Who is to blame for the brutal video game industry downturn that’s driven mass layoffs, studio closures, and (modest) declining revenue since 2022? According to new data from The Game Developer Collective (a survey program run jointly with our partners at Omdia), developers say investors—specifically investors with mismanaged expectations—are the number one party to blame.
This month’s Collective surveyed a panel of developers about the economic state of the game industry. When asked what the “main cause” of bad market conditions in the video game business, 64 percent of respondents stated “unreasonable investor expectations” were the number one cause of the downturn.
60 percent of respondents ranked “mismanagement” as a close second. The next-highest variable was “too-high development costs,” according to 43 percent of survey takers.
It’s certainly a spicy statistic—but is it a fair sentiment? Some Studio founders and investors (who may be a bit biased here) disagree.
“I’m not sure that’s fair,” said Midsummer founder and CEO Jake Solomon. “The venture capital model is built upon significant return on the VC investment.”
“When a VC funds our studio, they don’t have any expectation of sharing in revenue, they don’t set milestones, they don’t dictate day to day operations, and they even pay the entirety of the agreed upon funding upfront, it’s a great deal for developers. But any company funded by VC knows the deal, you are expected to not just make a great game, but a transformational one.” VC investors can only make money through an “exit event” like an acquisition or IPO. “Exit events for game studios are rare,” he noted.
Image via Game Developer Collective.
Griffin Gaming Partner Jason Della Rocca also disagreed, saying it’s really “the complete reverse” “It is the market conditions that are driving investor expectations,” he wrote in a comment to Game Developer. “Developers need to wake up and adapt to the new reality that they can no longer just be in the game making business. They need to embrace being in the fan building business, and understand that studio value and sustainability comes from identifying a specific audience/player base and feeding them great games.”
AstroBeam founder and CEO Devin Reimer (who also co-founded and was Chief Executive Owl of VR powerhouse Owlchemy Labs) rounded out the dissent, stating that investors have been “propping up some of the game industry given the withdrawal of platform funding and the collapse of game publishers.”
“People are often looking for a simple villain to pin things on, while reality is not as simple or exciting to talk about,” Reimer said, saying that “the increase in competition, rising development costs, lack of long-term studio funding, and [overestimates] of game growth during Covid” played a greater role.
Reimer was the only one we spoke with who called out what he referred to as a “mismatch” between investors and the way game studios work. “Successful game studios generally need to launch many games before they get a hit. For example, at my previous studio, Owlchemy Labs, it took 4 original IP games before we had our breakout hit.”
“Game publishers and platform funding works for this model, because they are focused on individual games. So a studio could get funding for many games without giving up equity in the company and each deal was judged on the odds of success of the title being funded. Meanwhile investors buy a stake in the whole company, and traditionally it is focused around a singular product.”
Is it easier to find funding in 2025?
While developers have plenty of reason to find fault with investors, there’s some hope that funding for new games and studios may be thawing out in 2025.
It’s not a dramatic thaw, to be clear. The number of developers who reported receiving fundraising in the past 12 months is “virtually unchanged,” according to the Collective report, with 30 percent of respondents saying their company received funding.
But when asked if it was “harder, easier, or about the same” to get funding this year over the prior year, fewer number of developers reported that it was “harder” than the year before. 50 percent of respondents declared it was more difficult, a 23 percent decrease down from 2024.
There’s a chance this may just be developers adjusting to the new reality, as the number of developers saying there was “no change” increased from seven percent to 27 percent, a correlating increase. Fewer developers reported that it was “easier” to find funding this year, dropping from 9 percent to 6 percent.
Della Rocca said this is part of a trend toward what he called “evidence-based investing.” This follows a pattern of investors responding well to developers who can prove “audience validation” early in the process. “The real market failure is that there are very limited sources of funding for prototypes and audience validation,” said the veteran investor.
“Anecdotally, it does seem like 2025 is better than 2024,” said Reimer when quizzed about the topic. “But that isn’t saying a lot because 2024 was so bad.”
Solomon warned that an improved investing environment may be true at the seed stage, as it still “makes sense” for investors to chip in at that level in exchange for relatively large amounts of equity. But he argued that 2025 is “the worst year” for Series A funding and beyond. “Valuations probably feel too high, exit events are few, and examples of good investment bets in games are not plentiful. It’s rough sailing out there, and it’s a shame, because many ideas being shopped are extremely low-cost and innovative, which is exactly what our industry needs right now.”
One way or another, the game industry does need a way out of this mess that isn’t just cashing in on trends and buzzwords. For all the investors out there looking to win over developer sentiment, Reimer might have a solution worth looking into: investing in at least the first two games from a studio.
“Then you could at least see growth potential and your odds of a hit would go up significantly,” he explained. “The problem is due to current high development costs, that means a very large investment out of the gate at a time where it is harder to get investment at all.”
Game Developer and Omdia are sibling organizations under Informa.