Why Apps Are Beating Games for Investments
Gaming startup funding hit roughly $627 million in the first half of 2025, tracking toward the weakest annual total in over a decade (Crunchbase). That's a fraction of the $12.5 billion that poured into gaming startups at the 2021 peak, and well below the $2.54 billion raised in all of 2024. Not a single gaming venture round crossed $100 million in 2025.
Meanwhile, consumer apps are swimming in capital. a16z raised $15 billion in January 2026, including a consumer-focused Apps Fund. L Catterton raised $11 billion across strategies in 2025, the largest dedicated consumer raise in history.
The money hasn't left venture capital. It has left gaming. And this is why.
The Math That Broke Gaming VC
(Source: Aream Quarterly Gaming Report)
Venture capital is about betting on outsized returns. A typical VC fund aims for 3x in roughly ten years, with a handful of winners carrying the portfolio. To make that math work, investors need both predictability and scalability.
Mobile gaming has been both predictable and scalable since 2012. The compound annual growth rate (CAGR) was in double digits. Venture capital flowed into new and scaling companies that used to fuel new game development and user acquisition.
After 2022, the industry ran into two problems.
First was consolidation. The acquirers got acquired. Zynga was bought by Take-Two. Activision Blizzard was absorbed by Microsoft. King had long been folded into Activision. The companies that used to write $50M to $500M acquisition checks for small and mid-size studios have fewer reasons to keep buying, and there are fewer of them doing it. That means fewer exits. And investors need exits to justify their existence.
Second was distribution. When Apple deprecated IDFA, it reset the efficiency of mobile marketing overnight. Less targeting data meant less effective ad spend, lower payback periods, reduced marketing budgets, and ultimately fewer downloads and lower revenue. We're back to growth hacking K-factors, IP integrations, and celebrity endorsements. For startups without those levers, it's a brutal environment.
Here's how those dynamics show up in the actual fund math. If you're operating a $100M gaming fund, you need to own 10% of a company that exists at $1 billion or more to return the fund.
With today's compressed multiples, that's a company generating somewhere between $300M and $700M in revenue. How many independent mobile gaming companies can you realistically see reaching that valuation in a market where distribution is handicapped, and the natural buyers have been bought?
The bigger the fund, the worse the math gets. And in the COVID boom, gaming funds got supersized:
A $20M to $50M acquisition returns $2M to $4M for the fund at 8-10% ownership
A $100M to $200M exit returns $10M to $14M at 7-10% ownership
A $500M exit returns $25M to $50M at 5-10% ownership
The supersized funds raised during the COVID boom need multiple lottery wins just to return capital to their LPs (Limited Partners is what the investors into funds are called), let alone generate profits. But the capital that's leaving games isn't going to the enterprise AI and defence industry alone. Much of it is flowing into apps.
Where the Capital Is Actually Going
Consumer app companies are rising at a pace that gaming startups can only envy. And the exits are happening.
Duolingo hit $1 billion in bookings in 2025, growing revenue 35% year-over-year, with a market cap that reached $9.5 billion. At roughly 17x forward revenue, it trades at multiples most gaming companies will never see. The company has 50 million daily active users, 830 employees, and $300M+ in adjusted EBITDA.
Noom, the weight management app, hit $1B in ARR in 2023 and was valued at $3.7 billion at its 2021 Series F, implying a 6x revenue multiple. It grew from $12M ARR in 2017 to $600M in 2021 using a subscription model with predictable cohort behavior.
Strava filed confidentially for an IPO in early 2026, approaching $500M in annual recurring revenue with roughly 50% year-over-year growth, and a projected IPO valuation of $3 billion or more.
Oura Health raised $900M in an October 2025 Series E, valued at $11 billion, making it one of the most valuable consumer health tech companies globally.
Higher multiple = bigger exit on the same revenue = fund math works."
