Why gaming’s funding growth is skipping sport studios

Just a number of years in the past, enterprise capital took a liking to video video games and shortly grew to become a key supply of funding for artistic tasks. Drawn by the outsized success that separates the winners from everybody else, and by the similarities between on-line video games and software-as-a-service, VCs initially positioned themselves as a substitute funding supply to publishers and platforms. And what enterprise funds couldn’t present by way of strategic help, like advertising and a broader community, they made up for with comparatively free phrases for creatives and, you guessed it, large checks.

That modified moderately dramatically within the wake of the pandemic, when shopper demand softened, and progress slowed. After reaching a peak of $20.1 billion in 2021, whole deal worth fell to $4.9 billion by 2023, roughly a 75 p.c drop. A collection of painful misses scared buyers, and the world moved on to AI.

In 2026, we’re beginning to see a cautious return of enterprise funding to video games. According to PitchBook, over the primary half of 2026, whole deal worth has already reached $7 billion, roughly matching all of 2025. Just this week, Makers Fund, one of many largest gaming-focused enterprise funds, closed its $250 million Fund IV. (Disclosure: Makers Fund was an investor in SuperData and I’m an advisor.)

There’s one notable distinction, nevertheless.

Over the identical interval, the majority of funding cash isn’t going into artistic tasks a lot as into the AI plumbing round them. Every one of many quarter’s 5 largest raises went to a mannequin or tooling firm, whereas the most important game-studio spherical was simply $70 million. Two of the biggest raises, each in June, have been a $310 million Series B by Odyssey and $320 million by General Intuition (I’m scheduled for an interview with GI’s CEO and fellow Dutchman in NYC, Pim de Witte. More on this quickly!).

Venture capital is coming again to video games, sure, nevertheless it’s not investing in video games.

So far, 2026 is telling us that buyers are pouring cash into the expertise that makes video games cheaper and simpler to construct. Which raises the extra attention-grabbing query: if making video games turns into low-cost, what turns into beneficial?

It makes my dialog with Ben Feder, managing accomplice at TIRTA, all of the extra well timed. Among his different roles, Ben is the previous CEO at Take-Two. He stood in the beginning of what’s now the largest franchise in gaming (and maybe in leisure), and has seen would-be rivals and presumed disruptive applied sciences come and go. I needed to know: what does he make of all this pleasure round AI? Did buyers get it proper after they downgraded Take-Two’s inventory after Google introduced Project Genie? And if AI makes growth cheaper, will we see extra layoffs?

What follows is a transcript of a latest back-and-forth dialog between Ben Feder and me. I used to be an invited visitor on TIRTA Ventures’ investor name. I pushed again the place I may, totally on the human aspect. Feder and I strategy the present second considerably in another way. He sees technological change as a catalyst. I are likely to assume the true disruption occurs within the new distribution channels and enterprise fashions constructed round it. Ultimately, we ended up in a lot the identical place: the extra highly effective the expertise turns into, the extra beneficial human creativity turns into. What follows is the place we landed, frivolously edited for size and readability.

Sydney: Welcome, everybody. Before we start, I’m going to offer a quick disclaimer. Today’s dialogue is for common informational and academic functions solely. We should not providing or promoting any securities on this name, and nothing mentioned ought to be construed as a suggestion to promote, a solicitation of a suggestion to buy, or a advice concerning any safety. Nothing mentioned in the present day constitutes funding, authorized, or tax recommendation.

My identify is Sydney, and I lead investor relations at TIRTA Ventures. The cause we’re internet hosting in the present day’s name may be very easy: it isn’t day by day that video video games make the information, not to mention the key headlines. I need to introduce in the present day’s audio system, Ben Feder and Joost van Dreunen. Ben is the founding accomplice of TIRTA. He is the previous President of International Partnerships at Tencent, former CEO of Take-Two Interactive, and founding accomplice and vice chairman of Zelnick Media Capital. Today he leads our crew at TIRTA, with a singular focus: constructing the premier specialist enterprise capital agency investing in the way forward for interactive leisure.

Joining him is Joost, a globally acknowledged knowledgeable on the enterprise of video video games. Joost teaches at NYU Stern School of Business and is the writer of One Up: Creativity, Competition, and the Global Business of Video Games. He co-founded SuperData, which was acquired by Nielsen, and in the present day he advises gaming startups, contributes to main media shops, and publishes the weekly TremendousJoost Playlist, learn by 17,000 trade professionals. I’m a type of readers.

