Wednesday, January 28, 2009

Virtual Worlds Venture Capitalists Retreating

Virtual Worlds Management released a report tracking the virtual worlds-related investments of 2008. More than $594 million in 63 virtual worlds related companies in 2008.

The year has seen a steady decline in investments from 2007's burst of over $1.4 billion. In Q4 2008,we saw $101 million invested in 13 virtual worlds related companies. This was down from $184 million in Q1 to Q2's $161 millions to Q3's $148.5 million and now the most drastic drop.

"The year wasn't bad for all sectors," said Christopher Sherman, Executive Director, Virtual Worlds Management.

Nineteen youth-oriented properties received over $70.47 million over the course of the year. The bulk of that was in Q1 and Q3. As more and more youth worlds came to market over the course of the year, spectators worried that the space was overcrowded. Others have seen it as a sector for opportunity, and it appears as if venture capitalists are still somewhat interested.

With the youth world space on its own getting more and more jam packed, third parties are looking to help monetize them. And that's an area where investors are certainly looking. Five companies with interests in monetizing virtual worlds, either through advertising, payment methods, or virtual goods, received $64.7 million.

That's not including the June acquisition of PayByCash (which provides alternative payment methods) by PlaySpan, which runs virtual goods marketplaces. PlaySpan went on to bring in its own $16.8 million investment in November (included in the above sum).

"For developers aiming at adults with virtual worlds, though, the year was a little slower," said Joey Seiler, Editor, VirtualWorldsNews.com. "While big money seems readily available for developers creating massively multiplayer games, companies aiming with more traditional worlds raised over $47.721 million for 11 companies.

"With investment already dropping off in 2008 across the board, both within the virtual worlds industry and without, and predictions for further and increased slowdown in 2009, we may see a continued slide," added Sherman.

Without more cash flowing into the industry, the crowded space that has scared off some investors will likely start to see more shrinkage in 2009, whether through simple closings or possibly mergers and acquisitions as developers look to consolidate audiences, services, and strategies.

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