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.'"

Some connections need to be made here

[iq in binary]

The most important factor of an analyzation of any entertainment based industry is this: When there's no extra money, what money is there isn't going to be spent on luxuries.

When you're jobless and worried about next month's rent, or tight on the line with cash as it is; are you really going to go out and spend precious money on video games?

Unless you're completely irresponsible with your cash, no! America's economy, while slowly on it's way back up, still does not afford the people of America (most of them, anyway) enough cash to spend on luxuries.

The reason 1999's VC numbers are so high is because 1999's economy was arguably the best it had been in decades. Since then it has been a downhill turn.

This is not to say video games are dead, just that they're on the DL until our economy gets back on it's feet. When jobs are as plentiful as they were in 1999 (I was 14 and making more money than my working mother, that is a good economy), video games will skyrocket yet again, trust me.

Re:Some connections need to be made here

[Anonymous Coward]

The games industry last year grew at a rate of 35% revenue wise.

http://sanjose.bizjournals.com/sanjose/stories/2 00 3/02/10/daily34.html

Your entire reply was written as some "Well you can't expect people to buy games when times are tough", blissfully ignoring that this is exactly what people are doing. The article is discussing the lack of VC funding, not the lack of game sales.

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.