Video game investors on 2025: "It's tough, but there is optimism"

There's been a big shift in my opinion from when I joined and it was all down in the dumps to now. It feels a lot more like optimistic. A lot more is happening. I've talked to Roblox studios that are smaller, younger teams that are like super happy with like how they're monetizing and how they're able to support themselves. But on like a venture scale, you know, that's a different question. Hello and welcome to the Game Business Show. We're a brand new business publication all about the world of video games. If you'd like to hear more about us and to sign up to our newsletter, head to the gameiness.com. Now, today's show is all about video games investment. About a year ago for gamesindustry.biz, I wrote an article that looked at how investors were feeling about the games market, and it made for pretty bleak reading. They were predicting a brutal year for the games market with up to two years of pain of video game companies. However, there were some investors that were optimistic about how things might be in 2025. Well, we're a third of the way through that year now. The brutal headlines are

continuing and analysts are cautious about growth in the video games market. So, how are investors feeling? Is there any sign of light behind these dark clouds? Well, we asked them. Things definitely picked back up. It's definitely very busy at the moment. We've got I think we've got three deals that we're doing at the minute, which is a bit different to last this time last year. This time last year, I think we'd only close one. I've only been with LVP for just coming up two years now. And like there's been a big shift in my opinion from when I joined and it was all down in the dumps to now. It feels a lot more like optimistic. A lot more is happening. I definitely think that there was periods of pretty intense doom and gloom. I would say I have seen a little less doom, maybe a little more gloom, but it hasn't been like the whole overall thing hasn't felt as like heavy. Preed and seed deals are happening. They're not as easy as they used to be. The valuations are tighter. People are a lot more questioning. Um,

you know, now it is about solid businesses rather than, you know, potential growth. It's are you creating a business that will be self-sufficient at some point? Are you creating a business that is going to last for a long time and change the games industry? But those deals are happening. And a I know I know we have a lot of bad news at the moment, but there are green shoots around startups, angel deals, early stage VC deals. You heard there from Gus Curley, who is an associate at London Venture Partners, Kelly Wallik, who is partner at OneUp Ventures, and angel investor Nick Button Brown. And they all seem relatively bullish about the market right now, certainly in contrast to the headlines that we've been seeing. But not everyone is feeling as confident. Alexi Geravarian is the CEO of indie publisher Kepler Interactive and games investments fund Kowoon Knights and for him he's not seeing any significant shift in the funding landscape in 2025 compared with 2024. I think it's really difficult to read the tea leaves at the

moment. There is no immediate reason to believe things will dramatically change. I think it's very obvious for everyone that we went from a phase of very rapid expansion with a lot of uh money flowing through our sector to a much drier patch. Um and essentially I think most folks who used to actively invest in our space have kind of stopped. Um we had a lot of VC money flowing in and that kind of is non-existent now. We had a lot of the larger um investors from from China and other regions that were also very active in investing and that also kind of has stopped. Um and I think publishers are being incredibly cautious as well. They are not signing as many titles. budgets tend to be very low and I think reasonably they're also waiting for things to be very far along before picking them up. And so that really creates a a really challenging time for studios because effectively you need funding to get something off the ground. You need funding to get a project started. I think at the moment, especially for early stage funding, there really isn't a lot of people um able to fund things. Um, and I'd say if

you go up certain budgets, probably above a million, there really aren't that many publishers either who are able to u provide capital to develop your projects. One of the investors I spoke to last year was Spike Lori, partner at VC firm Hero Capital. Last year, he told me he had hoped to see the games market improve come 2025, at least a little bit, but now he feels that 2025 will be another tough year for video game companies. Everything is down, right? and and and especially in the last week, we've seen even more economic uncertainty um through the Trump administration's um tariffs um and the kind of inevitable kind of trade war that that that brings with China and with other countries um and a very acrimonious relationship it looks like with Canada straight off the bat. Right? So in uncertain times when interest rates are kind of high, you it takes very very bold and brave investors

