In the first quarter, Gaming VC activity may have finally settled into a new normal, but it’s a slimmer and more selective market, Analysis by Pitchbook.
First quarter funding immerses a 3% QOQ in $1.2 billion in 134 transactions, the lowest number of transactions since mid-2019. As early stage investments continue to shrink, investors become more discernible and M&A and exit environments remain tamped down. There are still bright spots.
Meanwhile, major platforms like Roblox and Discord have doubled their in-game advertising strategies, signaling potential Adtech Renaissance. The report is divided into investment trends, macroeconomic headwinds, and key transactions and players that form the gaming sector. Overall, it was a mixed quarter.
Q1 Trading Activities Extend the current equilibrium
Game VC investments fell slightly at $1.2 billion (-3% QOQ) in 134 trades in Q1 2025
(-5%QOQ). Excluding Disney’s outlier investment in the epic game of the third quarter 2024, trading activity has been largely stable since H1 2023, averageing $1.3 billion at 172 transactions per quarter.
Since the second quarter of 2019, first quarter trading numbers highlight investors becoming increasingly discerning as the industry awaits the next platform shift, highlighting its focus on the lack of breakout hits from enthusiastic funds from 2021-2022.
Tariff headwinds shift
The “liberation day” tariffs announced in April came after months of speculation about the ultimate depth and breadth of taxation expected by the administration. Global Game Hubs, Vietnam, China and Japan, like other parts of the world, have strengthened markets of uncertainty and driven the CBOE Volatility Index (VIX) upwards.
The worst effects were avoided due to delays and transaction announcements. Gaming’s main exposure to tariffs lies in hardware and surrounding components, equivalent to a $40 billion market.
With one degree removed, Toymie artisans and intellectual property (IP) holders such as Mattel and Hasbro, share prices plummeted following these announcements. For example, digitized platforms, such as Microsoft’s gaming pass to licenses for exclusive Xbox and Hasbro IPs, are expected to have hedge against exogenous shocks such as tariffs by reducing global supply chains, volatility of demand and reliance on manufacturing.
After revealing the specs for the Switch 2 and priced at $450 higher than planned, Nintendo has delayed US pre-orders and is facing a drop in sales prospects in the near future. Hardware manufacturers who shipped products throughout the first Trump administration have experienced shifting supply chains, but geopolitical climates are becoming more complex.
Consumer groups have been opposing the last five months, like the Consumer Technology Association and the Entertainment Software Association, warning that gaming consoles could be 40% more expensive. The urgent risk poses tariff threats targeting digital products such as films and television shows made outside the United States, Pitchbook said.
One degree of removed is a video game with a global development footprint and difficult regulatory relationships from the start, as evidenced by China’s close grip on game license approvals. These tariffs represent non-zero risks, but we believe they are less likely than taxes on electronic devices and hardware.
Market divergence remains prominent among consumers
The total sales were swollen in the first quarter, indicating a potential weakness in consumer demand. Sales skyrocketed in January, but jumped in March, predicting future price increases. The fundamental divergence of the economy remains prominent. Topdecill’s earners accounted for almost half of domestic spending, with all other brackets spending totals down.
In gaming, this leads to companies marketing premium product bundles across hardware and software. While the flagship title is on the list, pre-orders for Switch 2, which are numbered to millions despite a price tag of $450
Like the world of Mario Kart, it now costs $80. First quarter PlayStation sales are backed by the $700 PlayStation 5 Pro, and the industry continues to speculate on the Grand Theft Auto VI price range.
Early investment activities face continuous pressure and later stages of activity stabilize
Pre-seed/seed VC activity in the game continues to face downward pressure. The 2025 quarter generated 44 transactions, the lowest count since the third quarter of 2018. As part of all gaming VC activities, seed/seed activity bottomed out in Q1 2024 at 25.7% of the round, but the absolute number of transactions continues to shrink and is currently in the low 30% range. The volume of trading in the early stages continues to flutter.
Conversely, late stages and venture growth activities rose from 17.6% at the start of the
Nearly 33% between 2022 and the beginning of 2025.
The rationale for these trajectories varies. Over the past three to five years, there has been less investment across ventures, which has had a negative impact on downstream games. As the quality bars and opportunity costs of these transactions increase with zero profit periods in the rearview mirror, fewer transactions will occur. As the 2025 consumer technology outlook, as an emergency trend, such as Web3, metaverse and slowdown, there was little funding to actively support gaming startups, and there were few success stories coming out of previous fundraising cycles.
