize its

sudden growth and make it the foundation
for

future development. Limited opportunities to

monetize its user base

and, as a result, little Revenue led to the start

of a considerable Esports market downturn.

— However, the interest in Esports remains

strong, as it continues to captivate millions

of audiences. Consequently, we may

anticipate an increase in deals from investors

in the MENAT region who aim to draw

audiences to this region.

Replay 2023

Our partner,
TAYLOR WESSING
, international legal

advisor to the games industry provides insight on key

trends impacting deal flow and investment in 2023

Microsoft x Activision Blizzard

21

Playing on Hard Mode:

increased regulation makes an impact

Microsoft’s $68.7B acquisition of Activision

Blizzard concluded after a lengthy

regulatory battle with the Competition

and Markets Authority (CMA)

and the Federal Trade Commission.

The deal was approved after Microsoft

made concessions regarding cloud gaming.

The case was unusual, as challenges

to ”vertical mergers” are relatively rare.

However, the CMA’s tough stance
illustrated

regulators’ reluctance to approve Big Tech

acquisitions without addressing concerns

early and effectively. We discussed the deal

in
more detail
with InvestGame back in

October.

In 2023, increased regulation became a key

theme in the gaming industry, particularly

regarding Big Tech’s role.

Regulators are scrutinizing tech acquisitions

and market abuse more closely, extending

across all tech sectors, including gaming.

Governments are imposing additional

regulations to address perceived risks

and harms caused by technology, impacting

the gaming sector as well.

These trends are expected to persist

and could hinder deal flow and growth

if the industry fails to adapt.

Growing antitrust troubles

Concerns are growing that this stricter

approach to merger review may stifle

start-up culture if M&A exits become

more challenging. Deal-makers need

to engage regulators effectively to navigate

these challenges.

Beyond mega-mergers, antitrust laws

are increasingly applied in the tech

and gaming sectors, leading to legal battles

such as Epic vs. Apple and Google. Sony
has

also faced class action lawsuits for alleged

abuse of dominance. New legislation such

as the EU Digital Markets Act and the UK

Digital Markets, Competition and Consumer

Bill will further increase the regulatory

focus here.

Developments in China

As 2023 ended, the Chinese government

proposed significant new rules to limit

consumer spending and ban reward

mechanics aimed at extending engagement

in games.

This news caused significant market

volatility, wiping out over $80B

from the share prices of Chinese

gaming companies like Tencent

and NetEase. While the proposed rule

change seems to have been dropped,

the episode underscored the regulatory

unpredictability in the world’s

second-largest gaming market.

22

Generative AI:

game-changer or IP infringer?

2023 was the year of GenAI.

Recent advancements in AI

are seen by many as a real

paradigm shift in the digital

economy — a new iPhone moment.

In the games industry, GenAI offers vast

potential for developers to reduce the time

and expense of game development.

But it also brings real concerns

and uncertainties around intellectual

property, privacy and potential job losses.

This is a fast-moving area, and it will be

some time before a clear international legal

framework is settled.

But that has not slowed strategic

investment, which has accelerated quickly

through 2023, both in and outside

the games industry. Highlights in gaming

include the Roblox acquisition of Speechly,

a real-time AI voice moderation startup,

and the $50m fundraising by Inworld AI

to drive forward their AI-based

non-playable character engine.

What are the legal issues?

As we move into 2024, investor

and developer interest in AI opportunities is

only likely to increase. This underlines the

legal risks.

AI tools are trained by running large

data sets through algorithms in order

to empower them to generate ostensibly

original content.

However, there are concerns the foundation

of generative AI is inherently infringing

of the copyright in those data sets,

and the legal position remains unclear.

There are also issues around IP ownership

in any works which are created using

GenAI.

Much of the current investment into AI

is ultimately being done on faith

that the law will develop favourably for AI

businesses. However, that remains

to be seen.

Palworld vs Pokémon

The overnight success of Palworld

in early 2024 has underlined

a number of the issues around GenAI.

Many commentators have noted striking

similarities to Nintendo’s Pokémon IP

and have queried the extent of GenAI usage

in its development, particularly given the

very small team at Pocketpair.

While no conclusive evidence has yet been

advanced for these assertions, Nintendo

has announced it is investigating.

It is clear that the field of GenAI,

particularly its application in the games

industry, offers vast opportunity

but also brings risk. How exactly these risks

play out in the coming years remains hard

to predict. At the moment, it is probably

dangerous to go alone… so take advice!

RICHARD FAICHNEY

Senior Counsel

+44 20 7300 7000

r.faichney@taylorwessing.com

To learn more about the gaming team

at Taylor Wessing, click
here
.

The 4th edition of the Taylor Wessing Play

Guide is an overview of the legal issues facing

the games industry, based on our long-held

expertise in the sector. Click
here
to access.

Esports

23

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

— PIPE, other
 
—
 
private investment in public

equity, direct share issue, and other

transactions with publicly traded stock

— Fixed income
 
—
 
debt-related instrument

with fixed payments and interest payments

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
and
Taylor Wessing
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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24

Disclaimer

Appendix

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