The Video Game Industry Is Facing A Venture Capital Funding Problem

A new report suggests that the video game industry’s struggles in 2023 run deeper than firing staff and closing studios.

To be clear, 2023 has already been a rough year for the industry. While it’s true that we have not seen this much high profile releases come out in one year for a very long time, it’s also true that behind the scenes, the video game industry has been quietly in turmoil.

This week was particularly rough, with a series of official and unofficial updates revealing layoffs at multiple studios, including Naughty Dog, Sega’s Creative Assembly, Epic Games, Team17, Blizzard, Ubisoft, and Mediatonic.

But as was noted in this article from The Gamer weeks earlier, if you were paying attention, there were many other signs that the industry was quietly in turmoil. They note other layoffs in Microsoft, Sega outside of Creative Assembly, Firaxis, Take-Two Interactive, CD Projekt RED, and others.

We may have also not interpreted it this way earlier in the year, but this year’s cancellation of E3 is another bad sign for the industry. Even fans who think Geoff Keighly can gamely fill that void have to acknowledge that E3’s struggle to stay relevant did lead to people getting demoted or losing their jobs, a lost opportunity for many companies to promote their games, etc.

And now, there are new revelations from a new report from Bloomberg, using Pitchbook data. As reported by Video Game Chronicle, venture capital firms invested $ 700.3 million in video games in this year’s third quarter. That was a precipitous drop since those investments peaked at $ 5.9 billion just the year before, in 2022’s second quarter.

It also represents the lowest amount of investment in video games since the second quarter of 2020.

Some of this drop in investment has been accounted for. Since video games appeared to be a pandemic-proof industry just last year, investors were eager to immediately pull their money into that industry. They had pulled out now that it’s become clear that that perception was exaggerated and very far from reality.

It can also be said that a lot of the interest in blockchain applications in games, such as the metarverse, crypto bases games, and so forth, has also died out. And then, of course, there’s a possibility that they layoffs caused investors to devalue the industry.

But we also have to acknowledge that things could be the other way around. The reason this industry is feeling forced to cancel games and lay off their workers is the lower profile and reputation of the video game industry. And that could be happening, because venture capital firms are no longer supporting video game projects, or cutting their support.

 In fact, we know of one very high profile example of this and its consequences. Embracer Group failed to close a multimillion dollar deal this year, with what was rumored to be the Saudi prince’s public investment fund. In the fallout of that, Embracer has closed Volition, and has revealed plans to lay off and possibly close even more studios under their umbrella.

It’s unfortunate that this is all happening in a year that we should be celebrating for video games. But we also can’t pretend that everything is looking up roses for the industry.

For the video game industry to get back on its feet, many moving parts need to get back together on one page. That means big money pouring into game projects, that will lead to developers being gainfully employed, and new games getting published. We all certainly hope that the industry can do that bouncing back as soon as next year.