Gaming financing hit a 12-month high in Q2 2026, with over $2.5B raised across fewer than 100 rounds. In this episode, recorded in person at Gamescom, Kalie Moore sits down with Michael Metzger, Managing Partner at Drake Star Partners, to work out what that actually signals. Michael leads Drake Star's gaming and digital media practice and is behind the quarterly report the industry reads to track where capital is moving. He starts with the question everyone is circling: is this an AI bubble? His answer is that the money reflects a massive opportunity, that some of the companies raising today will become very large businesses, and that a good number of them will not make it at all. They dig into what that means for valuations like General Intuition's, and why he's more excited about the AI-native games that haven't been built yet than the current wave of AI used to make production faster and cheaper.
The conversation also covers why financing rounds have fallen from roughly 200 a quarter to below 100 while the money per round climbs, where capital is actually landing across gaming AI, ad-tech and hardware, and why he thinks AR glasses are the platform bet worth watching. Michael breaks down what he tells founders about timing a sale, why inbound interest is a better signal than trying to time the market, and what makes a mid-market deal attractive to buyers right now. Drawing on transactions he's advised, including Trak Racer to Corsair, Hipster Whale to Atari, Ready Player Me to Netflix and Echtra Games to Zynga, he explains what actually determines whether a deal works after it closes. They also get into why raising as a game studio remains harder than almost anything else in this market, the state of esports monetization after years of false starts, and the one category he thinks is currently undervalued.
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Kalie: Welcome to the Naavik Gaming Podcast. I'm your host, Kalie Moore. If you've spent any time trying to understand the gaming mergers and acquisition market, you've probably come across Drake Star's quarterly reports. They're one of the most closely read data products in the industry, tracking deal activity, financing rounds, public market performance, and the macro forces shaping who is buying, who is selling, and why.
Today's guest is the person behind a lot of that analysis and behind more than 25 years of deal investments. Michael Metzger is the managing partner at Drake Star, a global tech investment bank with about 100 professionals across US, Europe, and Asia. Michael leads the firm's gaming and digital media practice and has advised on some of the most impactful transactions of the last two decades.
Most recent deals include the sale of Track Racer to Corsair, Hipster Whale to Atari, Ready Player Me to Netflix, and Ektra Games to Zynga. Each of those deals tells a story about a very different phase of the industry's evolution and one that landed under very different market conditions. Drake Star's Q2 2026 report landed a few months ago, and the headline is surprising.
Q2 was the strongest quarter for financing in the last 12 months, with over two point five billion invested, led by gaming AI, ad tech, and hardware. M&A stayed healthy with 51 deals, and in the private market, general intuition, which uses gaming footage to train AI for physical robotics, has gone from a two point three billion valuation reported to six billion in the space of just a couple of months.
In a market where AI is being layered on to everything, where private equity has reshaped the buyer landscape, and where the headlines can be spectacular, but also for game studios fundraising, it remains harder than ever. What is actually real? Today, we're gonna talk about what the data shows, which categories are attracting serious capital, and where the current excitement around AI valuations might be getting ahead of itself.
Well, Michael, thank you so much for being here. Welcome to the podcast. I wanna start with your background, because you came to gaming through an unusual route. You have a master's in engineering, and you had engineering roles at AT&T, IBN, Mindspeed. That's followed by product management, corp dev roles, then investment banking, before focusing on digital media and gaming. What made you lean into gaming specifically?
Michael: Well, so first, I like games. But then, this is now, dates like over 15 years ago, I was starting with a partner in investment bank. And we were based in LA, are still based in LA. I'm still based in LA, and just looked at, if you work in a boutique bank, you need to really focus on some sub-sectors. Otherwise, you might work on a deal nobody else wants. And we, we had some gaming deals before, and we thought, "What's a good sector that has a lot of growth potential we should focus on?" And we picked gaming. I mean, Activision is, is in LA or was... is, is in LA, and Scopely was growing and emerging, and a lot of them Japanese companies or Asian companies have their, like, US headquarter in LA, so... And then, yeah, one deal led to the next, and been now doing, I think, over 30 gaming deals. So, it's been a, a fun ride.