At TIRTA, we’ve got gotten numerous questions on what’s taking place on this house. And moderately than reply them one after the other, we needed to open up the dialogue to the broader neighborhood. So with out additional ado, let’s get into it.

Ben Feder: Thanks, Sydney, that’s tremendous useful. Joost, thanks for becoming a member of us initially. For these of you who don’t know, I met Joost a few decade in the past. Actually, I did the mathematics this morning: it was a decade and a half in the past. You got here to my workplace.

Joost van Dreunen: That’s proper.

Ben Feder: Well, why don’t we get began? I’ve been getting questions these days from current and potential LPs about the place we’re within the online game enterprise. A number of headlines: studio closures, layoffs, restructuring at Xbox particularly, modifications in distribution fashions, bulletins from Sony. At the identical time, gaming stays a large international enterprise. Major releases like GTA VI and new applied sciences like generative AI are producing numerous pleasure. So assist us take the trade’s temperature. Is gaming genuinely troubled? Is it merely correcting after a interval of overexpansion, or coming into a brand new cycle of alternative? Where are we in the present day, and what ought to buyers be watching?

Joost van Dreunen: Right. So first, thanks for having me. I at all times admire the dialog. And I feel that after a decade or so, we’ve solely improved. We solely get youthful this manner.

The trade is comparable in my thoughts. The main pattern that I see is that so usually do buyers and observers take a look at the video games trade purely from a technological perspective and say that’s the massive driver of progress and of change. And traditionally that’s right, throughout some intervals. What we’re seeing in the present day is, as you say, a correction, and significantly it’s a blossoming of innovation round distribution. How can we get content material to shoppers at totally different channels, totally different worth factors, and so forth. And in consequence, numerous the present trade has to vary. What used to work properly not does.

When I see on the horizon one thing like a GTA VI coming in, the dimensions of the information alone, simply the software program package deal alone, far exceeds what’s able to placing on a bodily provider. That’s a part of the rationale we’ve had this transition away from bodily media into extra digitally distributed channels. And for this reason you now see the console makers hand over on discs. Sony asserting a disc-less PlayStation 6 in 2028. And so in some ways, these modifications are what drive numerous the dialog these days, like who’s able to really making them.

A precedent right here could be, let’s say, 2010, when smartphone gaming actually was discovering its first form. Of course the smartphone was first launched in 2007. In 2009 free-to-play was allowed, and that led to this bloom. An analogous distribution innovation, if you’ll. But what it meant was that you just had legacy publishers sort of taking a backseat, watching newcomers are available, like a Tencent, which simply blew all people away and have become very dominant. And so it’s at the moment a market correction that isn’t simply altering how shoppers entry content material and the way we monetize it. It can also be going to vary the construction of the panorama general. And I feel that that’s an extremely attention-grabbing time. That’s the place you’ve gotten numerous change. It’s a pure motion of the parts, and that’s a good time to take a position. This is the second when threat is excessive, but in addition alternative. And in order that, for me, is the temperature within the trade.

Ben Feder: Would you say the layoffs are largely about an unsustainable value construction, or within the case of Game Pass an unsustainable enterprise mannequin? That’s the availability aspect. But on the demand aspect, it’s nonetheless wholesome?

Joost van Dreunen: Demand is wholesome. Play is a pure intuition for folks; it doesn’t go away. Just as a result of the music trade doesn’t know learn how to make a buck doesn’t imply that individuals cease singing and dancing. That’s kind of the tutorial manner of it. Play is not any totally different. What I feel occurs is that self-discipline is missing. And so let’s throw any individual underneath the bus, let’s take Xbox. I feel Xbox has carried out the apparent factor within the wake of the pandemic: utilizing low-cost capital to develop in a short time, to mainly emulate this Netflix mannequin for video games and give you an enormous catalog. Missing within the equation there, it seems, is self-discipline. Lots of people constructing stuff with no accountability, simply sort of throwing it into the Game Pass providing to see if it really works. Of course, most of it didn’t. A unique instance could be Take-Two Interactive, far more disciplined. Sure, they’re late on cellular in that sense, however they’ve managed to show that to their profit over time. And so in some ways it’s a chance for legacy corporations to do higher, to enhance their fashions. But it requires an inner diploma of innovation and monetary self-discipline that isn’t equally distributed throughout the trade.

