Games Industry Venture Capital Plummets

Thanks to ElectricNews.net for a synopsis discussing the difficulty of raising venture capital for the games industry. They reference a Wall Street Journal article mentioning that only USD37 million was invested in games-related firms in the US in 2002, down from USD66.9 million the year before and a peak of USD295.3 million in 1999. According to the article, apart from the wider downturn in VC activity since the late 1990s: "'Historically, in the games business, a lot of companies really succeeded by hitting it big with one blockbuster,' says Jon Callaghan, managing director at Globespan Capital Partners. 'As a VC, it's very hard to invest in that.'"

Comments

State of the industry

[Jouni]

Greg Costikyan had pretty heavy things to say about the current state of the games industry in his brilliant blog. He also published his thoughts in a PowerPoint after his Digital Genres presentation.

It's a tough time in the games industry, and anyone contemplating getting in should do the research thoroughly. While the risks are high, I believe game development could be refined into long term sustainable, profitable business by re-thinking the process of game creation.

Meanwhile, even government organizations like TEKES in Finland have started to seriously support the development of games and related technology and IGDA has already networked thousands of game developers together. Individual developers may fall, but game development is still a growing industry.

And we all heard about the return of shareware. PopCap's Bejeweled may not turn the heads of VCs with it's content, but a million copies sold is no peanuts.

Maybe if I finally updated my Palm games (/shameless plug) I could get rich quick, too. :-)

Jouni

Those Wacky Venture Capitalists!

[MightyTribble]

Let's take a step back, here, and consider who VCs *are*, and what they *want*.

VCs are people with a *lot* of money, who do all the traditional investing strategies and then take a *part* of their fortunes and invest in risky enterprises. They know (or ought to, going in) that there's a high chance the money will not give a return. There's also a chance the money will give a *dramatic* return - much higher than their other, more traditional, investments. For the article to say that 'one-hit wonders' aren't part of the VC mindset boggles the mind - that's *exactly* what most VCs want - a quick ( 3 year) high rate of return on their initial investment, then take the money out and do something else.

More likely, I think, is that VCs have been steered away from games development companies (despite the tremendous growth in the games market in spite of the economic downturn) because the large VC firms that handle their money *don't understand the market*. This isn't too surprising, since most institutional VCs I've met don't seem to be too bright in the more traditional industries, either.