The video game industry’s revenue surpasses that of movies and music combined annually. However, the sector has not escaped the macroeconomic impacts of the past few years. Gaming companies have experienced significant layoffs, and venture funding for the category hit a five-year low in 2023. Despite this, VCs are optimistic that the situation will improve this year.
According to a report from video game-focused VC Konvoy Ventures, gaming startups raised $2 billion last year. This number is significantly lower than the $9.9 billion raised in 2021 and the $6.7 billion raised in 2022.
Although many VCs believe that 2024 may be a challenging year for startups, some are optimistic about the video game sector. Positive milestones for the industry in 2023, such as the release of popular titles like Baldur’s Gate 3 and Hogwarts Legacy, indicate that the video game market could continue to grow into a $229 billion industry by the end of the decade.
The industry is evolving, creating opportunities for startups to align with new trends. As the gaming industry shifts away from mobile games and towards cross-platform games, which are more expensive but more profitable, this change could lead to new opportunities. Additionally, the early stages of AI integration in video games are expected to take shape this year.
Josh Chapman, co-founder and managing partner at Konvoy, foresees a return to normal growth for the industry in 2024 as the temporary surge caused by pandemic-driven gaming spikes and the interest in web3 gaming subside. Ilya Eremeev, managing and general partner at The Games Fund, notes that the abundance of developer talent, coupled with reduced compensation, may benefit startups in this market.
While some investors have exited the space, corporates remain active and are increasingly participating in early-stage funding. Furthermore, the emergence of AI in the video game sector is expected to lower production costs and attract more investment.
Investors are particularly interested in the potential impact of AI on game development and the integration of generative AI in games. This development could allow users to have greater control over the game environment, including non-playable characters, with proper guidelines in place.
Although AR and VR were not mentioned as areas of growth for the year, with the slate of big video game releases scheduled for 2024 and Disney’s recent investment in Epic Games, VC investors have reason to remain optimistic about the future of video game startups.
Overall, despite the anticipated challenges, 2024 may offer incredible opportunities for the gaming industry. As Josh Chapman put it, “Tough times produce incredible companies.”