to be making speculative bets on on things like the games industry, especially as and we've talked about it many times, a lot of venture capital funds that or you know funds and also publishers um over the last couple of years had not met the investors expectations, had not returned cash or capital to their LPs to their investors. And so we're still in a climate where people with money, who unfortunately the people that are funding this stuff at the end of the day, would rather put their money in the bank and sit and wait um than invest in video games. Well, let's dive a little deeper, shall we? According to a report from VC Fund Convoy, 2024 saw a big drop in the number of deals being done around video games and an even sharper fall in the value of those deals. However, the 446 VC deals that were done in 2024 is actually more than the 434 that were done in 2020. So, when it comes to the quantity of investments, particularly

those early stage investments, we're still seeing growth over preandemic levels. Both Gus Curley and Nick Button Brown cited this data to me as evidence that there is funding out there. And that's hard to dispute. There are still stories of new game studios receiving funding, certainly not to the level we saw a few years ago, but investments are happening and new teams are emerging. What's challenging is that there are a huge number of games companies fighting over this money. And that means the days are over when developers could receive investment with nothing more than a pretty sales pitch and some mocked up artwork. In fact, many of the investors we spoke to say they need to see something showable, even a prototype, before they'd consider investing. Here's LVB's Gus Curley. People don't believe that they can really get that much out there for very little, but like what we've sort of seen over the years is the I think one of the biggest problems in the industry at the minute is the oversaturation of content and over supply of content. And that's arguably because the the democratization of the

tools like Unreal Engine, Unity, anyone can now create a game which is very different to before. And that sort of uh means that we're now looking for these teams that can actually get something out to market be quite frugal. Last year I spoke to Steel City Interactive, the game studio behind the million selling boxing game undisputed. The three brothers who formed the company made as much of the game as they could by themselves in their own homes. They even put a car on the line in order to secure some licenses all before approaching VCs. That meant by the time they went to market looking for investment, they were not short of interested parties. But those brothers were notably not games industry people. In fact, they'd never made a game before. They were just entrepreneurial people with a love for video games and a love for boxing. That represents another shift in the investment space. Who is getting the money? During the peak of the pandemic years, I regularly wrote about a former AAA games veteran who worked on

Battlefield or Call of Duty or League of Legends or Overwatch who had secured a multi-million dollar investment deal to form a new AAA studio. But today, the type of founders the investors are choosing to work with are a lot more conventional. Everyone has seen a lot of um new studios getting started by by like well-known veterans and with extremely large budget for their first game. And in our experience actually the most successful teams tend to go for something more modest on their first game. Try to build up because it's it's a really challenging thing right if you start a studio you're building a team you're building a company and you're building a video game and you don't really think about those things when you start like I have a great idea I have a concept I have a thing that I want to make and I'm going to spend the next 3 to 5 years of my life doing this. But actually you also have to hire people. They have to get along together. They have to build up a momentum on how you make the thing. Plus, you start having to worry about IT issue, HR, and all the other things that a person running a puffin has to do. And so, the amount of time you spend actually making a

functional video game shrs. That makes it harder to make something really interesting and really good. I think it's a different type of founder that's being backed now than was before. I think a lot of the companies that got funded in 2020 uh 2019 2021 were these founders coming from these massive studios like Riot uh EA who who have worked on major major franchises uh but now I think it's moving to much more scrappy previous entrepreneurial experience uh not necessarily successful by any means uh but people who who have sort of been through it before and can do it again and not been part of these massive massive teams like been part of a small team and actually shipped something. That was Kepler's Gavarian and LVP's Curly effect could be saying the same thing there. Now, some of the investors we spoke to say they're wary of investing in a bigname developer with a set vision. In fact, they talked about the importance of making games for an audience. For almost 20 years doing this

