No Re VC: H1 Funding Review

The state of VC funding for Web3 gaming so far in 2023

AuthorAuthor

Griffin McShane & Web3 No Re
July 11, 2023

This report utilizes data from Messari, Pitchbook, and publicly available funding announcements. Full data for Q2 2023 may be revised in future reports as it becomes available.

Key Takeaways

  • Web3 gaming projects and startups saw $193.6M in VC funding over Q2, roughly equivalent to investments made in the previous quarter. Deal count was up slightly from Q1 (23 vs. 27) but still down 73% ($3B) from the same timeframe last year.

  • 13.6% of VC crypto funding rounds in Q2 were for gaming projects, capturing 11.2% of total crypto VC funds. This represents an increase in both categories, as funding for gaming remained constant amid a 22.5% drop in total funding rounds and a 23.2% decline in total VC funding over the past quarter.

  • Game studios continued to see the highest level of investment, both in terms of funding rounds and the total amount raised. Studios and individual games accounted for just over 60% of all gaming investments in H1.

  • Mythical Games, Pixlecraft Studios, and M80 had the most funding in H1 and accounted for nearly 30% of all funds raised in the same period.

Deal Count & Capital Invested

So far, we’ve seen a total of 50 Web3 gaming projects funded in 2023, with a total reported value of $384.82 million. Quarterly funding is still far off from where it was in early 2021, but we’ve seen an increase in interest from VCs over the last quarter.

Web3 gaming funds raised by quarter (bar) and total number of deals (line)

There was an increase in investments quarter-over-quarter (24 v. 27) and a slight decline of 4% in total funding. The decline in funding is attributable to data availability for strategic funding rounds, and the unreported funding in Q2 would likely show an increase in quarterly funding based on previous data.

Deal Count by Sub-Category

2023 web3 gaming investments by sub-category

Over 60% of the investment deals went towards games studios and individual games, with VC banking on hitting big with a blockbuster game. However, another theme shouldn’t be overlooked: only 6 of the deals went to infrastructure projects. It’s hard enough for traditional games studios successfully develop a profitable game, but in crypto, there’s a whole host of other functionality that needs to be involved, whether that’s session keys, digital asset management, or network fee flows. Infrastructure has a wider remit than just gaming but will be key to wider adoption through easier user experiences, interoperability between blockchains, and growing player bases.

Deal Count by Ecosystem

Of the total 13 games and developer flagships that specified an ecosystem, just about half of them are planning on building in a multichain environment, up from 15% in the previous quarter. Data from the Big Blockchain Game List showed consistent growth in multichain games, with around 17% of new titles launching on multiple blockchains.

2023 game announcements/launches by ecosystem

Of the 824 games listed as live or in development on the Big Blockchain Game List, Polygon maintains the most amount of games with 98 games, followed by BNB (80), Ethereum (78), and Solana (52). The distribution of live games is consistent with gaming ecosystems that received significant funding in 2022, with Solana, Polygon, and Ethereum taking up nearly 50% of the market share.

Total games by ecosystem: in development (black) and live (white)

Takeaways & Conclusions

  • Funding is low, but gaming is starting to reclaim its share. Total crypto funding is down 89% from the same quarter last year, and investments in gaming are down 93%. While the total number of funding rounds for both categories has consistently declined each quarter since 2022 Q2, gaming is making a relative comeback. 14% of crypto projects funded last quarter were gaming projects, the first increase in vertical funding share since 2021 Q4.

  • Studios are gaining the most traction. Web3 gaming projects that received the most investment were studios, with CCP Games, Mythical Games, and M80 leading the pack with the largest cap tables. VCs are looking to get in early with the potential to find Web3’s Electronic Arts or Nintendo.

  • Polygon remains dominant. Many of the projects funded in the first half of 2023 chose Polygon (MATIC) as their home to build upon. No surprise here with their commitment to scaling Ethereum, tapping into Web2 user bases with activations and a wider partnership pool.

  • The future of gaming is increasingly multichain. 8% of active games were multichain at the end of 2022. Over the past six months, this has grown to 17% of all web3 games. The growing number of multichain games highlights the fact that there still isn’t a consensus on which chain is best for gaming, and studios are willing to expand into different ecosystems for increased accessibility.

  • Infrastructure needs more attention. While investments in blockchain infrastructure regularly outweigh other verticals in crypto VC deals, blockchain gaming infrastructure doesn’t get the same level of awareness. As Web3 gaming continues to grow, infrastructure for scaling, interoperability, and game design will need to catch up to the volume of games being produced.

Funding Recap

Our goal is to elevate Web3 gaming and the projects building the space. To further this goal, we want to recognize the projects that raised funds over the past quarter and provide additional insights into their funding. Here’s a look at projects funded this year, broken down by sub-category:

Guilds/Teams

Games

Infrastructure

Metaverse

Platform

Studio

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