Kalie: And you've been doing this for a number of years. You've been through every major industry cycle, I would say. When you look at the current moment, what are your thoughts? Are we in an AI bubble?
Michael: AI bubble is, is, is interesting. So, there's obviously a lot of money flowing into AI. But I believe that AI will fundamentally change how consumers interact, how companies are run, how new products are developed. So. I, I think, if you look at the broad landscape-
Kalie: Mm-hmm ...
Michael: Some of the companies where a lot of money's flowing in today gonna be the winners, and it's gonna be very, very large businesses.
Like at any time when there's a lot of innovation and happening, I mean, I think a good amount of companies that are raising big rounds now probably not gonna make it, and they're gonna go under. So, I think all the money flowing in is a reflection of the massive opportunity that's ahead of us, so.
And some of those valuations might be, you know, anticipating that a specific company gonna be a winner, and they may be but, you know, not all of them will be.
Kalie: Yeah. And where do you see that kind of manifest within the games industry specifically?
Michael: Well, there's a couple of things. Currently, we're in the phase where AI's helping with making game production faster, lower cost.
That's probably kind of the first phase. And different, different countries and regions are endorsing that in different ways. The Chinese are really leaning in. Some of the Western companies are more cautious. Also, maybe for some IP or copyright potential risks. But what I'm excited about is kind of the next phase where there might be new AI-driven games.
Where, I mean, we-- from my point of view, we have not seen an enormous amount of innovation the last few years. Yeah. If you look at, you know, once the games launch in mobile or the App Store, there was like a huge wave of new innovation, new games. But the last few years, while there's always really cool new games coming out, overall there hasn't been a to- there hasn't been a lot of really new categories.
And what I'm excited about is this new categories of AI-driven games where you, in- interact in certain ways. I just, read about a game where you're like a detective investigator, and you actually talk to different people, and they build in some LMM models for that. So-
Kalie: Is it Scriptic, or is it a different company?
Michael: Might be Scriptic, yeah.
Kalie: Yeah. I, I spoke to them on the Naavik Podcast a, a couple months ago, and I thought they were one con- one company that was doing AI in a-- such a unique way because they're-- the gamers actually loved it. Like, they weren't using AI to create gameplay, but they were using AI to, like, further their gameplay to create these experiences, so you didn't get the blowback that we see in, in other genres or how other people are using AI, where it just looks like sloppy AI slop, especially on the graphics, which we know- Totally. ... gamers have some, some major, major issues with.
Michael: Yeah. So, I think- This is an amazing opportunity, and I hope in two, three, four years there's gonna be some really new categories with games that are highly successful that are just very different to the current games.
Kalie: Mm-hmm. All right, I'm gonna take us on a time travel now. I think you and I actually met for the first time briefly eight or nine years ago when esports was the next hot thing. I was with Bitcraft Ventures. I was working with a lot of esports teams. You know, esports was supposed to be big business for, for gaming, for brands, and that didn't really pan out.
But what's interesting, when you and I were talking about this episode, you mentioned you went to the Esports World Cup last weekend. For our listeners, this episode is actually gonna come out in September, so we'll say last month. I would love to hear your thoughts on that event and also your thoughts on is esports coming back?
Michael: Yeah, so the, I think the Esports World Cup, the first one was two years ago and I went to Riyadh, and it was actually quite impressive. And, I mean, the Saudis clearly have been a massive supporter of it.
Kalie: Yes.
Michael: So, so the World Cup moved from, from Riyadh to Paris mainly due to the Iran war. And I think they had, like, 24 games, 200 clubs competing. Prize money this year was 75 million.
Kalie: Wow.
Michael: So that's, in the esports team ecosystem, that's a good amount of money, and it really helps a lot of the teams. And, yeah, so I think they did a, a fantastic job. It's-- Paris has so many beautiful locations.
