Stop worrying about web3 gaming investments: Here's why

Doom and gloom without context

Comparing against insanity 

Anything relative to the peak looks dismal. But is it? NB: “MCG” includes web3 Courtesy: DDM

This is not meant to sound harsh, and believe me when I say I hope every web3 studio and company thrives, and I understand the nail biter moments of trying to raise or everything goes to zero. But there are basic realities of startups and game development that shouldn't be ignored. Both are hard journeys, and most will fail. 

Which is why the doom and gloom over the current state of web3 gaming investments is, in my mind, rather irrelevant as a signal for the future of the industry. Yes, it means sad ends to many companies and games (again, this was inevitable even with more funding) and folks on the hunt for what's next. I've flopped a company or two, I feel you.

But a lot of this gloom comes from unwarranted comparisons: folks looking at the YoY in recent funding to what we saw during 2020-2022, which is flawed for several reasons: 

1. Those years represented anomalies for several reasons:

   1. Pandemic good times: after a nose dive at the start of the pandemic, stocks rose spectacularly. The rich got richer, and needed other places to stash their cash. What thrived during lockdown? Gaming.

      

   2. Investments from investors who knew nothing about gaming into developers who knew nothing about gaming. Just like we're seeing now with AI. It was an outsize mania with little due diligence, and when the hype shifted, the money went with it. Of course we shouldn't expect to see something similar, and we should expect that not everyone will get more money because their businesses don't deserve it when examined in the light of day. It's a rough overcorrection, but totally expected. 

   3. Tokens. The singular situation of web3 gaming projects that used tokens (or prelaunch mints) to raise money, furthered the funding aberration. Suddenly, investors (both institutional and consumer) had a theoretical get-rich-quick scheme in the form of “utility” tokens: buy in early, have near-immediate liquidity. To many, it felt less risky in that they could cash out whenever, which further fueled bananas spending.

2. These investments, like publicly tracked private game investments in any year, don't match to the games most of us play. Which is to say, most of the big games that we enjoy as players come from major publishers and their first party studios, or from third party studios who often receive investments from publishers that aren't counted here. So in a normal year, the games we play come from places that don't take on this funding. 

Which is what I expect from our future. The first wave of blockchain gaming was all new: new IP, new infra, new ways to invest, companies that didn't exist 2 years ago. Brand new technology or not, that would be a case for major capital losses and failures. And a subsequent reset in the following year(s).

As these early attempts fade away, I believe we're going to see a rebalancing into established developers who are making the shift into web3. Developers who don't necessarily need new funding to build their next title, or will do so with investments from publishers, not VCs.

In other words, web3 gaming takes a step toward the industry old guard, not primarily out of net new entities who will either disappear or need to wade through the current trough of disillusionment. For now.

The former is already happening: 

1. Square Enix and Nexon are both diving into web3. As public companies, they haven't taken on VC funding to do so. 

2. In the span of two weeks, Nike's DotSwoosh NFT ecosystem announced collaborations with EA's sports titles and Epic's Fortnite. Some of the largest existing games on the planet, now featuring NFTs. No extra funding needed. 

I believe that trend will continue, and with those proofs of success will come opportunities for new studios again. 

There's also the fact that many games that received massive chunks of cash a year or two ago may not see the light of day for two to three years given normal game development. Do they need more cash in 2023? Not if they're playing their cards right. 

And so in a finite universe, where only so many games get VC investments at all, where non endemic VCs have fled, where “utility” tokens have lost their luster, things don't look as wild as they did two years ago. But don't kid yourself for a second that web3 gaming doesn't have a future.

This isn’t the reset that anyone wanted, but it’s the reset that everyone expected. AI will have a similar moment in a year or two. What I think we can collectively be excited about is that the investments made of the past few years in infrastructure and games are starting to bear fruit, and I believe we’re in for a rocketship over the next couple years of projects hitting their stride and proving what we all knew to be true: this is the next seismic shift in gaming and media.