Compare those trajectories to gaming. The largest gaming M&A deals of 2025 were driven by incumbents and private equity, not by venture-backed startups finding exits. CVC Capital Partners put $2.5 billion into Dream Games, which generates close to $2 billion in annual revenue. Plarium, RAID Shadow Legends got acquired for $620M by Modern Times Group, plus a $200M earnout. Plarium was making over $250M annually at the date of purchase putting the purchase at a 3x revenue multiplier.
The only healthy revenue multiplier in gaming we saw was when Scopely acquired Niantic's gaming division for $3.5 billion. Pokémon Go, Niantic’s biggest (and pretty much the only) game, makes around half a billion a year. These are transactions between established players. The startup layer is getting squeezed out.
Why Apps Trade Higher
While mobile gaming revenue has plateaued over the past decade, non-game apps revenue has surged. (Source: Sensor Tower Gaming Report)
Recurring revenue changes the equation. Consumer subscription apps generate predictable revenue that compounds over the years. Duolingo, Noom, and Strava all run subscription models where users pay monthly and retain for years. Games, even with battle passes and live ops, still produce revenue in spikes tied to content drops and UA campaigns. You're only as good as your last update, and users demand those updates at ever more frequent intervals.
LTV stretches further. In the app world, lifetime value spans years because products are embedded into daily routines. People don't cancel their fitness tracker or language learning app because of a rough month. And frankly, with most common subscription plans being annual, the revenue is very predictable, albeit capped. Games burn through most of their players in months. Retention is hard. LTV is cohort-based. Scaling becomes brutally expensive.
Market expansion is broader. Apps appeal across regions, age groups, and income levels. Gaming fights for a slice of time in a crowded attention economy where genre innovation matters, but the addressable market stays relatively fixed.
Perception shapes multiples. Investors view consumer apps as utilities or platforms with flywheels, retention loops, and ARR-economics. Duolingo, even after a disastrous 2025 that saw its market cap plummet by 77%, trades at 5x forward revenue (down from 17x).
Despite the size of our industry, games are still perceived as content bets, exciting but short-lived, unless you build an enduring brand aka “franchise”. And almost nobody does.
Where Gaming VC Still Flows
It would be intellectually dishonest to ignore that some corners of gaming are still attracting venture capital. AI-powered game development tools have pulled in $1.8 billion over the past five years, with content generation comprising 65% of that deal value. UGC platforms and developer infrastructure still get funded.
But the distinction matters. These are bets on tools and infrastructure, not on studios making games. The "picks and shovels" thesis is alive. The studio thesis is reserved for the Turks only.
Philosophical Musing: The Fork in the Road
After nearly every talk I give, people ask me why I'm so negative on the gaming market. I'd reframe that. I'm bullish on gaming people. I'm bearish on gaming venture math.
The skills that game developers, producers, and operators have built over the past decade are exactly what the highest-growth app companies are desperate to acquire. Retention design, engagement loops, live operations, monetization architecture, and community management at scale. These aren't niche gaming skills. They are the operating systems of modern consumer apps.
The market is already telling you this.Strava hired its CPO and CTO straight from Epic and Zynga. Duolingo acquired Space Ape founder’s NextBeat, a music gaming studio spun out of Space Ape/Supercell, specifically for their expertise in game design, user retention, and monetization. That acquisition brought 23 gaming specialists into Duolingo to make their products, in their words, "as fun and joyful as the best mobile games."
These aren't isolated hires. Consumer apps are being rebuilt around the engagement principles that gaming invented. And the people who understand those principles best are sitting in game studios, wondering where the funding went.
If your joy comes from creating games, that's a legitimate path. Just know the journey will likely be longer, bootstrapped, and hit-dependent. But if what excites you is building products that millions of people use every day, solving retention at scale, designing systems that keep users engaged for years, you should know that every major consumer app company is looking for exactly what you already know how to do. The capital is there. The exits are there. And right now, gaming talent is underpriced relative to what it's worth in the app economy.