Ben Feder: Yeah, I feel that’s tremendous useful. From my perspective, I see this extra as a reset and never a retreat. Business fashions are being rebuilt. Sony is constructing a brand new enterprise mannequin. I feel GTA’s blockbuster economics will present the trade changing into extra digital, extra direct, extra concentrated. And we see enterprise alternative that lies on the heart of all of those modifications. So I feel it’s excellent news for us.

Joost van Dreunen: Well, let me ask you that query then, as a result of I’ll take the mic and switch it. In my expertise, what’s so apparent is that lots of people come into the trade sort of new. They’ve been in it for 2 years, 5 years, and that’s good and properly. But you’ve gotten unbelievable knowledge, having seen the trade evolve over a number of eras. So how do you learn this? How do you’re taking a few of these developments? Is it disruptive? You talked about already that it’s a correction, however when you have been within the driver’s seat of a giant writer in the present day, as you have been previously, how would you navigate the present challenges?

Ben Feder: Well, look, we’re large believers that video games reinvent themselves at any time when expertise modifications. Some of that is correction, a few of it’s only a pure evolution of expertise. I’m sufficiently old to recollect CD-ROMs, and for the primary time, video video games may embody bigger worlds. Then broadband entry created persistent multiplayer, after which the smartphone expanded the viewers much more. And in the present day we expect AI and creator instruments are altering who can play, who can construct video games, and the way shortly they will construct them. So every expertise shift modifications the trade energy construction. Take-Two represented, and nonetheless represents, premium packaged content material. Tencent, as you alluded to, demonstrated that related platforms and dwell communities are essential. And Epic, which is the opposite firm I’ve been concerned with, additionally confirmed that gamers can turn into creators and financial members. All of that signifies to me an trade that’s vibrant, that adapts to vary far more shortly than another media type. And for us, as buyers in change, we expect these are actually attention-grabbing transition factors: each the instruments and the infrastructure on the one hand, and new digital experiences on the opposite, that emerge when expertise makes the earlier manner of making and distributing out of date. So these are all very attention-grabbing areas for us to consider. And in some methods the problems occurring at Xbox and the studio closures are what folks used to speak rather a lot about, artistic destruction. I feel that’s what’s occurring right here. Some of the previous must be destroyed in an effort to create room for the brand new.

Joost van Dreunen: It’s a typical cycle. The dying of 1 factor is the beginning of one other, and the video games trade has confirmed out to be precisely that. A number of what I feel is the supply of innovation is the enterprise fashions you construct round these new applied sciences. I used to be listening to a chat by Tim Sweeney a number of weeks in the past in Chicago, and because the CEO of Epic Games, he’s an enormous fan of AI. He sees it as a device that makes issues extra environment friendly. He sees AI as a catalyst for progress, et cetera. Where do you sit on that spectrum, and the way would you apply that in a corporation?

Ben Feder: We’re clearly large believers that it modifications all the things. We spend money on three areas: content material, infrastructure, and instruments. But they’re all a part of a single worth chain, actually, and all a part of a single ecosystem. I agree with Tim that it modifications all the things. I feel he’s in a really attention-grabbing place proudly owning the Unreal Engine, as a result of one of many large questions we’ve got is whether or not startups actually supplant the incumbents, or the incumbents can adapt and mainly turn into distribution channels for brand new applied sciences. I feel Tim’s able the place he can turn into a distribution channel for a few of them. The query we at all times prefer to ask is, can the startup get distribution earlier than the incumbent will get the expertise? And I feel it’s nonetheless a bounce ball, for lots of industries, together with ours. So we’re centered on all of these areas: digital experiences, artistic instruments, and infrastructure. And we expect our working experience and information concerning the trade is useful for that.

