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Venture Capital

Venture capital (VC) – is an avenue of funding for video game and esports businesses. Other types of funding include bank loans, public funding schemes such as grants or tax credits from local or national government, private funding, e.g. by video game publishers or crowdfunding, acquisitions (see M&A), or trading stock on capital markets via an IPO.

What is Venture Capital?

VC is a type of private equity funding typically associated with start-ups or early-stage companies. In return for an investment of capital, investors receive equity (an ownership stake) in the company.

The difference between VC and private equity in general is that VC primarily funds business operations in their early stages seeking to grow and scale up their operations. These are not yet established enough to generate (regular) cash flow and therefore have a hard time securing traditional financing such as bank loans or private investments. Investing in these early-stage businesses is associated with a higher risk, which VC investors offset by demanding a larger share of equity than investors in established companies and providing guidance to businesses during the period of the investment. This way, new businesses gain access to capital to fund their operations, while VC firms gain a stake in potentially successful new companies.

How does a VC organization work?


VC is granted by specialized organizations such as funds or firms, investment banks, or by high-worth individuals referred to as “angel investors”. Beyond simply providing financial resources, many VC organizations take an active role in the companies in their portfolio to help them achieve commercial success. This typically includes mentoring and counseling company management, as well as providing networking opportunities.

VC firms are typically organized as partnerships. They raise capital from companies or private individuals, which is pooled in funds. The managers of a VC fund are referred to as general partners, whereas the investors are limited partners. They only provide capital, while general partners are actively involved in the management of the fund’s portfolio companies. Firms make a profit by collecting regular management fees, as well as performance fees, which are calculated as a percentage of the profits when a portfolio company is sold or goes public. The rest of the profits are split between the limited partners, which allows them to recoup their investments and, ideally, generate a profit.

Another type of VC firm is the corporate venture capital (CVC) firm, which is affiliated with a larger company and often seeks to make strategic investments in markets of interest to that company. CVC firms are run by companies such as Google, Microsoft and Amazon. VC may also be provided by government-backed funds, such as Saudi-Arabian Savvy Games Group’s Public Investment Fund.[1]

How can a company secure Venture Capital funding?

Entrepreneurs can apply to be supported by VC funds. To this end, they must often submit so-called pitch decks including detailed business and financing plans. Some VC firms also offer so-called accelerators, which are programs similar to hackathons that new entrepreneurs can participate in to secure funding for a business idea (see, e.g., a16z’s “speedrun” accelerator).[2]


If the pitch deck is of interest to the VC firm, it will begin to conduct due diligence on the business. This includes a detailed analysis of the business model, product and legal position of the company. If due diligence doesn’t reveal any potential threats to the investment, the firm will issue an offer of funding in exchange for equity in the company.

If this offer, represented by a term sheet, is accepted, the VC-backed company can go through multiple rounds of funding during the course of their business, until the firm eventually exits.

What stages does VC funding go through?

A company backed by a VC firm can receive capital multiple times, each of which is referred to as a funding round. These rounds typically coincide with a new stage in the company’s growth that requires increased financing. Not all VC firms participate in all rounds of funding. Some, for instance, are specialized to support only the inception of a business in the pre-seed stage and will exit after, passing their equity to another investor on the secondary market.

Funding rounds include pre-seed, seed, early-stage and late-stage funding. At the pre-seed stage, entrepreneurs try to turn an idea into a product and business plan. They do not yet have a product. At the seed stage, businesses typically seek to launch their first product, but do not yet have an established revenue stream. In the early stage, product sales are scaled up to accommodate initial business growth and generate revenue. This stage can include one or more funding rounds, typically referred to as Series A, B, and C. Late-stage funding in Series D, E, and F encourages expansion and further product development, scaling a company to prepare for exit.


While VC is particularly relevant for start-ups and young companies, adolescent companies receive the largest share of funding. According to the OECD Database, of all venture capital investments in the US in 2023 by value, 56% went to later-stage ventures and only 12% of investments were made in the seed stage.[3]

How does VC funding end?

As the company grows, VC will typically go through multiple rounds of funding and eventually “exit”, recouping and generating a return on their investment by effecting the sale of their equity stakes. This is typically facilitated by the sale of the company as a whole or an IPO on the capital market. VC’s involvement in a business can last for around 10 years, supporting the company’s growth until it is profitable to exit. VCs can also exit earlier by selling their equity to other investors on what is called the secondary market.

What role does VC play in the video game business?

As the video game industry has become one of the most profitable media industries, it has also garnered the attention of venture capitalists. This has led to the creation of VC firms specialized in video games, as well as an increased willingness of generalist firms to invest in games. Some of the most notable firms actively investing in video game companies include Andreesen Horowitz (a16z), BITKRAFT, Play Ventures, Lightspeed, 1UP Ventures, and Griffin Gaming.[4]


VC is an important avenue of financing for video game companies. An aggregate 18% of video game companies in Europe rely on VC funding – for non-indie companies, this number is even higher at 31%.[5] According to Drake Star’s Global Gaming Report 2023, over US$3.5B were invested in video game companies globally in 2023, with mobile, blockchain and platforms/tools being the most popular segments. The largest disclosed investment was secured in a mid-/late-stage funding round by VSPO, a Chinese esports tournament service provider (US$265M invested by Savvy Games Group’s Public Investment Fund).[6]

[1] On Savvy’s acquisition and funding strategy, see James Batchelor, ‘What is Savvy Games Group and how is it trying to change Saudi Arabia’s image?’, (7 June 2023), <>.

[2] <>.

[3] OECD Data Explorer, ‘Venture Capital Investments (Market Statistics)’, <>.

[4] For the most active VCs in gaming in 2023, see InvestGame, Gaming Deals Report 2023, 10; Drake Star, Global Gaming Report 2023, 14.


[5] European Commission, Understanding the value of a European Video Games Society, 2023.

[6] Drake Star, Global Gaming Report 2023, 3, 7.


  • Jasmin Dolling

    Jasmin Dolling, LL.B., Dipl.-Jur. is a German legal scholar from Hamburg. She is currently working on her doctoral thesis concerning media rights in esports and has published a number of German- and English-language academic papers and articles on questions of video game and esports law. She has also founded the ‘Student Group for Video Game and Esports Law’ at her home university. View all posts

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