Game start-ups drawing lower acquisition prices

Industry investors describe decreasing valuations, debate the influence of Zynga's downturn

The gaming start-up bubble appears to have burst, or at least deflated a bit. A panel of industry investors weighed in on the issue at YetiZen's San Francisco Game Developer's Workshop last week, reaching general agreement that the acquisition scene in the gaming industry has cooled off considerably in recent months. According to VentureBeat, a panel including Blumberg Capital vice president Chris Gottschalk, Sing Tel Innov8 managing director of investments Jeff Karas, and GameStop Digital Ventures general manager Chris Petrovic answered a question about how Zynga's troubles have impacted the acquisition market.

"Clearly Zynga had an impact on the later-stage investments," Gottschalk said. "We see it not only in gaming but in all sectors. The public markets are going to affect what's happening in some of the later-stage deals."

While he wasn't certain as to the impact Zynga has had on early-stage investments, he did say the end result is similar in that expectations have been lowered.

Karras agreed, saying it's "a more sober environment around valuation." The top companies still command top dollar and sometimes even more than they're worth, but he noted that the majority have valuations that are now more in line with their actual value.

GameStop's own analysis leans a bit conservative, Petrovic said, but added that valuations are generally "leveling off from where they were in the last 12-18 months." Gottschalk agreed, but stressed that the recent dampening of investor enthusiasm was not limited to gaming startups.

"It's not just games, by the way," Gottschalk said. "The consumer valuations across the board had gotten a little frothy. They're starting to cool off and you'll see them cool off more. That doesn't mean consumer is a bad space. It's just that some of the valuations got ahead of what was warranted. Once that breaks, you should be able to see the market resume."

The panel referenced free spending by Japanese mobile giants Gree and DeNA as two trends that aren't likely to be pushing up valuations any longer. In 2010, DeNA acquired ngmoco for $403 million. Gree purchased Open Feint for $104 million in April of 2011, but last month announced it would be shutting down the social networking service on December 14. Earlier this year, GREE also acquired Crime City developer Funzio for $210 million.

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Latest comments (3)

Peter Dwyer Games Designer/Developer 5 years ago
About time reality caught up. It really has become "I'm a games company buy me for gazillions". The frightening thing is that no-one doing the buying has asked the simple sanity check question of why?
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Lets hope the valuations drop even further lower back to reality.
Just because the investors looking to invest in tech are throwing silly money at the Zeitgeist, doesnt mean its plain sailing for those transitioning/working with the mobile/digital area. The same old bread/butter economics still applies.
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@Peter, when Midway, Atari/Infogrames and THQ started throwing round big investment claims, a number of investors tried to jump on the bandwagon and claimed to have the incites to pick 'winning publishers'. Literally the blind leading the blind - and as in all investment failure, those involved are loathed to admit to have made big mistakes. What will happen is rather than admit failure, they will just abandon supporting the sector on mass (as we see) chastising the innocent studio/publishers along with the inept.

Sadly part of this problem can be laid at the media's feet... if you are unable to report the realities of developers claims and abilities, and only run puff and personality pieces - then there is no means for independent observation or assessment!
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