Current Investor Sentiment in the Video Game Industry

The video game industry has experienced a surge in investment over the past five years, with numerous studios being established, floated, and acquired. However, the current market landscape is challenging, with post-pandemic lull and economic uncertainty affecting game sales and revenue. Investors who previously poured huge sums of money into the sector are now reassessing their investments. According to Spike Laurie, partner at Hiro Capital, the investment landscape has been unpredictable, with founders easily securing funding for blockchain and metaverse games without due diligence. This has led to the formation of poorly structured companies that are now struggling to stay afloat. Nick Gibson, director at Games Investor Consulting, notes that the combination of tough comparisons with lockdown years, hardware supply issues, and changes to App Tracking Transparency has given investors pause. As a result, there is a greater awareness of risk, and investors are focusing on fundamentals such as financials, people, IP, and technology. Laurie argues that companies that were not set up correctly are now facing difficulties, with some having to do flat rounds or more structured rounds to stay afloat. Despite the challenges, Laurie believes it is still a great time for investors to invest in games studios, as acquirers are less active, and there are opportunities for venture capital. Patrick O'Donnell, senior equity analyst at Goodbody, notes that investors in public businesses have similar concerns to private investors, citing uncertainty over consumer spending, mobile headwinds, and regulatory issues. While the UK sector has seen downgrades and damaged investor sentiment, O'Donnell believes the sector is in a good place, but investors are cautious due to uncertainty. The industry remains positive, with consoles like PS5 widening availability, and subscription services offering new opportunities for growth. However, investors can be short-term minded, and it is essential to encourage them to rotate back into the sector over the coming months.