I can definitely attest, a lot of groups have paused or are not allocating. Thankfully, Andreessen and us are not in that camp and we are active still today. But I think you're gonna see a continued pullback in 2023.

I think it's gonna get a heck of a lot darker before it gets brighter. Internally, we have the hypothesis that it's not gonna start kind of dipping out of, call it a dark recession or dark period, for specifically the private markets and funding probably until Q2 or Q3 of 2024.

So, what is actionable for startups here?

You need to be thinking that, that is the fundraising environment you're raising into. So that's one. Two, when it comes to just kind of the deal activity today, right? Just some kind of numbers.

At the seed level, it remains roughly unchanged year over year.

So we track on a quarterly basis gaming deals done per quarter. So in Q3 of 2021, which is obviously the last quarter, we have Q3 data for 2022. 76 deals were done in 21 and 77 were done this year.

Roughly unchanged at series A, that's down about 15%. At series B, it's down about 47%. And at Series C it's down about 67%.

And so what you're seeing is there is a massive plummeting at the late stage which isn't uncommon. And then it eventually does cascade to the earlier companies raising in the ecosystem. We think Seed and Series A will probably be the two that are most unaffected by this over the next 18 months.

I'm excited to talk about it. I, like the rest of tech Twitter have been captivated by Chat GPT but this fascination with AI's potential impact on the games industry fascinated me for a lot longer than the latest Chat GPT meme. Having come from game development… Look, game development's really hard and there are massive barriers to entry. It's why companies have to go out and raise so much money to turn their ideas into reality.

The arms race for scale has only gotten higher and higher over time. Diablo Immortal was a nine figure budget. Call of Duty mobile same deal. And many of the very large games now are very expensive endeavors. Anyway, I'm really excited about AI in a whole number of ways.

And we're already seeing, actually quite a few entrepreneurs come through with early ideas of how generative AI can impact the games industry. The first and most obvious, I think is just reducing the cost of content by a lot.

And look, I think there's a real conversation about: what is creativity, what is originality? What is derivative, blah, blah, blah. But what you don't realize in game development, if you haven't sort of like been in the trenches and gone through the slogs, is that a lot of game development content creation is 42 shades of blue. And like, recreating variants of the same textures over and over and over.

Or doing paint overs of like the same thing over and over and over and over to get it right. And there is obviously amazing creativity in that, but I think the optimist view and the view that I have and I think our firm has is that AI has the ability to take very creative people and just multiply and amplify their efforts and, and their creative minds a whole bunch.

And so we love it. And then, you know, just even outside of content creation, there are a whole bunch of, um, areas that, you know, we're looking at at the moment. Everything from real-time translation to NPCs. To, you know, new, new forms of gameplay. So, yeah, uh, you know, the, uh, the meme exists, but we're, we're genuinely very, very excited.

My mind goes straight to Brave New World.

Especially on the content and publisher side of the house. Rewind 20 years ago. What did gaming look like to what gaming look looks like today? I mean, we're gaming on an astronomically new amount of devices from VR, mobile, to new types of consoles.

I think that is evidence of where our industry sits. We're not just trying to do things cheaper and cut costs. I think we're trying to entertain the world, right? This is what this industry does. It's the pastime of, you know, 38% of the world's population. There is no other activity other than drinking water and walking and eating probably and sleeping that 38% of the world does. Right?

And this is where when I look at what we do. Josh and me and the rest of our teams we're trying to fund the people that are forming new ways to entertain and connect and build community. So that to me screams Brave New World, not faster and cheaper.

Of course, there are examples of great service providers in our industry that do those things and that's great businesses. I'm not digging on that, but in aggregate, I would slot us in that explore mentality, versus the engineer trying to make things go from one to five to one to three.

I think the answer depends a little bit on the underlying assumptions that you're making with faster and cheaper. If you look at the mobile games industry over the last, whatever, six, seven years, a lot of that story has been faster and cheaper.

People trying to optimize their LTVs. Their LTV to CAC ratios just by like 5 or 10% here and there. And that has built some really great businesses until some of your underlying structural assumptions change. When there are black swan events in acquisition and targeting or in new platforms or whatever it is. Suddenly a lot of those really great optimizations go away or the nature of those optimizations changes and you sort of have to scramble.

Brave New World is always the best way to sort of like build a moat and it doesn't have to be expensive, right? Brave New World can be, not just in, having these like massive AAA budgets or spending a bunch of money or dev time against a thing. It can be an insight on distribution, right?

Like, when League of Legends came out. And people don't remember they were competing against another title, Heroes of Newerth. And HON had a bunch ex-Dota people. It was a really, really strong team.

And League of Legends, their distribution insight was: “Well, let's just make this thing free to play.” And people thought they were crazy, but that is what ended up sort of like generating this massive generational game. This is all a very long-winded way of saying, you know, we agree Brave New World.

But, maybe one nuance is there are lots of scrappy ways to get to Brave New World that might look like trying to make things faster, cheaper. It's just, a paradigm shift in how you think about it.

I would probably say, if we're highlighting the fundraising comment, try to not have to fundraise until Q1 of 2025. Like, if you're gonna do that, my goodness, you will be in such a good spot. So think through that. Do not plan to start raising capital in November because very few deals get done between Thanksgiving and Christmas, specially in the West. So really plan that out.

If you really need money in Q4, start raising in Q2 of 2024. So just kind of a tactical thing. Things will still take longer than they did before.

Operationally, I mean this isn't fun advice, but I think it's necessary advice: Look through your staff and determine who do you need and who do you want there?

There's a lot of wants that you cannot have right now. And that's unfortunate. So that is an operator question that I've asked a lot of our operators is just: who do we need and who do you just really want?

You need to get your burn to a spot where you can survive, where you're not having to raise in the peak of the downward trend, which is probably in Q2, Q3 of next year.

So that's my general advice, operationally more around capital raising. And then, I would tell you like, figure out who on your team right now… who do you need to keep happy? And keep them happy. Right? And so, like a lot of questions we've gotten recently is like, “Hey, we have a certain amount of money as a pool of capital for salaries, for bonuses.”

You need to prioritize who's the game changer for you. That's what you need to prioritize. I think the era of super employee friendly across the board is coming to a close. When things get tough, people have to make tough decisions. And that is okay, when the going gets tough, the tough get going.

To Josh's point, we're gonna see a lot of diamonds kind of emerge here in startups.

Really great founders and CEOs are made during hard times.

And the reality is actually that quite a few founders who raised in the last cycle or created their teams in the last cycle, first time founders. This is sort of the first time they're going through really hard macro times. And so it is a massive shift in mentality to sort of usher your teams, not just structurally with raising capital and having the right cost structure and managing burn and all of those things, but also spiritually, right?

What does it mean to be a really great wartime leader? What does it mean to keep top talent around without necessarily paying them more. These are the times where really, really great CEOs are made and honed. And so, to the extent that you are a founder or CEO going through this, think about what kind of leader you wanna be.

And make sure that you’re consistently communicating with your teams, really be out there. This is the time where it's actually probably more important for you to be spending more time with the team than out raising. And, luckily for you or unluckily, there's less activity there.

So, spend more time with your team and spend more time in the product. And, this is where us as investors betting on really great founders, this is where that philosophy in investing really comes back and generates great returns.