Cryptocurrency Game Investment Review: Cautious Optimism in the Primary Market

In the just-concluded first quarter, as

cryptocurrency

prices rose, the first-tier market gradually warmed up. According to PitchBook statistics, the cryptocurrency and blockchain sectors raised a total of $2.52 billion in the first quarter of 2024, a quarter-on-quarter increase of 25%. Investments mainly involved L1/L2, DeFi, AI, DePIN, and Web3 games. However, a report jointly released by DappRadar and BGA for the first quarter of 2024 shows that investment in the Web3 game vertical is actually trending downwards. This trend is a correction following the investment frenzy in the metaverse and gaming during the pandemic, affecting not only Web3 games but also the traditional gaming industry.

Early Bull Market in the First-tier Market: Cautious Optimism

The first-quarter blockchain gaming report indicates that the investment outlook in the Web3 and blockchain gaming sectors is cautiously optimistic. The blockchain gaming industry raised $288 million in financing this quarter, showing a significant decline from previous quarters. The analysis attributes this cautious attitude to a challenging past year, with many companies awaiting the results of early investments. Furthermore, the focus of these investments is mainly on Web3 games and infrastructure, indicating that the industry is in a foundational phase aimed at enriching the Web3 gaming ecosystem.

Considering Bitkraft Ventures announced the launch of a $275 million gaming fund in early April, and based on publicly available information, the blockchain gaming sector raised nearly $40 million in the first week of this month, overall, the performance of the Web3 gaming industry in the primary market has maintained a level consistent with the second half of last year since the beginning of the year and has shown a breakout trend in the past month.

In March, the large-scale financing of NFT card game Parallel and AAA game developer Gunzilla Games was impressive. Parallel completed a new round of financing of $35 million at the end of the month, with participation from Solana Ventures, Amber Group, and others. In the previous cycle, Parallel raised $50 million from Paradigm at a valuation of $500 million in October 2021. The studio's current strategy is focused on expanding its player base, with specific measures including the implementation of the Parallel Ambassador Program and leveraging influential partnerships. Worth noting is the recent endorsement of Parallel by several well-known Hearthstone streamers, including Thijs, which has sparked conflicts within the community. Decrypt, a crypto media outlet, commented, “Much of the animosity from traditional gaming communities seems to stem from crypto games attempting to compete with their favorite 'Web2' games and the accompanying skepticism.”

Gunzilla Games also raised $30 million in a round of financing at the end of the month led by Avalanche Blizzard Fund and CoinFund. They previously raised $46 million in August 2022, with Republic Capital as the lead investor and participation from Griffin Gaming Partners, Animoca Brands, Jump Crypto, CoinFund, Shima Capital, and others. Additionally, Gunzilla had raised $25 million when founded in 2020, bringing the studio's total financing amount to over $100 million. Gunzilla Games is set to launch the battle royale game Off the Grid, a free-to-play third-person shooter game that will be released on Sony PlayStation, Microsoft Xbox, and PC platforms.

These investments highlight a strategic shift towards creating immersive, player-centered experiences in the blockchain gaming world. As the industry continues to recover from challenges, building and enhancing Web3 games and infrastructure remain paramount, laying the groundwork for future growth and innovation.

However, in the gaming industry, bankruptcies and failures are widespread. According to a survey by game service company SuperScale of over 500 mobile game developers, 83% of mobile game projects will die within three years, nearly half of the projects (47%) die within 12 months of launch, and 17% of games have a lifespan of less than 6 months. Currently, as a niche market, Web3 games are no exception. According to CoinGecko statistics, out of 2,817 Web3 games launched between 2018 and 2023, 2,127 have already been declared failures, accounting for 75.5%.

Gaming Industry Financing Market Enters Downturn Phase

In 2023, the entire gaming industry's investment and financing market was notably lackluster. According to Crunchbase data, investments from seed to growth stages hit multi-year lows. Throughout the year, no digital gaming company received over $100 million in late-stage venture capital, large-scale financing before initial public offerings disappeared, and early-stage financing remained tepid. According to Crunchbase's statistics on global gaming market investments over the past six years, the total funds raised by the industry in 2023 decreased by 79% year-on-year. By country and region, the investment decline in the U.S. market was even more pronounced, with a drop of up to 86%.