job, a phrase I often hear when I interview game developers is, "We just make the games we want to play." Well, in 2025, that isn't a phrase that necessarily goes down with investment groups. People very very often create what they want to play uh what they want to create. Um they start a games company not because they want to start a business. They start a games company because they they wanted their own. They didn't want to report a boss anymore. They wanted to build a games they always dreamed to play. Um which comes with with lots of struggle which comes with um people see don't look around what happens in the market very often. I have so many friends who work in games and so many times when when we talk I'm I'm I don't want to say I'm shocked because first of all they're my friends and then second of all I really like some of the games they built but very often they they don't look at the market when they when they decide to build a game they don't is there a target group for it is this big enough what's the production time is it is there currently a a change of platforms coming so it doesn't make any sense and and that's I think where

we are very very different we look very analytical very datadriven Um, and we try to ask as many of the questions before, but also and I hate saying that. That's my favorite one of the favorite things of my co-founder to say, we're financially prudent. We're very careful with when we spend money and how. And then we try to educate our teams to do so themselves because games have become incredibly expensive to build. That there is Oliver Hines of gaming group Ionic which has acquired numerous studios in recent years including Warren Spectre's Other Side Entertainment and late last year secured 152 million euros in funding. And when it comes to data it's not so much sales figures that he's talking about. When it comes to being analytical a lot of the time that involves trolling through YouTube comments and reading Reddit threads. You can read a lot between the lines. Um you know you can if you trailers and you read the comments, you read a lot in them. If you if you really really really read really read really read really read really read really read really read really read really read really read really read really read deep into them and not just see the wow chers very

often if you start reading a lot comments you start again feeling which are which are generic and potentially done by you know marketing companies bureaucr the follow threads on Reddit you can you can get a big feed of what's working not brown goes further says he likes to invest in companies that are making games in collaboration with the community getting feedback from them as they're making in the game and he thinks that's critical in order to stand out in today's market. The big publishers can't bulldo things to success anymore. There was always you could get to a certain number of units if you if you work the channels, if you got the sign off, if you got the listings, if you did the the shows and so on, you could get to a certain number. That's gone. That doesn't happen. You are at the becking call of the market far more than you were 10 years ago. So that the companies that are developing things alongside the market, where people are supporting it from early on, where people are evangelizing what they're doing. That's why that's particularly interesting.

We're building a bit of a picture here of what investors are looking for. Investors are backing companies and projects, but in a different way to before. It's not about famous game developers scribbling an idea on the back of a napkin, but frugal entrepreneurs with a prototype, a track record in shipping projects, and the ability to focus on what the audience wants to play, not just what the creators want to create. What surprises me about all this is it sounds almost sensible. Over the years, we've seen investors getting over excited and spending huge sums of money on whatever the latest industry buzzword just so happens to be, often to disappointing results. VR, metaverse, web 3, those are all recent examples of sectors that in the past have received a lot of investor attention under the hope that they were going to transform the market. So I asked our panel if there's a hot concept today that's getting investors excited. And the answer I received was almost universal. User generated content. Now by userenerated content, what we're talking about here is Roblox and to a lesser extent Unreal Editor for

Fortnite. These are platforms where developers, whether that's solo creators or entire professional teams, can make games that can potentially reach hundreds of millions of players using the in-game tools. Investors are paying close attention to the games doing well within Roblox. As a platform, Roblox has over 85 million daily active users. To put that into context, it has more users than PlayStation, Xbox, and Nintendo combined. So, investors are backing UGC companies. One such company, Voldex, has been raising millions of dollars from various investment groups and just last month used some of those funds to acquire the smash hit Roblox game Brook Haven, which boasts over 120 million monthly active users. However, not every investor is 100% convinced. One of Ventures has made some investments into UGC companies working within Roblox and Fortnite, but it remains cautious. there's a lot of like really like young creative developers there and like ideas and it's kind of like a soup of just like wild experimentation which is like awesome like I love seeing that kind of stuff