Joost van Dreunen: At the identical time, there may be the psychological inertia that decision-makers have. Historically, a brand new factor exhibits up, and in some instances they go too quick; in some instances, corporations transfer too slowly. When it involves VR, let’s speak about Meta. They spent what, eighty billion {dollars} attempting to make Reality Labs a factor? That by no means actually got here off the bottom. They did all the things by the ebook, it appeared, nevertheless it didn’t work. So what distinguishes the angle right here? How do corporations know when to seize it with each arms, and deal with among the obstacles that come alongside the way in which? You and Tim are proponents, however there are fairly a number of people who find themselves skeptical, whether or not buyers or gamers, who say, properly, AI might or is probably not a profit. How do you separate these totally different features of a brand new expertise because it introduces itself?

Ben Feder: I feel that’s a trick. There are two issues I need to say about that. One, with respect to Meta particularly. I don’t assume it’s dangerous information when an organization fails at an progressive initiative. I feel corporations ought to try this. An organization that bets the complete farm on it, in order that if the expertise fails you sink the corporate, that’s a mistake. But I feel each firm that has had a profitable initiative most likely had ten failed initiatives, and no one remembers anymore. You must attempt new issues, so long as what you attempt doesn’t sink the corporate solely.

I’m sufficiently old to recollect when Andy Grove wrote his ebook, Only the Paranoid Survive, attempting to tell apart between what’s a expertise wave and what’s a expertise tsunami. It’s essential to know what can sink you and what can’t. I don’t assume there’s any doubt in any respect that AI is the sort of expertise that basically transforms trade, basically transforms society. The doubt for me is how shortly can incumbents adapt to that. Some are both organizationally, institutionally, technologically, or business-model-wise simply incapable of responding with the sort of alacrity and pace that’s required. And for enterprise buyers, that’s kind of what you search for: how do you get to the purpose the place the incumbents can’t construct it themselves they usually have to purchase, and that creates alternative for us? Or they will’t even purchase, after which there’s simply a chance to construct an unbiased firm. And for a enterprise investor, that’s one of the best alternative, the place you actually can take share.

So whether or not you may inform or you may’t inform is a part of that judgment. The actual factor is you want to attempt a bunch of stuff. And with respect to Meta, I feel Mark Zuckerberg has at all times been determined to search out the following computing platform. He might have discovered it not within the goggles, however within the Ray-Ban glasses. Desperate to search out it, as a result of proudly owning the following computing platform issues, and there at all times is a brand new one. The iPhone is sort of lengthy within the tooth at this level. So what’s the following large factor? I don’t blame them for attempting. Eighty billion {dollars} looks as if some huge cash, however the dangers are large and the payoff’s large.

Joost van Dreunen: Yeah, it’s an existential query for corporations like Meta. They knew from the second that Apple began altering its insurance policies for concentrating on on its platform that they have been so depending on any individual else that they wanted to have full management over their very own ecosystem and platform. So that makes numerous sense.

Ben Feder: That’s precisely proper.

Joost van Dreunen: And that’s a high-stakes sport. That’s not for the faint of coronary heart. You should make investments, however eighty billion {dollars} nonetheless appears a considerable quantity.

Ben Feder: Compared to what Google spends in CapEx each quarter.

Joost van Dreunen: Well, there’s at all times an even bigger fish. And you talked about Google. I keep in mind in January when Project Genie was introduced, this demo of a prompt-based 3D navigable atmosphere that was going to compete with the massive open-world video games on the market. They do make a great first impression. Shares for lots of the key publishers dropped like seven, eight p.c on the information alone in January, and a few have nonetheless to get well from it. It appears, nevertheless, that what actually seals the deal is simply having nice digital experiences. Content is a key part in all this pleasure round expertise, nevertheless it nonetheless comes all the way down to the consumer and their expertise ultimately. So within the slew of corporations that most likely come throughout your desk, how do you distinguish between them?

Ben Feder: I’m sorry, between —

Joost van Dreunen: Between the content material creators and the kind of former mid-level managers at established publishers with a wild thought. How do you separate the great from the dangerous in these conversations? Which artistic has a imaginative and prescient that you just assume is suitable for the following 5 to 10 years?

Ben Feder: Well, what I used to say after we would green-light tasks at Take-Two is, I can inform the great from the dangerous. Lots of people can inform the great from the dangerous. The trick is to inform the great from the nice. And in some methods it’s at all times exhausting to know. So the one factor you are able to do is attempt numerous issues, like we have been speaking about earlier than, and see what works. It’s a commonplace within the enterprise enterprise that you just again the jockey, not the horse, and we search for sure sorts of entrepreneurs, ones which might be within the trade and have a very attention-grabbing perspective. Very usually they particularly come from outdoors the trade, not from inside, as a result of they will take a look at it with recent eyes. The worst pitch we get for a sport is, this can be a sport I at all times needed to play, so I’m making it. And we search for actual financial alternative.