In specific figures, according to game investment data analysis company Investgame, the total venture capital and private investment in 2023 amounted to $2.7 billion, involving 403 financing events. Compared to the annual financing total of $10.7 billion in 2022, this marked a significant decrease of 75%. However, it's worth noting that the number of financing events did not decrease by as much, decreasing by “only” 21% from 2022's 551 events. This resulted in the average financing size being halved year-on-year, dropping from $19.4 million in 2022 to $6.7 million in 2023. InvestGame describes this sluggish market as a correction to the inflated financing activities during the COVID-19 pandemic. The number of financing events in the industry remains higher than pre-pandemic levels, but with fewer late-stage financing events, the total funding amount could not be raised.

In specific figures, according to game investment data analysis company Investgame, the total venture capital and private investment in 2023 amounted to $2.7 billion, involving 403 financing events. Compared to the annual financing total of $10.7 billion in 2022, this marked a significant decrease of 75%. However, it's worth noting that the number of financing events did not decrease by as much, decreasing by “only” 21% from 2022's 551 events. This resulted in the average financing size being halved year-on-year, dropping from $19.4 million in 2022 to $6.7 million in 2023. InvestGame describes this sluggish market as a correction to the inflated financing activities during the COVID-19 pandemic. The number of financing events in the industry remains higher than pre-pandemic levels, but with fewer late-stage financing events, the total funding amount could not be raised.

Crunchbase News business and tech columnist Joanna Glasner believes that the sluggishness in the primary market could be attributed to changing consumer habits. During the height of the global COVID-19 pandemic, consumers spent more time and money on video games, but now spending is increasingly shifting towards activities outside the home. She notes that the decline in adjacent categories like Web3 and Metaverse has also affected the gaming sector. Startups integrating NFTs and other plug-in products into games or metaverse games were very popular in 2021 and 2022 but are now less so.

Josh Chapman, co-founder and managing partner of game venture firm Konvoy Ventures, believes that the pandemic-induced gaming boom attracted increased activity from speculative investors and predicts that the industry will return to normal growth in 2024. Chapman also states that the decline in the Web3 gaming industry in 2023 contributed to the overall decrease in transaction volume. “Many Web3 and crypto technologies in gaming disappeared last year, and the lack of Web3 gaming companies entering the market led to an overall decrease in transaction volume. This is a sub-sector of the gambling industry, while other sectors maintained strong momentum.”

It's worth mentioning that Konvoy Ventures announced the launch of a $150 million new fund in July 2022, stating that part of the funds would be invested in blockchain and crypto-related games. Prior to this, Konvoy Ventures had invested in the developer of Axie Infinity, Sky Mavis, NFT sports game Genopets, and NFT pet game Ready Player Me. As Web3 games entered a bear market along with the crypto industry, star projects like Axie Infinity also suffered setbacks. Konvoy Ventures seems to have refrained from injecting more funds into this area.

Web3 Game Financing: Returning to Pre-Previous Bull Market Levels

In the context of an overall sluggish gaming market and a crypto market in a cold winter, the Web3 gaming sector's investment and financing also showed significant decline in 2023. According to decentralized organization game7, which focuses on blockchain games, the Web3 gaming industry continued to decline in the first three quarters of 2023, dropping from $344 million in the first quarter to $160 million in the third quarter. The quarterly financing size was halved and has stabilized at levels lower than those on the eve of the 2021 bull market.

Additionally, after categorizing the types of games, game7's statistics show that sports, MMO (Massively Multiplayer Online) games, and RPG (Role-Playing Games) blockchain games have raised the most funds in recent years, ranking in the top three and significantly outpacing other categories. It's worth noting that the football game Sorare completed a $680 million Series B financing at a valuation of $4.3 billion in 2021, accounting for nearly 70% of the total funds in its category. Additionally, action, management, and strategy games have also received some market attention.

Although there are some discrepancies in the data, a report jointly released by DappRadar and the Blockchain Game Alliance (BGA) also indicates the sluggishness of the primary market last year. The report, focusing on the gaming sector and including funds raised by VCs specifically interested in investing in Web3 games, shows that a total of $2.9 billion flowed into the Web3 gaming and metaverse industries in 2023. This is a 61% decrease compared to the $7.6 billion investment in 2022 and is also lower than the $3.7 billion in 2021.