and so you know if it just ends up being something that it's kind of like the you know the cauldron for like where the next generation of like game developers and game design and all that stuff like comes out of that's awesome. Um and I you know I've talked to Roblox studios that are smaller younger teams that are like super happy with like how they're monetizing and how they're able to support themselves. Um, but on like a venture scale, you know, that's a different question than a like are you able to like make something that's a hit and, you know, have fun and and reinvest back into your studio and make more content and stuff. But then it's like, yeah, like how do you like are you able to earn enough to kind of get either out of Roblox or do something that's really going to be like a big hit the way it would be on like PC or console or something like that? And that's still kind of a question mark. It's like there's a lot that's really interesting about it and exciting. um you know but maybe not particularly from like a VC investable angle. Meanwhile, Hero Capital Spike Lurorry isn't entirely convinced of the economics on the platform. The UGC space is always feels like this kind of this mecca opportunity

of cuz if you can get it right, you can really get it right. You know, Roblox continues to do super well. I think for me the jury's out on the economics of the Roadblocks model just because of how much of a take that Roblox takes from than from than from develop from the developers. Um but it's still obviously a really interesting space. I think UFN was an area where there was a lot of hope but I don't think that's crystallized or I don't think that's come come you know I don't think that's come to fruition. But almost all the investors we spoke to are paying close attention to the UGC space. Here's Nick Button Brown. You know, on Roblox, you can you can make a mechanic so quickly, you can test it so quickly, you can find out whether it works, and you can iterate. So, they're coming out with just a completely different mentality. We used to think that we fast iterated. They really do fast iterate. I mean, they're trying it. They've got a game now. It's it's worked. It's failed. They're on to the next game within a couple of weeks. The assumption is that you need to break out of it. How do you

take it to another space? How do you do it differently? How do you do it? I don't necessarily think that you need to. You know, there are people that are building great careers, great lives, great companies who are making content for Roblox. Can they make content for UEFn? Can they make content for Minecraft? Yeah. Um, but they don't need to deliver a Steam game. They don't need to deliver a console game. Um, because their games are already played on PC and console. So that just just kind of I think there there is a new generation that have leared to really really fast iterate on mechanics and it's going to be really interesting to see the kind of games that they're creating in the next 10 years. There are other areas outside of UGC that are turning investor heads. Two of the investors we spoke to brought up the return of social network games specifically tied to the social platforms Discord and Telegram. London Venture Partners tells us that Telegram has an audience size that rivals iOS, whereas there are game developers reaching tens of millions of players

through Discord. Investors have been stung by social network games in the past, but they are watching this space as a potential way to reach consumers away from the crowded digital stores such as Steam and iOS. Another recent area of excitement for investors has been artificial intelligence, of course. However, although our investors are excited by the prospect of AI in-game creation, they were less enthusiastic when asked if they're actively seeking AI companies or projects to fund. Here's Nick Button Brown again. AI was hot, then cease to be hot, and we're now on kind of second generation AI. Um, but it's not, you know, AI, AI, there's all about AI dev tools. It's like, well, that that kind of crest happened and people are ending up looking at that going, yeah, but how do you actually make money? And with this realism of the the current market is the question is how are you actually going to make money? Um, so AI is some VCs are still investing heavily in AI. I'm interested to see what the

next generation of AI companies are where where AI is impacting on the content itself. We've spent a lot of time talking about what investors are spending their money on, but what about the other part of that question? What aren't they spending money on? And when I asked them, they all said the same thing. AAA games. If a team comes to me looking for 20, $30 million to get to a vertical slice for a AAA game, I'm not the fund, I'm afraid, for you. And actually, the people that were doing those deals have stratospherically crashed out of the market. Right? you can think about who those are from, you know, from a strategic point of view. Um, but a lot of those those checks dried up and that funding isn't coming anymore. I think the whole topic of AAA like million plus development cost. I don't think we're interesting that right now simply because the stress you put on yourself and your team in the current market to to have a game where you need to sell 5 million units just to make