So lately we glance extra at corporations attempting to resolve distribution issues, corporations attempting to resolve infrastructure issues. I feel as AI matures, the expertise is the best factor to give attention to within the early phases of expertise adoption. Eventually all this expertise goes to be obtainable to all of the artistic sorts. And at that time, and I don’t assume that’s too lengthy in coming, we count on to see an explosion in creativity. What you are able to do with AI instruments is so highly effective, and requires a lot much less capital and a lot much less experience from a artistic individual, that you would be able to develop nice artistic experiences that you just and I can’t think about in the present day.

We prefer to say that what shoppers are going to be doing with their time on computer systems 5 and ten years from now might not look something just like the definition of a online game in the present day. In the identical manner that GTA seems to be nothing like Pong. And we don’t fake to know what that’s going to be, as a result of it hasn’t been invented but. We have little doubt in any respect that it’ll get invented, and thrilling new experiences shall be extremely customized, extremely experimental, and a few of them shall be tremendous unusual. But we search for that. And actually, all the nice IP that you just see in the present day is the results of largely folks from outdoors the trade having an amazing artistic thought, and using a macro wave, normally a expertise wave. That creates a chance, as a result of in mature industries we discover that customers don’t actually have an open thoughts to attempt new issues. We get pitched on a regular basis about shopper concepts which might be in mature components of the trade, and we’re like, I’m sorry, do you’ve gotten half a billion {dollars} in your again pocket? Because that’s what it’s going to take. But in occasions like these, the place there’s huge change, individuals are prepared to attempt new issues as a result of it’s so cool. And it’s cool as a result of it’s new. And it’s new and it’s actually disruptive. And they’re prepared to open their minds and open their wallets. We assume that’s an attention-grabbing time to develop mental property. It’s an attention-grabbing time to develop new communities.

Joost van Dreunen: Yeah, I agree. I suppose the ultimate query I’ve for you, very briefly, could be a self-critical one. I feel you and I’ll agree that the video games trade is fascinating as a result of we’ve spent a lot of our careers on it. At the identical time, it appears to at all times be this adoptive layer for brand new applied sciences. So the query is, is gaming one other one among these vanguard industries that’s going to popularize it in a manner? I do know my model of this, however what makes it so particular to you? What’s the finesse that solely a seasoned investor is aware of about this, having seen it for thus lengthy? What makes it particularly enticing within the context of those massive technological modifications? What makes video games such a focus for monetary consideration?

Ben Feder: Well, initially, it’s the one part inside the leisure enterprise that’s actually rising. It’s the place the eyeballs are. Nobody’s watching community tv anymore; they’re taking part in video video games. It’s enticing as a result of when it hits, it hits actually large. A profitable online game franchise can turn into a worldwide franchise, which might turn into a worldwide neighborhood, and that’s an everlasting supply of worth. It was that buyers considered the sport enterprise extra just like the film enterprise, which is sort of hit-based. And there are particular remnants of the enterprise which might be hit-based, and due to this fact, by the way in which, uninvestable. But these days video games final for many years, and communities final for many years, and it’s not the leisure enterprise. Maybe it’s extra just like the SaaS enterprise. But you stated it: investing in video games is known as a specialty sport. Creative execution, expertise, distribution, platform relationships, manufacturing self-discipline, neighborhood dynamics, all of those come into play. And for a lot of buyers, artistic companies seem like a black field. Experience helps you acknowledge patterns inside that field, significantly with respect to evaluating groups and processes, and what sort of early alerts you search for {that a} typical monetary evaluation simply gained’t offer you.

Joost van Dreunen: That’s nice. I think about we may discuss for hours right here. I need to be delicate of time. Sydney, are we…

Ben Feder: We did promise thirty minutes, so I do need to depart a while for Q&A. But thanks. I do know we may go on perpetually, however thanks on your insights.

Joost van Dreunen: Thank you.

Ben Feder: Sydney?

