VCs count on great video games for great returns

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The Daily Pitch: VC

May 30, 2023

The Daily Pitch is powered by PitchBook’s industry-defining research and best-in-class data

In today's Daily Pitch, you'll find:

Our latest Gaming Report unpacks VC trends and emerging opportunities in the vertical.

Apple is expected to unveil a VR headset. VC investors and startups think it's the stabilizing force the vertical needs.

Investors don't seem to care quite so much about revenue when it comes investing in generative AI startups.

Today's Top Stories

Gaming investors look to content developers for outsize returns

Gaming startups saw deal value tick up slightly in Q1 while broader economic trends continued to dampen dealmaking. Meanwhile, the vertical is the latest to embrace generative AI and what it could mean for content creation. Key takeaways from our latest Emerging Tech Research include:

Gaming startups raised $1.1 billion in Q1, an increase of 10.7% quarter-over-quarter. Deal count was also up 20.7%, but when compared to 2022, the picture is less than stellar.

Deal value and count declined 75.7% and 56.4%, respectively, year-over-year as consumer spending slowed and the pandemic-driven rush came to a halt.

While exit value doubled QoQ to reach $200 million across nine deals, exit activity still remains significantly below historic highs.

Emerging opportunities for investors include protecting game developers from cyber threats and using generative AI for content creation.

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Apple's VR debut to fire up stagnant sector, investors say

(Jenna O’Malley/PitchBook News)

For the first time in nearly 10 years, Apple is set to reveal a completely new flagship product. A long-rumored foray into augmented and virtual reality will soon culminate in the release of an Apple VR headset. Investors and VR startups see the move as a much-needed shot in the arm for the technology—and a challenge to current market leader Meta.

Startups in the sector have whipsawed through various spikes in consumer interest in recent years. VCs and founders have been further frustrated by a lack of sustained commitment from tech industry power players. Dealmakers see Apple as a fundamentally different stakeholder, one with a track record of making refined hardware, in addition to software that appeals to developers.

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A message from PitchBook

PitchBook's 2023 Media Kit released

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By partnering with PitchBook Media, you will have daily opportunities to reach 1.5M+ industry professionals in our newsletter, and you can broaden exposure of your brand through our core industry reports. We also help clients create custom research to share data-driven insights on the market.

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In the world of startup valuations, there's generative AI—and everything else

Rewind founder Dan Siroker (Sportsfile/Getty Images)

Valuations of early-stage companies are plummeting—unless you're a generative AI startup.

Revenue multiples assigned to non-AI companies have fallen to mid-single digits, according to investors. Meanwhile, AI startups have been raising funds with minimal sales.

What are investors seeking in these other startups in a tight capital environment?

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Unpacking crypto's potential

After the collapse of FTX and a wobbly few months of fluctuating valuations, crypto has stabilized. Our Q1 2023 Crypto Report covers where the vertical has been and where it's growing the most. Key takeaways include:

Q1 marked the fourth consecutive quarter of declining investment activity, with startups raising $2.6 billion across 353 deals—down 78% and more than 64%, respectively, from the same period last year.

Late-stage valuations were up a whopping 209%, but that number may be skewed due to a lack of disclosure on down rounds.

Emerging opportunities include startups working on privacy, data management and security for Web3 protocols.

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VC investment in indoor farms plummets 91% in 1 year

(Courtesy of Infarm)

Venture dollars for indoor farms are in a free fall as investors cool on startups whose costs have risen sharply alongside energy prices and interest rates.

Globally, indoor farms raised $75.8 million across 14 deals in Q1, a drop of 91% year-over-year in deal value. Five indoor farms went bankrupt or ceased operations and several more have announced major layoffs in recent quarters.

Those that have stayed afloat are surviving by "stretching out their cash," says Mark Lynch of Oghma Partners.

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Q&A: Building an innovation practice in a post-SVB market

David Sabow
(Julia Midkiff/PitchBook News)

Competition for Silicon Valley Bank's clients in the wake of its collapse is fierce with regional lenders and global banks vying for a share of the startup banking market.

We spoke to David Sabow, a former SVB executive who is now head of HSBC's technology and healthcare business, about how the bank is building its tech practice and the opportunities to be found in today's market.

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Chart of the Day

Source: Q1 2023 European PE Breakdown

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