Following a few years of significantly increased spending and investment for games, the games industry has seen these levels decrease somewhat. Investors that were pouring money into the sector not too long ago are now being more stringent in how they spend their cash.
The decline in investment has been well documented in recent years, but industry experts believe it's not been as bad as some folks may believe – and signs of a turnaround are beginning to show themselves.
“It's interesting because a lot of the press and the publicity is about how difficult it is to get investment for games companies at the moment,” says Sam Collins, chief commercial officer at UK video games trade body Ukie.
“There is some truth in that; there are a lot fewer publisher deals going around and investors are being a little bit more cautious. But this is all relative; the games industry has been very fortunate to have a significant amount of investment, particularly when you look in the most recent years. Between 2020 and 2022 there was over £8 billion foreign direct investment coming into the UK games industry. Most of that is spent on medium and medium-to-large developers... It's very difficult to maintain such a high level.”
Sam Collins
Investment veteran and Games Angels founder Nick Button-Brown agrees that though things have dipped, we are currently in a bounce back, but only for a specific tier of investment at the moment.
“So I had a theory at the start of the year that it was going to start picking up fairly quickly with a view to a full-scale change in the middle of 2025,” he says.
“Recently, some data came out that supported that theory, and the data has carried on supporting that theory. From March onwards, there has been a significant increase in pre-seed and seed deals within the games industry. My theory is that at some point in the future, all the publishers that killed their titles are going to turn around and ask why they don’t have anything to release. I believe that's the reason why the pre-seed and seed market is picking up. It hasn't gone through to Series A or Series B just yet – and there's definitely still more bad news to come – but I think that this is the first sign of the uptick.
He continues: “It's not a massive uptick in the deals, but they're ahead of the level we saw in 2019 and 2020.”
These deals tend not to come from larger venture capital firms but instead are limited to smaller VCs and angel investors. These outfits are financing a new wave of developers, many of whom have emerged from the waves of layoffs that have plagued the games industry in recent years.
“There's some really, really interesting companies coming through from great diverse voices; they’re really different creators,” Button-Brown says. He further adds that developers need to reach the prototype stage of their project to improve their chances of securing funding. “Publishers are not funding things until they are presented with a prototype and people are not investing in companies until they've got something to invest in.
Nick Button Brown
“The difficult part is getting to that prototype and that's where you look for grants. That's where you look for any allowances that you can get, like Video Game Expenditure Credit (VGEC), the replacement for VGTR. All these things can generate cash early on in a project. It's not easy to start a project. It's not any easier than it was, but it's also not any harder. But once you have a prototype, you can build the story of you building a company and this first game being part of your journey to something grand.”
As is always the case, convincing people to give you money is much easier if you’ve already been there and done that as a developer. Having previously been involved in the creation of a successful game will likely always be a solid way to secure financing.
But it’s a roadblock for those who haven’t.
“It's not easy to raise money,” Button-Brown says. “You have to work. You have to find your message. You have to find your story. You have to find what's your individual story and why you're the best person to deliver it.
“Fundamentally, it comes down to two things. First, having a good team that can react flexibly to what's happening. It has to be balanced. It can't just be a founder. They have to have people around them who build a senior-level experience across the team. And then the other side of that is having a good business opportunity.”
Other challenges when it comes to investing in the UK games industry are very specific to the UK. Though workers in the games industry are a net positive for the economy – adding £113,000 on average in gross value added (GVA), according to data from Ukie – and investors can clearly see the growth in the market, being in the UK introduces some challenges, especially for foreign investors. For one, the UK isn’t the cheapest place to make games, though that is offset by the level of skill and experience that our industry has.
In terms of attracting more investment into the games industry, there’s a lot that developers can do themselves. Video games is an economically powerful industry that employs huge numbers of people. The contribution to the economy is enormous. But we are absolutely terrible at advocating for ourselves, Ukie’s Collins says.
“We have to go out there and do the job ourselves,” he continues. “We need to be a little bit more positive and on the front foot about our role in society, our economic contribution, our cultural impact. We have to go and educate investors as to why they should be investing in game. There are plenty of institutional VCs and angels out there who don't really pay games any mind because they don't understand us. Surely, our job as an industry is to get those investors to understand the opportunities in games.”
The flipside of the above is that many developers don’t actually know what financing options are out there. One of the pillars that Button-Brown believes is vital to incentivising investment in the UK games scene is actually mapping out what is out there.
“There are a surprisingly large amount of options out there that games people just don't know about, or they believe doesn't apply to them when actually, it really does,” he says.
“There are great grants at the BFI. Innovate UK also has a scheme where, if you have an approved investor, they will give you grant money matching whatever the investor has put in. Only one games company has ever applied for it, and we're now submitting the second application. It's been going for a year now. How do we get more games companies to apply for these things?”
Ben Byford, game director at indie studio Nuclear Candy, adds: “We need to have many more funding opportunities for developers and small companies of differing amounts and types, such as grants, investment, and publishing contracts. Right now, there aren’t many avenues open unless you’re already in the privileged position of being able to work for free. And like much of the arts, I don’t believe in that being the solution.”
When it comes to the future of UK games investment, developers have a rather simple outlook.
“People need to fund games ideas and more of them and for smaller amounts of money,” Byford says. “We don’t need £5 million to make a game – although that would be nice.”
Ben Byford
At a higher level, certainly, there’s a lot to be positive about.
“I think we've hit the bottom on the investment side and the leading indicator of that is pre-seed and seed,” Button-Brown reiterates. “The fact they are increasing means other elements of funding will also increase. The last one may be publisher funding, but things have started to move. Pre-seed and seed will then drive into Series A, which will then drive into publisher funding. Now is the right time to be investing. You can get a good company at a good valuation and they will be ready when that kind of commercial market picks up and all the publishers panic because they killed projects.
“I am genuinely optimistic about it. We at Games Angels have already closed four and we're about to close our fifth deal in four months, which is probably the most active we've ever been as a group.”
Collins agrees that things are bouncing back, though says that there needs to be greater investment in UK-owned studios.
“If you were to line up the largest 100 studios in the UK by headcount, the overwhelming majority would be foreign-owned,” Collins explains. “They wouldn't be UK independent studio. There needs to be a sustained effort to encourage more UK independent studios to grow and expand have those hits so that they can then become bigger, more substantial businesses.
“Ukie is very cognisant of this and really trying to drive it as much as possible with things like our accelerator and our scale-up and our international trade programme where we tend to take small and medium-sized UK independent all around the world to do the deals and get out there and meet people.
“We accept that in the future they're still going to be acquired by overseas companies. There's still going to be that trend. We've got to keep refreshing UK independent studios and help them grow because they are the future of our games industry. The market moves so quickly, there's always opportunities. The question is are they in the right position in the right place and with the right mind to go and take advantage of those opportunities?”
Tim Garris