VCs team up with creators amid games funding pullback

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Games venture capital funds have been dealing with challenges amid broader market turmoil over the last 18 months. Venture-backed games industry is now looking to content creators to give themselves a strategic advantage when evaluating prospective investments.

Some gaming-focused venture funds like a16z Games are formalizing these venture partner-style relationships with dedicated creator programs. Others, like 1AM Gaming are building informal relationships with creators through specific investments.

Rigging the discovery odds

Venture capital funds are leveraging relationships with creators primarily for their taste-making abilities. From established studios to indie startups, game developers understand that creators are an essential discovery engine for new games. Breaking into the games market has never been harder. It’s also much harder to make a profit. According to a recent study from Video Game Insights, nearly 14,000 games launched on Steam in 2023, up 70% since 2019. It’s also much harder to make a profit. Only around 700 (5%) of these 2023’s releases made over $100,000 in full game revenue.

“Not only is the games market getting more competitive, so is the go-to-market strategy for games,” said Louis Gresham, cofounder of 1AM Gaming, an early stage gaming fund with $120 million in assets under management. “It’s increasingly more difficult to see a profitable return on marketing spend regardless of what platform you’re targeting.”

While game studios can afford to spend their marketing dollars on one-off activations, growing costs are hard to justify for lean startups. Creator activations aren’t guaranteed to have enduring value beyond a media buy. Instead of burning runway on creator marketing, founders can build long-term partnerships through investments.

“The genesis of the a16z Games Creator Scout program was born from a series of conversations held with creators themselves, said Lester Chen, partner, gaming creators at a16z Games. “It became immediately apparent that creators were not only expert tastemakers, but also getting early looks at dozens of games at an early stage.”

VCs leverage creator insights

Not only does creator buy-in help rig the discovery deck in a venture’s favor, creators bring other valuable insights to the table. “Creators have the ability to not only discern what investment opportunities are going to work for players, but then they also have the platform to introduce a game to their audience and help it find a position in the market,” said Gresham. Unlike the a16z Creator Scout program, 1AM’s creator strategy is less formalized. Rather, the firm is working closely with creator collective OTK through a shared investment.

Like other kinds of subject matter experts, VC funds are seeking out creators for their unique insights into player tastes and the content landscape.

“When you’re creating content, especially live content, for thousands of people and constantly looking at their feedback, it gives you a window into the gaming community,” said Ben “CohhCarnage” Cassell, veteran Twitch Streamer and creator scout for a16z Games. Notably, Cassell is also a co-owner of Mad Mushroom, OTK’s creator-led publishing label.

This real-time community feedback is incredibly valuable to investors. Even if investing professionals keep up on industry trends, opinions can change overnight. Similarly, investors are unlikely to have as much familiarity with content platforms and their best practices as full-time creators do. Additionally, creators lend credibility to startups through their backing. Creators are aware of how valuable this trust is and aren’t likely to risk their audience on unsound projects. As a result, startups gain social credibility with gamers, further boosting their odds of success.

Why VC partnerships are value-adds to creators

While VCs are seeing the upside of bringing creators into the fold, creators are also mutually benefiting from these relationships. “Over time, creators begin to want to diversify their income especially as they get older and have a family,” said Cassell. “Investing is enticing for someone like me because it’s a multi-stage attack on things that interest me. There’s the opportunity for financial gains down the road.” In addition to diversifying their holdings and the potential of passive income, creators also have the opportunity to give back to the games industry. “The Creator Scout Program equips creators with the freedom to make their own independent investment decisions while having a16z, and a network of other scouts, to use as a sounding board,” said Chen.

Part of bringing that expertise and manpower to bear is helping creators find the right projects to invest into. Fundamentally, a variety of forces are squeezing venture funding in the games industry. Reports estimate games venture capital funding fell roughly 70% to 75% from 2022 to 2023. Together, creators and VCs are hedging their bets, sharing knowledge and driving value to the most promising prospects. GamesBeat’s creed when covering the game industry is “where passion meets business.” What does this mean? We want to tell you how the news matters to you — not just as a decision-maker at a game studio, but also as a fan of games. Whether you read our articles, listen to our podcasts, or watch our videos, GamesBeat will help you learn about the industry and enjoy engaging with it. Discover our Briefings.