Video game market conditions might be influenced by excessive investor demands?
In the ever-evolving world of the video game industry, securing funding has become a daunting task for many studios. According to a survey by The Collective and Omdia, unreasonable investor expectations are the primary cause of the industry's downturn since 2022, with 64% of developers citing this as the number one factor[1].
High risk and uncertainty for venture capitalists (VCs) are a significant hurdle in securing early-stage funding for gaming startups. Investment in the sector essentially amounts to betting on the success of particular games, an outcome that is inherently uncertain[1].
Soaring development costs also pose a challenge. The cost of producing modern AAA games has skyrocketed, often exceeding $100 million and reaching $200–300 million or more, including marketing[2][3]. This financial risk contributes to investor caution.
Risk-averse behaviour and sequel fatigue are other factors affecting the industry. Major publishers tend to avoid new intellectual properties (IPs) in favour of sequels and established franchises to ensure returns[1][2]. This sequel fatigue results in fewer fresh, innovative projects, which may deter some investors looking for breakthrough ideas.
Industry challenges and market saturation are further contributors. Over 60% of games in development never launch, reflecting both high competition and project failure rates[1]. This uncertainty diminishes investor confidence in new game projects.
The post-pandemic period has seen a slowdown in gaming market growth and economic tightening, leading to layoffs and project cancellations. Lower overall investor appetite combined with these economic pressures reduces funding availability[2][4].
As the industry shifts from venture capital to private equity, new investment avenues are emerging, but this is relatively recent and not yet broadly accessible to smaller or earlier-stage studios[1][4].
Devin Reimer, founder and CEO of AstroBeam and former CEO of Owlchemy Labs, suggests that investors should consider investing in at least the first two games from a studio to see growth potential and increase the odds of a hit. On the other hand, Jake Solomon, founder and CEO of Midsummer, argues that the venture capital model is built upon significant return on investment, and it still makes sense for investors to chip in at the seed stage in exchange for relatively large amounts of equity[5].
Solomon also mentions that 2025 is "the worst year" for Series A funding and beyond due to high valuations, few exit events, and a lack of successful investment examples in games[6]. Reimer also called out a "mismatch" between investors and the way game studios work, stating that successful game studios generally need to launch many games before they get a hit[7].
Despite these challenges, the number of developers reporting receiving fundraising in the past 12 months is virtually unchanged in 2025, with 30% of respondents saying their company received funding[8]. The Outer Worlds 2 has had its price lowered from $80 to $70, indicating a potential shift in market dynamics.
In conclusion, the video game industry is facing a challenging funding landscape in 2025 due to high development costs, investor risk aversion, market saturation, and economic uncertainties. Private equity’s gradual involvement may offer some relief, but the competitive and costly nature of game development remains a significant barrier[1][2][3][4].
References:
- The Collective and Omdia Survey on the Video Game Industry
- Kotaku
- Gamasutra
- VentureBeat
- GameDaily
- GamesIndustry.biz
- Polygon
- VentureBeat
In the dynamic world of business and technology, investors looking to venture into the gaming sector face significant challenges, including high risks and uncertainties associated with betting on the success of specific games. (finance, investing, technology, business)
The shift towards private equity as a funding source in the gaming industry presents some relief, but it remains relatively exclusive to smaller or earlier-stage studios, exacerbating the financial barriers for many. (finance, business, technology, investors)