I think they also had, like, 850 million views of it. I watched a Counter-Strike final, which was fun. And then, the ceremony was at the, the Grand Palais in, in, in Paris, and Ro- Ronald- Cristiano Ronaldo brought out the trophy, and Emmanuel Macron ga- gave it to the AGEL, the winning team, and a lot of really, uh, key leaders in the industry participated.
So, I personally really enjoyed it. I think it was done great. The esports ecosystem in general, it, it's a mix. It's massive amount of viewership. People are passionate about it, like 850 million views just for that, for, for the Esports World Cup is quite impressive. The challenge is still the monetization.
Kalie: Yes.
Michael: And I personally think esports will continue to grow and will be successful. It might take- A long period of time. Mm-hmm. It's also people who like play games, watch games, and so on. As, younger people get a little bit older, the audience gets larger. The, the amount of money they're willing and happy to spend on it is increasing, but it's probably gonna take, probably gonna take a while, yep.
Kalie: And what do you think the future of monetization specifically for teams looks like? Obviously, we saw a lot of the leagues, Overwatch League didn't work out at all. Brand deals I think still is probably one of the biggest revenue drivers, but I can't imagine that there are most brands that are expanding to esports like they were eight to 10 years ago.
What do you think the next generation of monetization for esports teams looks like?
Michael: I mean, I think brands is probably still a big one. Yeah. Potentially, if you look at traditional sports, media rights is the biggest one, and-
Kalie: Yeah, it's always been tricky though, because of the game publishers, right?
Michael: It is, it is more tricky, for sure. And I don't know, maybe other stuff like gifting could become more meaningful. But probably will be brand-driven, just monetizing the enormous amount of views- Yeah ... better. And yeah. But it's not gonna be easy.
Kalie: Have you seen any interest... And I know you're doing mergers and acquisitions, so you aren't necessarily like venture capital where you see early-stage companies, but have you seen any companies or deals related to AI in esports at all?
Michael: Nothing really comes to mind, no.
Kalie: Yeah. I, I haven't either, just, off the top of my head, just s- surprised, but I'm also not in deal flow meetings as much anymore, so- ... let's see. Okay. I wanna move on a little bit. So, Drake Star publishes some of the most widely cited market data in gaming every quarter, and I was very surprised by your Q2 report.
Q2 was actually the strongest quarter for financing in 12 months, but when you look at where that capital actually went, it's gaming, AI, ad tech, hardware.
Where does that tell you about where institutional confidence is right now, and where is it not?
Michael: Yeah. So, I think Q2 had disclosed about two and a half billion. The actual number was much, much larger, and I can talk about that in a second. The number of deals just dipped below 100. So, looking at the big picture, uh, two, three years ago, we were at, like, 200 financing rounds a quarter. Now we're slightly below 100, and that's maybe the overall trend that less money is flowing into it.
There's less rounds. And it shifted a little bit from a lot of money going into content and studios, both PC and mobile. What we've seen now is, like last quarter, more like I would ga- w- would say just gaming infrastructure and tools like Outflyer on the, on the ad side. General Intuition was a big one on the AI side. But also a good amount of hardware stuff with ModRetro, Palmer's Lucky, gaming peripheral company, I think raised over 100 million. And in Q1 also like new platforms, specifically kind of those AR, AI, AR glasses-
Kalie: Yeah ...
Michael: With Way Neo or XReal raising a lot of money, and that's what people look at. It's probably also gonna take some time but thinking about major next platform. So, there was the phones, games on the phones, then there's watch, which probably has been less utilized for games 'cause it's more, more difficult. But there's gonna be a lot of really cool AR glasses going to market this year with, like, a display in it, and you see it. And, and just from a innovation point of view, it's gonna be... I mean, good amount of people believe that's gonna be the next platform where you might not even need your iPhone or your phone for whatever you're doing. You, you see what's going on in the environment.
You can control it. You can talk. You can listen to stuff. So also, a good amount of money went into that in Q1. The biggest deal in Q2 was, was not announced, the deal value, was, Chess.com. Oh. CVC led that round, was very large, and, it just leveraging kind of a, you know, chess being so, um, you know, such an old game, but also m- moving into digital and training people and everything.
