Blockchain Game Sector Investment Report H1 2022

While many commentators have pointed to sentiment and (some) data to suggest macro economic conditions have already resulted in a downturn of investment activity in the technology sector in general, and crypto specifically, it’s not yet clear this is a case for the blockchain gaming and metaverse sector.

That stated, our data does show June’s 36 announced deals totalling $516 million of investment — split between $424 million of traditional VC activity and $92 million of token and NFT launches — is the lowest monthly amount recorded in 2022 thus far.

Key raises during the month included:

Magic Eden, $130 million, Series B

Illvium, $72 million, NFT land sale

The Wildcard Alliance, $46 million, Series A

Fanclash, $40 million, Series B

Cryptotoys, $23 million, Series A

However, June’s total of $516 million isn’t significantly smaller than the $555 million recorded during April. And it is larger than the amounts announced in October and December 2021, $357 million and $153 million respectively.

As ever, it’s important to point out that the months in which such investments are publicly announced are not necessarily the months in which contracts are signed and money changes hands.

For that reason, June’s announcements are likely deals from earlier months, limiting the monthly data value in terms of providing immediate validation of market sentiment. Similarly the forthcoming holiday season means it could be as late as October until a clear picture of sector trends become apparent.

That stated, it would be surprising for May’s total of $1.4 billion — an all-time sector high — to be surpassed.

For the record, $5.3 billion has been invested into the blockchain gaming and metaverse sector during H1 2022, with $2.8 billion in Q1 and $2.5 billion in Q2.

When it comes to breaking down activity in terms of the stage of announced deals, the sector’s relative immaturity is highlighted by the high number of pre- and seed deals, which have accounted for an increasing majority of volume of deals during 2022.

The continued dynamism of the sector can also be witnessed in the growth in the number of deals announced, with June’s 36 deals the second highest of the year.

This total breaks down to:

Pre/Seed — 21 deals

Series A — 5 deals

Series B — 2 deals

Strategic — 2 deals

Ecosystem — 2 deals

NFT/token sales — 3 deals.

However, the picture is very different in terms of the amount of money raised by deal stage.

The sector is characterized by a lot of small seed deals and a small number of much larger later stage deals.

There is no strong pattern to these, with Q4 2021 seeing a lot of large Series B rounds including Sorare’s $680 million in September and Forte’s $725 million in November.

This was followed by large strategic funding deals in Q1 2022 such as Animoca Brands’ $359 million announced in January and Yuga Labs’ $450 million in March. More recently Dapper Labs announced a $725 million ecosystem fund for its Flow blockchain.

Notable deals during June included NFT marketplace Magic Eden’s $130 million Series B, which followed on from its $27 million Series A announced in March.

Another sector characteristic is the speed with which growing companies can cycle through successive funding rounds, with a prime example being OpenSea, which announced its Series A in March 2021, its Series B in July 2021 and its $300 million Series C on a $13.3 billion valuation in January 2022.

Breaking down the data in terms of sector categories, it’s clear that game projects are generating the most number of deals, albeit mainly at the seed stage.

Community projects — often guilds — also remain popular as do platforms, which are particularly favored in terms of providing the potential for strong token economies.

June’s breakdown in this context was:

Games — 18 deals

Platform — 7 deals

Others (Marketplace, tools etc) — 4 deals

Community — 3 deals

Metaverse — 3 deals

Blockchain — 1 deal

Of course, the situation is reversed when it comes to the amounts being invested, with games attracting a relatively small amount of investment.

More ambitious metaverse projects and deeper blockchain infrastructure account for most dollars invested.

Platforms such as those offered by Mythical Games and Forte generated their large investments in Q4 2022, with relatively little funding going into that category in 2022.

The final way to dice the data is to consider the location of companies.

Given the distributed nature of many blockchain games, who also set up legal entities in advantageous locations such as the Caymans and British Virgin Isles, this is a more difficult process than for other sectors. But the broad trends are clear.

Although this wasn’t the case in Q4 2021, traditional locations such as North America and EMEA are the locations for an increasing number of deals.

The APAC region is the other main location with Singapore and Hong Kong the places for many Chinese-based companies to be legally headquartered.

The success of companies such as Sky Mavis (Axie Infinity) and associated guild Yield Guild Gaming have also resulted in the relatively strong showing of Vietnam and the Philippines respectively.

The breakdown for June was:

North America — 18 deals

Europe/Middle East — 7 deals

Oceania — 2 deals

APAC* — 2 deals

LATAM — 1 deal

Vietnam — 1 deal

Philippines — 1 deal

India — 1 deal

However, in terms of the value of investments, North America remains the predominant location.

North America — $296 million

Oceania — $79 million

Europe/Middle East — $67 million

India — $40 million

APAC* — $24 million

Vietnam — $6 million

Philippines — $2 million

LATAM — $0.25 million

Conclusion

Although it is tempting to draw strong trends from the fact that June is the month with the lowest amount of investment into the blockchain gaming and metaverse sector so far during 2022, this may be a case of confusing correlation with causation.

What will be more significant will be the comparison between Q3 and previous quarters.

More generally, however, trends established during 2022 have been maintained, with the majority of deals being seed round level investments into blockchain game companies.

When it comes to the size of deals, however, the majority of activity is being generated by later stage rounds and ecosystem funding for ambitious metaverse and blockchain projects.

North America is the dominant location, both of investors and the companies they are investing into.

Jon Jordan is Hiro’s blockchain gaming venture specialist, both advising existing portfolio companies and analysing future investments.