In 2023, the games industry suffered from over 10,000 layoffs and the numbers have continued into 2024. So far, we have seen thousands of further layoffs this year, but what's been triggering them and, as the bad news starts to abate, is the end finally within sight?

We spoke with Konvoy VC’s Co-Founder and Managing Partner, Josh Chapman, who shares his thoughts regarding the main reasons for the recent tide of layoffs. Chapman also anticipates a slowdown in these figures, touches on the state of M&A activity, and offers more industry advice.

PocketGamer.biz: First, tell us about yourself and what led you to co-found Konvoy VC

Josh Chapman: I was fortunate to have grown up internationally for most of my life given my father’s career as a U.S. Diplomat with the State Department. My brother, Jason Chapman, and I crossed paths with our close friend, Jackson Vaughan, during our time in Bolivia and Mozambique. We grew up moving every two to three years and got to experience a broad array of cultures in Latin America, Africa, and Asia. I feel very blessed to have had this type of upbringing and exposure so early on in life. While overseas, I spent a lot of time in gaming internet cafes, playing on my mobile phone, and hosting Halo LAN parties at my house. Gaming has always been about community for me, even to this day. I then returned to the U.S. for college, and got my degree in Business and Economics from Wheaton College, IL. From there, I went into the finance industry in New York where I worked at BlackRock and then Morgan Stanley.

Meanwhile, Jason and Jackson went into tech and worked at IBM Watson as software engineers in their artificial intelligence division. A few years into our careers, we saw an opportunity at the intersection of gaming, technology, and venture capital. Our shared passion then led us to embark on the journey of starting Konvoy in 2017. Since then, we've dedicated ourselves to building a fantastic team, investing in great founders, and building Konvoy into what it is today. In short, I love what I do, and building this firm alongside Jason, Jackson, and the Konvoy team is immensely rewarding.

There are a lot of challenges and changes happening in the gaming industry right now, notably the unfortunate series of layoffs. What do you think are the main reasons behind this?

During the COVID-19 pandemic, the gaming industry witnessed an unprecedented surge in activity, prompting rapid expansion to meet escalating demand. However, as the dust settles, the sector now faces a period of readjustment, mirroring broader recalibrations across various tech industries. Intense competition for user attention - especially in mobile - is forcing gaming companies to prioritise projects with proven engagement and monetisation metrics, leading to resource reallocations and staff reductions across other sectors.

This is tough on the industry, yet professionals in gaming are resilient. The gaming market survived an arcade pullback in 1976, the video game crash in 1983, the congressional hearings on violence in gaming in 1991-1994, the expansion from console to PC in the late 90s, the radical shift that mobile brought us in 2005, a pullback in AAA in 2018, delays to new game releases due to COVID in 2020, the zirp era of web3 inertia in 2021-2022, and now this correction to the mean in 2024. This industry is buoyant and has a 50+ year history of growing despite challenges and a shifting technology landscape.

Moreover, economic uncertainties and rising interest rates prompt companies to refocus on initiatives with robust returns on investment, emphasising efficiency and resource optimisation. This imperative to do more with less is further underscored by technological advancements, particularly in AI, enabling operational streamlining amidst mergers and acquisitions aimed at consolidating assets and streamlining operations. In essence, the gaming industry is navigating a transition marked by strategic prioritisation and adaptation to evolving market conditions, necessitating continual innovation and optimisation to thrive in an ever-evolving landscape.

Do you see any sign of a slowdown in the rate of layoffs?

In 2023, there were 10,500 layoffs in the gaming industry, whereas in 2024, we've observed around 8,000 so far, which amounts to 76% of the previous year's total in just a few months. It appears that companies entered the new year with strategies aimed at stabilising cash flow at the cost of parting ways with valuable talent in the industry. While this restructuring has unfortunately occurred quickly and concurrently, I do believe that this was a necessary growing pain to set up the industry for the next decade of immense growth - adding over 100m gamers per year and billions in industry revenue. I think the worst is now behind us and that the layoff rate will lessen as the year continues.

What can we expect from the perspective of VC funding in the industry? And what changes will we see as layoffs slow down?

Momentum in the gaming industry continues despite the setbacks we see on the employment side. For example, Disney's monumental $1.5 billion investment in Epic Games has shown continued interest from the world’s largest IP holders in engaging with the gaming audience - 3.3 billion people. Additionally, while some gaming companies are laying off great talent, that talent is finding a new home in earlier stage companies that the gaming VC cohort is funding.

However, we expect large M&A to be muted this year - hindered by misguided regulatory headwinds - and for the gaming IPO pipeline to be almost non-existent this year. At the early stage, venture investment has stabilised and remains active, especially at angel, seed, and series A. Based on predictions in our Q4 quarterly report, we believe the industry is on track for growth this year and is projected to reach $190 billion by the end of 2024, with an additional 100 million gamers expected to join its ranks this year. This signals a dynamic and evolving landscape on the horizon for gaming.

You mentioned talent finding new homes. Do you think there will be enough opportunities out there, or will rebuilding take some time?

The gaming startup scene is poised for a promising period ahead. With a wealth of experienced talent reentering the job market, opportunity is abundant for startups to tap into this pool of expertise.

What would you say if you could offer any advice for those looking to work in the industry or seeking investment?

Advice during these times is hard to give, as each person has a nuanced situation in front of them, yet I think the key to thriving in any industry career centres around remaining resilient, proactive and resolute in pursuing goals and ambitions. While hard times do come and go, resilience leads to amazing opportunities and the gaming market is poised for tremendous growth over the next decade. There is an immense amount of resources and job boards available out there for everyone to take advantage of, and hopefully, as an industry, we can all navigate this together.

In regards to the funding environment, I think the best founders are finding success through very clear communication, strong data rooms with materials and a clear and concise plan for how to achieve the next level of growth. Also, an emphasis on revenue and profitability is in full focus right now for investors and founders alike. Lastly, for those looking for additional resources or to learn more about these types of industry trends across gaming, we encourage you to subscribe to Konvoy’s weekly newsletter.