The competition for user attention remains as fierce, and short form videos on social media pay attention to users. The game extends its position at the top of the charts across the media, extending the overall supply of content delivered at a pace that contradicts consumer demand. Still, dry powders certainly exist.
Several investors have shut down new funds in recent months. ArcadiaGamingAdvisors has announced its first $100 million fund, led by Tripledot Studios co-founder Akin Babayigit. Play Ventures raised $140 million in its third fund in November. Raton Ventures closed its $50 million fund in February. Kameha Ventures also debuted the $25 million Gametech fund in March. But for many investors, the lack of breakout hits from funded companies has undermined trust in the industry.
Those who have successfully secured early stage funding may find that while re-entering their funding cycle with the finished product, they do not have the commercial traction that intersects with this investor skepticism.
The overwhelming route of leaving
Pitchbook’s 2025 US venture capital outlook noted that exit activity is top-heavy and concentrated
Of the two deals, Coreweave’s IPO and Google’s Wiz acquisition, it is
A large portion of fluidity. Some highly visible startups include IPOs, tariffs, and
Macroeconomic uncertainty clouded the outlook across Q1 as a platform such as Klarna.
StubHub, and Discord, delayed the process, Pitchbook said.
The gaming industry reflects these trends to an exaggerated degree. Quarterly exit activity has been suppressed: 13 transactions generated $128 million in the disclosed exit value. M&A activity is slightly better, generating 31 acquisitions and $2.3 billion, but both figures are below $15.3 billion in 2024 across 118 transactions. When the recently announced deals finally close, the top-line figures are top-heavy, counting transactions like Scopely buying Niantic for $3.5 billion or at Discord’s final IPO. Only the other three curated vertical companies are registering IPOs.
There will be very few unicorns in the game in the future. This reduces the demand for liquidity from the unicorn backlog across the venture. As the current console cycle grows older, incumbents are moving to strengthen their balance sheets and focus on distribution innovation. Select Strategys has shown an willingness to acquire, including comments from Savvy Games Group on the PC/console market, but this disposition is the exception and not the norm.
GameTech activities are supported by AI
Previously, we proposed narrowing the delta between content and backend software (SAAS) transactions. We fully hope that content will become a growth driver for the industry, but investors’ interest in SaaS continues to be retained. In the late 12 months, the development startup accounted for $164 with a $2.5 billion transaction value compared to 313 transactions and $2 billion in trading value of $2.5 billion, and excluding $3 billion in the first quarter of 2025 (excluding $3 billion in Disney-Epic Games Deal and Infinite Reality’s $3 billion).
This interest is driven by rapidly improving generative AI and large-scale language models that investors want to swirl the cost of development for AAA, promoting SAAS-based business models instead of the vibrant or bust nature of game development, and being exposed to the wider gaming industry’s $200 billion market.
The prominent first round includes GPU platform Ubitus KK, which has raised $29.5 million, a $3.1 million salary increase for digital agent platform Altera, a $13.5 million Series A for Game-Server Platform Biemable, and a $40 million series for visual generation platform Bria.
In search of marginal profits for monetization, the industry is turning its eyes to advertising technology (ADTECH).
Video games ad spending is pushing $50 billion, which is far below ads
Spend on categories such as social media and retail media and concentrate on mobile games
Ecosystem.6 Historically, the ad technology of games has been constrained by several
Factors including complexity in measuring the commercial impact of unstandardized AD units
There are few opportunities for in-game ad units and programmatic ads. Q1 has some announcements
This strategic order was highlighted.
Roblox announced its partnership with Alphabet, adding rewarded video ads, and Discord announced its video quest on the mobile app (pilots will come in the summer). In Q1 analyst notes on GameTech, some of the biggest increases in Pitchbook’s exit forecast results were for AdTech companies, including Inmobi and Superfine.
Pitchbook views this development as difficult and inevitable. Games have undeveloped possibilities for advertisers that will be addressed over time as the game continues to expand its scope and visibility. However, the AD unit and its measurement issues remain unresolved, so Pitchbook said it will mitigate AdTech’s recent reach until a solution is found.