your money back. Um, I think just it's not what we want right now. It's it's not what we see is is the strong suit in the market right now. And I'm sure if you have an established IP, but if you now try to to build a AAA IP from scratch, I think that's a very very strong battle you have to fight and you need to be prepared that it might you might lose. There will be still AAA units. I mean, there will be the the Assassin's Creed, there will be the the Call of Duty, but the Halo Sk. But they have the IP, they have the audience, they have the name. um building up something new like that difficult. It's very difficult to make a return on a AAA game. If you're building a AAA game and it's going to cost 80 million, then to get the kind of return, which means you can pay money back to the the you've got to sell 400 million. You've got to sell and that's that is a stretch for any level of optimism to with with confidence say you're going to sell that number of gates. So AAA is is difficult to raise money for. You heard from Hero Capital,

Aionic, and Nick Button Brown there that basically all the investors we spoke to say they're simply not investing in this space. Not just because of the sheer costs involved in making these projects and the risks that come with that, but also because player behaviors over the last 2 years suggest that AAA isn't necessarily what they want. Outside of AAA, mobile freetoplay is another space our investors are steering clear of. It's very difficult to succeed in that market when faced with the machines of companies like Supercell and King. However, LVP's Curly says there are some opportunities in mobile, particularly with user acquisition costs flatlining. Now, there's one area of the investment world we've not spoken about at all so far, and that's public companies. And to see how the shareholders are feeling about the sector, we spoke to Patrick O'Donnell from investment research firm Goodbody, who specializes in tracking public video game businesses. There's still a lot of trepidation amongst investors h on the in the video games industry in general partially because people see a lot more

uh cost pain to come but also because on top of that you've got kind of a consumer that's still relatively uh constrained in terms of spending globally and this is affecting you know everything from AAA right down to indie. So, you know, for what we're seeing is it's an incredibly competitive environment out there for publishers and developers um and and and as such achieving um you know, a a strong uh momentum on a new release is is even harder than ever as we've seen from the recent Steam stats, you know, which are now at sort of record levels globally in terms of number of new releases. So despite, you know, a very strong kind of concurrent uh player base on that platform, it's it's it's now more harder never to actually uh to have a commercial success on your on your title. So what we've seen is that's led to I think more stabilized results amongst the publishers in 2024. Um a slightly better um backdrop because we

had downgrades last year. we're we're getting more in line stroke marginally positively ahead of uh expectations in the UK certainly that seems to be filtering in the same vein globally but we're definitely not in a territory of um material upgrades or um sentiment uh huge sentiment improvements I I think it's very much things are getting incrementally a little bit better but uh there's still more pain to come in the sector you know Patrick points to some positives At least from a financial perspective, the sheer number of layoffs and cost cutting in the sector has helped profit margins with companies at least delivering in line or ahead of expectations and also back catalog sales remain very robust although it is coming at the expense of new game sales. When we look at 24 actually new release was as bad as I've seen it in in in the seven years that I've been covering public markets in terms of financial performance um right across our

publisher base. I mean we're talking like you know we haven't the data hasn't been released yet but we could be looking at 90% plus of revenue coming from back catalog across the core indie publishers in the UK this you know in 2024 they'll release results in the next few weeks but from the data that we've yeah pulled through our own company analytics analysis like it's pretty stark in terms of new release performance. One thing he notes is that most of the businesses he covers are returning to their core competencies. there's a lot less risk-taking from the major companies. They're instead focusing on the types of games they're known for and have a track record of delivering as opposed to trying things that's outside of their comfort zone. And that is being generally wellreceived by shareholders. One additional thing he notes is that the low valuation of companies plus stronger bank balances due to all that cost cutting could lead to an uptick in mergers and acquisitions towards the back end of the year. I think we're going to see a flurry of deal flow in 2025 26 also like publishers that won't have the content

