H1’23: Navigating Turbulence

Aug, 2023 H1’23 Gaming Deals Report

H1’23:

Navigating Turbulence

Executive Summary

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Executive Summary

Highlights:

low start amidst continued challenges

— H1’23 has seen a decline of Private

Investments activity, with $1.5B across

239 deals. This represents a decline of 24%

in the number of deals and a significant

5x decline in the overall deal value when

compared to the H1’22 ($7.6B across

316 deals).

Executive Summary

4

Corporate & VC Investments Activity

— Late-stage VC activity continued to cool off

since 2022, with $0.5B raised across

12 deals in H1’23 (vs. $2.6B across 27 deals

in H1’22). Closed IPO window together with

much softer exit valuation levels have
notably

impacted the attractiveness of late-stage

investments.

— Early-stage continues to be the main

contributor as Pre-Seed and Seed rounds are

less dependent on the macroeconomic

cycles. Nevertheless, the Early-stage market

has experienced 3x times contraction in

value with only $904m (vs. $2.7B in H1’22)

and 200 closed deals (−22% vs. H1’22).

Private Investments:

continued pressure with early-stage plunge and late-stage on pause

M&As:

exit activity significantly dropped in the first half of 2023

— During H1’23, M&A activity witnessed

a substantial decline of 31x in deals value on

par with a nearly halved closed deals count

compared to vs. H1’22.

— In the current volatile macroeconomic

environment, strategic investors are more

focused on internal “housekeeping”:

1. Reviewing their current portfolio of
studios,

diverting some assets.

2. We saw many companies announcing
mass

layoffs or even going through comprehensive

restructuring like Embracer.

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Executive Summary

Closed M&As Activity

— As valuations of public gaming companies

dropped making them less competitive,

financial sponsors have become more active

with Savvy Games Group acquisition of

Scopely for $4.9B.

— Q3’23 will see a jump in value as both

Scopely and Rovio ($0.8B) deals were closed,

as well as Activision Blizzard ($68.7B) might

be approved in the quarter.

— Disparity between reported actual results and

previously communicated financial estimates has

led to a significant correction in the valuation of

public comps making PIPEs an expensive

instrument.

— US public market has shown some early signs

of recovery, whereas European markets continue

to struggle and recovery may take longer time.

Public Offerings:

remain muted, with early signs of improvement

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Executive Summary

Public Offerings Activity

— Public Offerings continue to experience

headwinds, with public listings and share

issuances becoming increasingly rare in

recent times.

— Private companies choose to postpone

listing, while many public comps started

buyback programs or became

takeover targets.

Gaming

Deals with targets represented

by video game publishers and/or developers

Highlights:

gaming deal activity hitting the bottom line

8

Gaming

— VC deal making activity remains stable with

number of early-stage rounds exceeding 73

deals in H1’23 (vs. 58 in H1’22).

— This half-year we’ve seen less large size

rounds, which led to over 2x times shrink in

amount raised ($269m) vs. previous two

periods ($574m in H1’22; $572m in H1’21).

Early-stage Gaming:

activity above pre-Covid times, and shift in mindsets

9

Gaming

— Many VCs have focused on supporting

existing studios with follow-on/extension

rounds and bridges rather than making

sizeable investments into newcomers.

— Startups have shifted a mindset from

“growth at all costs” to prioritizing

profitability and extending runway periods.

Early-stage Gaming Activity

— Despite the prevailing circumstances, there

remains a huge amount of unallocated capital

yet to be invested, and we anticipate

early-stage VC activity to pick up through

the end of the year.

— Fundraising activity has significantly

dropped and pivoted towards experienced

managers with only a few funds announcing

successful closings recently.

Note: (1) based on the internal weighted

average ranking system (see p. 17);

(2) based on investments in Gaming with

the disclosed deal value (exclude Web3

gaming deals included)

Gaming

10

Most Active VC Gaming Funds for H1’23

— Furthermore, a disconnect in entry

valuation expectations and the absence of

notable growth track records for gaming

studios have posed challenges for investors

in identifying interesting late-stage targets.

Late-stage Gaming:

Activity remains muted as less feasible exit options

— Starting Q2’22, a downward trend in

deal-making activity has endured, primarily

driven by a lack of feasible exit avenues for

VCs at the later stage. Ongoing public market

challenges and a shrinking strategic buyers

universe made late-stage rounds more risky

and less attractive by ROI.

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Gaming

Late-stage Gaming Activity

— Engagement typically lags public markets

by several quarters, making public offerings

activity a potential indicator of the timing for

an anticipated recovery.

— Given the shift in strategy by the most

active strategics towards prioritizing

profitability through costs optimization,

carve-outs of non-core assets, and hiring

freezes, we expect that corporate investment

activity will remain at a subdued level in the

upcoming quarters.

— In H1’23, corporate investment activity in

gaming remained nearly comparable to

H1’22 in terms of the number of deals

(15 vs. 17). However, when it comes to deal

value, it falls significantly behind, even after

excluding the $2B round by Epic Games

in Apr ’22.

Corporate:

active players altering their strategies

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Gaming

Corporate Gaming Activity

Gaming

13

Gaming:

сlosed VC deals by targets geo H1’23

Appendix

Average Pre-Seed, Seed VC Round Size*

Appendix A:

VC-backed startups’ follow-up funding and exits

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Executive Summary

— Based on our data, over 800 companies

received first investments between H1’20 to

H1’23. The cumulative value of first funding

rounds stands at $4B, out of which over 300

startups raised $0.9B between Q1’20–Q3’21.

Notably, the average deal value has almost

doubled, climbing from $2.2m in Q1’20 to

$4.2m in Q2’23.

— More than 100 companies that secured

their initial investment between Q1’20

and Q3’21, subsequently received

follow-on investments, indicating that

approximately 1/3 of startups obtained

additional funding within next 18 months

period.

— Out of those 100 companies, only 8 were

acquired, implying only 3% exit ratio within

18 months following the early-stage round.

Note: (*) only including startups that disclosed values of their initial investments (pre-Seed, Seed) received between H1’20 and H1’23

Appendix B:

AI Hype in Gaming

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Executive Summary

Closed AI Deals

We see following drivers of AI in gaming:

1. Potential simplification of game development,

and, as a result, a decrease in total development

costs and its acceleration.

2. Potential ability to connect generative AI to

create individual gameplay for each player,

which increases replay value and user retention.

— To better understand whether the rapid

development of AI tech and achievements of

ChatGPT, Midjourney, Inworld AI and many

others startups have left a substantial impact

on the gaming deal activity, we tracked all

deals with targets being involved in AI.

— Investments in AI gaming companies are

showing modest increase, accompanied by

a relatively average trendline at present.

During H1’23, there were 19 deals worth

$214.1m, compared to $145.8m across

14 deals in H1’22, 7 deals worth $29.5m in

H1’21, and 8 deals worth $62.9m in H1’20.

— However, unlike the surge seen in

blockchain gaming, the number of deals in AI

hasn’t exhibited such a prominent growth in

comparison to previous years. Yet, with

the substantial increase in allocated funds,

we do anticipate a noticeable upswing in deal

activity during the latter half of the year.

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 accuracy and

completeness cannot be guaranteed.
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. Please note that 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 corporation

— IPOs
 
—
 
the process of 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

Othеr

Hardware

Other

Cash-related

PC & Сonsole

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 of deals.

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 prioritise 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.

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personal recommendation, legal, or other

professional advice.

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,
Taylor Wessing
, and
White Label PR
for

supporting this Report. Please note that this

support did not in any way affect the integrity or

fairness of the data, and the analysis presented.

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Disclaimer

Appendix

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