They continue to do really well, and that was probably the largest round which was not included in the two and a half billion.
Kalie: Oh, okay. It's... I, I love... I think even for myself, even though I've been in the games industry, it's so easy to forget that, like, the chess games or, you know, The New York Times does so well with their games.
Totally. I play them every single day, but I still don't, in my mind, think of that as gaming, even though it is, and it grabs my attention. And I feel for most of the people I know, especially in my demographic, they don't necessarily consider themselves gamers, but they are constantly playing those games.
So that's a, a good reminder. I wanna talk about, you know, one of the things that you mentioned in the report is, okay, of course, there are some material deals that weren't necessarily announced, financial, the, the financial figures like Chess.com, but a lot of the deals were smaller and midsize. And I wanna talk about what's driving the absence of, like, the large strategic acquisitions that we saw in 2021, 2022, obviously a very different market time.
And do you think that's going to change in the later half of this year in 2026?
Michael: So, looking back, it's maybe surprising that '21, '22 COVID era, everybody or a lot of people stayed at home. Plenty of time to play games, that a lot of investors did not anticipate that it's not gonna stay like that forever.
Kalie: Mm-hmm.
Michael: So, um, while it was very frothy during that period of time, it then crashed down pretty hard. It did. I would say the last year or two, we've been, like, in a steady growth mode. If you look at, so, so in M&A, there's two ways to look at it. One is the deal value. Those are mainly driven by the really big deals where the value is disclosed.
A lot of the mid-size deals, the details are not even disclosed. Yeah. So that's... can't really use that. But if you just, look at the number of deals, like in Q2 '24, we were at 37 M&A deals that quarter, Q2, we were at 50.
Kalie: Yeah.
Michael: So, we see a steady increase, a lot of mid-size deals. A lot of buyers in general who have been very cautious the last few years are leaning in, starting to make offers again.
So, I think there's more and more excitement coming, and if I had to guess, it's, it's gonna be kind of a, a gradual increase over the next year or two with a lot of smaller deals. If you look at the, the big deals, so they were mainly driven by, by PIF, really.
Kalie: Yeah.
Michael: It's EA just closed a few weeks ago. That obviously was massive. Scopely several years back, and Scopely, um, bought the, the Pixel Flow guys, Niantic. PF bought, or PF/Savvy, uh, bought Monton which I don't think has closed yet, but it's, also very large. So, if you look at the buyers universe, it is PIF by far the largest.
Kalie: Yeah.
Michael: We saw the Chinese, who were very active a few years ago. Tencent was super active. NetEase, there was ByteDance. I mean, NetEase totally scaled back. They're even looking at divesting a lot of the remaining assets they have. ByteDance wanted to get totally out of gaming, then changed their mind again, so they're now in the sector again after they sold Monton, which obviously was th- the large, large asset.
And Tencent is still pretty cautious, I would say. We've seen a lot of the Koreans leaning in and looking to expand into the Western markets, which is pretty exciting. But we've also seen a lot of activity on the private equity side. Like CVC has been super active.
They acquired Jagex, now Chess. They did Dream Games, which was also, I think, at like a five billion valuation, something around that. EQT has been pretty active. They acquired Keywords. TPG just bought Playstack last quarter. A little, you know, ballpark a little bit smaller than the others, but lots of activity by the private equity funds.
Kalie: Yes. So those are the people who are buying in the big deals, but you mentioned that you think there's gonna be an uptick in the mid-size deals. Who are the acquirers in that arena? Is it still the major players that you just spoke of, or is it a different buying audience?
Michael: It's a mix. I think the, the Koreans are still very active. NCSoft has been expanding significantly kind of in the mobile space, which was a new category for them. Krafton continues to be very active. And I mean, we just sold a company Hipster Whale known for Crossy Road to Atari. Atari has done, I think like four or five mainly smaller deals. Hipster Whale I would say was mid-sized over the last year, and I expect them to do more.