to get to platforms will need to acquire the content and there's cash on balance sheets globally now given the sort of cost cuts that have been done so it's an important point that M&A is going to be a important part of the firepower for public and private companies and but also for strategics and then on top of that you've private equity circling everywhere given the valuation back backed up in the industry Um so I think um you've seen CBC come in and buy Jagex in the UK. Um you know we expect them to be active again you know you you've others um you know like Havlli group in the US who are you know um active with the private division etc. So globally there's a lot of capital around ready to pounce uh once the right you know valuation environment um come comes to pass with public companies playing it safer with established franchises that does put the onus on the rest of the market to deliver the new things the innovative stuff the games we've not seen before and although investors are cautious they do know that the games and

studios that will succeed today are not the ones delivering things that are already out there indeed Kepler Geravarian says his publisher active seeks games are radically different to what everyone else is doing. I don't think safe is safe anymore. I think we we we see about 1,200 pitches a year. And I think it's natural when you see the the sector contract a little bit and less funding. You kind of have a tendency to say, "Okay, I'm going to pitch something that feels safe, but actually safe titles don't perform. It's really really hard." And and when we are assessing pitches, you know, our our view is always you're you're trying to throw a can from a a movie car 3 hours away from now. And by the time your game is done, the entire space has completely changed. And so making those predictions is incredibly difficult, I think, across the board. And so for us, we say, let's just pick games that if they had released 5 years ago or released in 5 years wouldn't matter. They would be exceptional either way. So what's the conclusion? Is the investment situation improving in video games? Well,

improving might be the wrong word. Investors remain hugely cautious and are no longer spending the levels of money they were just a few years ago. That was the case in 2024 and that is the case today. However, things are crystallizing. There is now more clarity over what investors are looking for. And in many ways, it comes down to what the entire world is being asked to do in 2025. Whether that's video games companies or the US government. Can you deliver more faster and for less? If you can do that with a good idea, a strong team, and a willingness to work with the market, there is money to be found. I'm going to leave you with wise words from Heroes Lororry, LVP's Curly, and Nick Button Brown. Venture capital is looking for outsized returns. You will not make outsized returns making video games in the old tested way, right, of of how to make games. You just the economics don't work. And so, you know, if you're looking for venture capital or for investors and publishers are different, you know, you shouldn't be approaching

them unless you are adapting, pivoting, using the very latest in production technology, really looking carefully at what your consumer wants, looking at the market, creating something innovative and new and disruptive because that's how you get outsized returns. And and I think that is that's where Veg Capital can step in and provide very cheap funding to talented people. But if you're just looking to make games, this is how we've always made them. This is how we're going to make them. Um that's really you should be talking to a publisher. I think it's a total new normal. uh one one of our portfolio companies bosser Henry just released a really good normal uh letter and I think it's people need to adapt to a new environment and not expect the the like oh like the abundance of capital that was flowing in games like we're we're seeing it with our own studios like the the terms publishers are giving them are much harsher than what was before uh but

that's that's the new normal now we need to adapt to that new normal or find new opportunities is I've heard the survivor till 2025, but that is that's oversimplifying it. That's this idea that the industry is ever going back to where it was 3 years ago. It's not the the survival 2025 is but accept that the industry has changed. You know, there are elements of the industry. If you're a AAA studio right now, that is a difficult place to be. If you're doing something cool on the cutting edge that's really defining the business, that's an interesting place to be. So, it's not survive till 2025. It's recognize that the old business is not where we are now. Thank you all for listening or watching the Game Business Show. We'll be back later in the week with our news and analysis show. If you want to make sure you don't miss anything, you can keep up to date on everything going on with us. Head to the game.com or subscribe to the game business newsletter or indeed follow us on any of the social media channels you like to use. Until next time, thanks for tuning

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