Investors Weigh In on the State of the Video Game Industry: "We're Investing, But the Bar is Higher Than Ever"

The video game industry is facing a perfect storm of challenges, including a tough global economic situation, rising interest rates, and decreased consumer spending. The COVID-19 pandemic has also had a lasting impact on the industry, and the dream of globalization has been put on hold due to destabilization in Eastern Europe and the Middle East. In the gaming sector, sales are declining, and the number of new releases is increasing, making it harder for games to stand out. The big live service titles are dominating the market, and many venture capitalists have invested heavily in new studios, which has led to significant hiring and spending on games that have not delivered. As a result, investors are being more cautious about what they back, and the bar for investment has been raised significantly. According to Eliana Oikawa, CEO of Wings, a fund that specializes in financing games by diverse teams, "This might be one of the hardest times the game industry has known." Spike Laurie, partner at VC Hiro Capital, adds that the current investment landscape is much more challenging than it was in the past. "The bar is super high right now. Before, a great game idea and a great team were enough to secure funding. Now, investors want to see more validation, such as a trailer, a Discord community, and playtesting results." Patrick O'Donnell, a video gaming analyst at Goodbody Equity Research, notes that 2023 was a particularly tough year for indie and AAA publishers. "The number of top successes of blockbuster IPs and the sheer proliferation of launches have made it harder than ever to launch a game." The current climate has also led to a lot of skepticism and caution among investors. Many funds are still experiencing pain from down rounds and studio closures, and collective caution has become self-fulfilling. Investors are now looking for companies that can make it to market with their products or games and have the ability to break through and distribute them. Competition is a major concern for investors, and the level of VC investment in games over the past five years has its downsides in terms of market validation. The venture capital model has led to a lack of checks and balances, and many founders are making games without proper validation. The disparity in funding distribution is also a concern, with games by women being "grossly underfunded." Recent research has shown that only 11.89% of CEOs and 8.95% of founders in the game industry are female. Despite the challenges, investors remain bullish about the long-term future of the game industry. They believe that the industry will bounce back, but it will take time. In the meantime, developers need to focus on making sure they have enough money to see them through the year. As Laurie notes, "We are making investments, but the bar has become much higher. The teams that are really going to succeed are those that have an entrepreneurial mindset and can validate their products with users or the market early and often." The best founders are those who have thought deeply about new opportunities in the market and have a unique advantage. They are able to remain lean, validate their products, and adjust their strategy to find success. In the coming months, we can expect to see a rise in new indie studios with access to smarter and more powerful development tools and engines. These studios will create great games that will fill the gaps left by the AAA space and provide more diverse games for an ever-growing number of players. While it is hard to predict when the industry will recover, investors are hopeful that 2025 will bring some positive movement. As Oikawa says, "There is certainly hope that the situation will improve in 2025. The only thing that everyone seems to agree on is that it is not a crisis that will be resolved quickly." In the meantime, developers need to focus on the basics: making more money than they spend. As Laurie concludes, "I think in 2025 we will start to see green shoots of new opportunities. Until then, people will need to focus on business essentials."