Um, and yeah, there are now also kind of several funds. Some of them have maybe family offices backing and so on, and they're doing a little bit of a, of a roll-up.
Kalie: Yeah.
Michael: Or maybe roll-up is not the right word anymore. Kind of selective acquisitions. And the big ones like Take-Two is still looking at deals. EA will, will see what happens. That's a deal just closed. So, I think the universe is changing a little bit.
Kalie: Yeah.
Michael: And the new players like Everplay, Former Team17, they're active. And so, it's a good mix-
Kalie: Mm-hmm ...
Michael: For, I would say, the mid-size deals.
Kalie: Okay. I wanna go back to AI. We already established at the top that you're a believer in it, but you mentioned also General Intuition's round, and I've been dying to talk to people about this at Gamescom. So General Intuition just raised at, what is reported to be, a 6 billion valuation, but I don't think that's been confirmed yet.
And it uses gameplay footage from Medal t- TV, to train AI for physical robots, which puts it somewhere between gaming infrastructure and AI frontier lab. What do you think of that valuation? Do you think that's valid?
Michael: I mean, if you look at physical in AI and robotics-
Kalie: Mm-hmm ...
Michael: It potentially, or it, it most likely will be massive.
Kalie: Mm-hmm.
Michael: Just the question is, I mean, with the Optimus robots and, and all the Chinese models coming out, I think in five years out, it's gonna be a, a, a massive market. And then the question is what's valuable to train them to make them as, as good as possible? And, I, I don't know what the valuation was.
SIx billion for sure is, is not small, and I'm not sure what their revenues are. But, I mean, it's similar what I mentioned bef- before. It's gonna be a very, very large market. Mm-hmm. And some of the companies gonna be winners, and i- if, if General Intuition will be a winner, then they might be worth 25 billion, 50 billion or more. And that's just people probably believing in the team and what they've done so far and, obviously the massive amount of content and how people react in those situations in the game. If, if, if- Time will tell ... if they're gonna be a winner, then it probably was a good round.
Kalie: Yeah. Oh, okay, so we, we've talked a lot, and we, we have touched on game studios, right?
But- I would say less at Gamescom this year, but at GDC, a lot of the conversations I had were with game studios who had raised in, you know, 2021, 2022, maybe it was the $10 million round, 15 million, just enough to finish a game, but not enough to really take it to that next level. And those studios, it seems like it's impossible to raise for them right now.
Like, what is this-- how do, how do you think the funding landscape is changing for game studios, and what does it mean for how founders should be positioning their companies right now in order to raise?
Michael: Yeah, I mean, first I would distinguish between kind of mobile and PC games. Mm-hmm. Slightly different segments. I think the mobile landscape, got much more difficult. And I think it's continue to get more difficult.
Kalie: Absolutely.
Michael: If you look at the Western, the top hundred charts, number of new entrants from China, I mean, almost all of the new games are coming from China- Mm-hmm ... and they're very successful in the Western markets.
And new entrants from Western studios, very few. Turkey, obviously- Yeah ... is still one of the highlights, and, you know, Grand Games just raised a nice round out of, out of Turkey, but, it's just very difficult. And then it depends on the phase where the studio is. What became now super popular, which started by, with, with General Catalyst, is this U-wave financing with essentially some kind of a debt structure. You fund certain cohorts, and if a company is, you know, somewhat established, the game has an audience, it's monetizing, but they're trying to scale, and in the end, they need to scale to be really successful over time. I think that's probably a good and easy and non-dilutive way to look at it.
Kalie: Yeah.
Michael: On, on the PC side, there are a bunch of new kind of indie AA funds that just launched. I think V Game has one, Griffin Gaming has one. But in general, you know, it is difficult.
Kalie: Yeah.
Michael: So companies maybe should look at publishing deals, to help them, you know, to get the game out and, you know, which, which is a big challenge, too. M- also, I mean, looking at the venture-backed ecosystem, there has been several really good successes on mobile.