Sydney: Yes, thanks each. I additionally needed to flag that we’ve got a query from the viewers to start. I share this query, really: what’s the most important mistake sensible individuals are making about AI’s impression on the online game trade? And that is for each of you.

Ben Feder: I’ve received a solution. But Joost, do you need to attempt, or…

Joost van Dreunen: Biggest mistake. You go forward. It looks as if you’re nearer to the hearth in that sense.

Ben Feder: Yeah. I feel it’s assuming AI’s major impression shall be making video games cheaper to supply. That’s what all people’s centered on. Can you do it sooner, are you able to do it cheaper? Because value is an actual drawback within the enterprise, particularly round blockbusters. And I feel AI will definitely decrease prices, and it’ll speed up growth. But cheaper content material doesn’t essentially imply higher video games. And as content material turns into considerable, originality, style, discovery, and neighborhood all turn into a lot, far more beneficial. The actual alternative isn’t just producing video games extra effectively. It’s creating new types of play, dynamic worlds, clever characters, experiences that reply to a person participant. So AI amplifies all this stuff, and as I stated, I feel there’s going to be an explosion in creativity, and in what people can do. Because when you don’t want a thousand folks to create a online game, or multiples of that, and you are able to do it with a number of those that don’t want specialty information or organizational prowess simply to arrange all these folks, then the scarce useful resource will not be the flexibility to make content material, however understanding what to do with it. And that creativity, I feel, is what actually will get unleashed with AI. So we expect we’re coming into a interval of artistic abundance, the place the standard scarce assets are not scarce. And what turns into the true scarce factor is admittedly, actually nice artistic concepts, and execution. I don’t assume it’s ever going to be simple, nevertheless it’ll be rather a lot simpler.

Joost van Dreunen: Yeah, I positively agree with you on this one. The nature of all that is that AI removes some obstacles. Where my focus could be, based mostly on historic patterns, is the purpose you make about new methods of taking part in. I might add to that new enterprise fashions, new methods of organizing corporations. What made digital distribution so standard within the early 2000s with Valve, after they launched Steam, was after all that everyone had broadband entry and all people had computer systems at house. And right here’s abruptly a digital platform the place now third events can publish their large or small video games on any individual else’s pipeline. And that finally led to the success of an entire new class of gameplay. Smartphones, identical factor. In precept it’s the expertise, it’s the machine itself and the computational energy. But actually it’s the enterprise mannequin. The smartphone was adopted extensively due to the ecosystem for app builders round it. And then you may add some financial moments, saying, properly, abruptly folks lose their jobs and now they reinvent themselves as one-person outlets to make very cool issues for the App Store. That all coincided. So there’s a little bit of luck concerned, and a second that has to occur. But it’s at all times going to return all the way down to human ingenuity and creativity. That’s the investable asset, greater than the rest, in my thoughts.

Ben Feder: Do you assume there’s an analogy in video video games to what’s occurring with the SaaS enterprise, the place all the things was winner-take-all within the previous world? We’re coming into a world the place the marginal value of software program is not free. It’s been true for many years that the marginal value of an additional unit of software program is mainly zero. But the marginal value of an additional token shouldn’t be zero while you enter the AI world. So the associated fee construction modifications, and in consequence it turns into far more variable. And the buyer expertise, for companies and shoppers, I feel would require some kind of variable pricing related to it. And that can create new kinds of pricing fashions as properly, not simply enterprise fashions.

[Transcript ends here.]

One closing commentary is that there’s a helpful irony in all this.

During the final enterprise cycle, buyers poured billions into studios as a result of making high-quality video games was costly, troublesome, and scarce. This time, a lot of the cash is flowing towards expertise designed to make that course of cheaper.

And if AI succeeds, it’s going to commoditize among the very capabilities buyers are at the moment paying huge sums to construct. More folks will be capable of make extra video games, sooner and for much less cash. History tells us that the bottleneck will merely transfer some place else.

Feder calls that scarce useful resource creativity. He would know. I’d add judgment: understanding what to make, learn how to distribute it, learn how to monetize it, and, crucially, whether or not anybody really needs it.

AI might make video games cheaper to make, nevertheless it gained’t make nice video games simpler to determine. Or, put in another way: the cheaper video games turn into to make, the extra beneficial common sense turns into.