GameFi Investments Shift to Sustainable Model
In A Nutshell
Venture capital (VC) investment strategies in the GameFi sector have evolved significantly from the previous bull run to a more calculated and sustainable model. While ‘Fear of Missing Out’ (FOMO) initially propelled investments, today’s VCs are applying a more rigorous vetting process, focusing on project quality and long-term viability rather than hype.
From FOMO to Due Diligence
During the last bull run, the GameFi industry witnessed an influx of VC investment driven largely by FOMO. Projects, often with little more than ambitious promises, were receiving funding in the tens of millions. Shi Khai Wei, founder of LongHash Ventures, observed a frenetic pace of investment, with GameFi projects securing up to $100 million on the strength of their concepts and team size alone. This trend was echoed by Keiran Warwick, founder of Illuvium, who noted that the fear of missing out made VCs eager to invest in projects already backed by other firms, assuming thorough due diligence had been conducted.
Shift Towards Sustainable Investment
However, the investment landscape within GameFi has shifted. Warwick highlights that VCs have expanded their checklists significantly. They now demand to see tangible gameplay, artistic contributions, development progress, and security audits before committing funds. This heightened scrutiny is a departure from the past, where the mere idea of being part of a new gaming project was enough to secure investment.
LongHash Ventures, according to Wei, has adopted a more focused approach in GameFi, investing in projects like Yield Guild Games, Guildfi, Snack Club, Moonveil, and Ignite Tournaments. These projects have either launched or are nearing launch, presenting more reasonable valuations than seen during the height of the market’s enthusiasm.
Understanding Market Cycles
Gabby Dizon, CEO of Yield Guild Games, pointed out that VCs are becoming more cognizant of the cryptocurrency market’s cyclical nature. This awareness is helping them avoid the pitfalls of investing at market peaks, seeking instead to identify projects with sustainable growth potential. This change in approach is underscored by recent funding rounds, such as Illuvium’s $12 million Series A round and other significant investments in GameFi projects like Helika Games, Parallel Studios, and Elixer Games.
Despite a downturn in GameFi funding following Q4 2021, the sector has seen a resurgence with three consecutive quarterly increases, culminating in $268 million in the last recorded quarter, according to RootData.
Our Take
The GameFi sector’s evolution from a FOMO-fueled investment frenzy to a more mature and sustainable model reflects a broader maturation within the blockchain industry. The shift towards rigorous due diligence and a deeper understanding of market cycles by VCs is a positive development, likely to result in a more stable and innovative gaming ecosystem. As the market continues to evolve, the emphasis on quality, sustainability, and long-term potential may well set the stage for the next generation of revolutionary GameFi projects. This strategic adjustment not only mitigates risks but also paves the way for projects with the potential to redefine gaming within the Web3 landscape.