Like Dream Games is one. Super Play had a great deal with Playtika at the time, and, and several others. If you look at the PC space, a lot of the companies that are very successful or sold were not, the last few years, were not necessarily venture backed.
Kalie: Mm-hmm.
Michael: So, they were bootstrapped, and they're growing, and they're doing well.
Kalie: It's the dream.
Michael: A- a- and that's also a little bit why funding kind of in those PC console studios from VC is just, you know, much more selective.
Kalie: Yeah.
Michael: Because there just hasn't been a ton of really breakout hits.
Kalie: Mm-hmm.
Michael: Yeah.
Kalie: I think it's almost impossible to predict, too, right? Just because-
Michael: Very hard.
Kalie: You're the team who built amazing games at Riot or Blizzard doesn't mean that, that g- the next game is going to succeed.
Michael: Yeah.
Kalie: Yeah.
Michael: And creating new IP is just incredibly difficult. Mm-hmm. And, yeah. That was '21, '22, when everybody thought everything just keeps on going up forever.
Kalie: Yeah.
Michael: But reality just, you know, it's much more difficult.
Kalie: One of the things I'm really interested in is how gaming is maybe overlapping, but, or adjacent with other kind of forms of entertainment. And you did a deal, I think it was last year. You advised on the sale of Ready Player Me to Netflix. So, it's Netflix acquiring an avatar tech company that was really gaming focused, right, with the gaming avatars, as far as I remember.
Yeah. I, I, I wanna talk a little bit about that. Of like where are you seeing kind of the crossover between general entertainment and gaming? Is there any space you're really excited about? Like, one of the things that I've been thinking about a lot is the vertical shorts, like the micro dramas, right?
There's obviously a lot of n- gaming components or gamification components to get that stickiness, but I'd love to hear your thoughts on that, too.
Michael: Yeah. So Ready Player Me, they were heavily in games- Mm-hmm ... but avatars were also used outside of games. And the deal was sponsored by Netflix Games. So, games is a key priority within Netflix, and the driver behind it, I believe, was giving the users a personal identity with this avatar, which will launch at some point in the future, and making it just more social. And then who knows, maybe it's gonna get into other parts. Netflix has a bunch of gaming studios.
They acquired several, few, quite, quite a few years ago. But yeah, the, the Ready Player Me team and, and I think it was a fantastic fit.
Kalie: Yeah.
Michael: Microtraumas, yeah. I mean, it's one of the kind of In the West. I mean, in the East, in Korea and so on, it's been around for a while. Yeah, for a while. But in the, in the West, it's, like, one of those rapidly growing, fantastic new segments.
And there's all kind of ways to... You can gamify it, and so on. So, I think it's super exciting. And if you look at entertainment in general, you just need to look at what do people spend their time on.
Kalie: Right.
Michael: And-
Kalie: Games aren't just competing with games anymore. They're competing with- Yeah ... every form of entertainment.
Michael: I mean, TikTok took up a good amount of, depending on the age range, time spent, but also YouTube is one of the key winners. People spending much more time on YouTube than they did years ago. And then games is one of those, one of, one of those categories. And if they spend more time on TikTok, they might spend less time playing, playing casual games.
There's still, like, the, maybe the hardcore gamer audience who sits in front of their PCs, and so on. That's slightly different. But broadly, if you look at entertainment, and games is part of entertainment, it's need to look at the broad, broad spectrum. And yeah, MicroDarmas is one of the emerging winners.
Kalie: Okay, I wanna shift gears a little bit to talk about some of the deals that you've worked on. So recently, you advised TrackRacer sale to Corsair, I think this month, last month, very, very recently.
Michael: I think it was announced this month, yeah.
Kalie: Okay. So, Corsair didn't put the terms in their press release. But from their earnings calls and their filings, it was, it looked like it was 40 million in cash plus a 10 million in earn-out. Corsair paid roughly the same cash for Fanatec back in 2024 when the business was doing north of 100 million in sales. And they just, they bought that out of Endor's insolvency, I believe.
So now that you've dealt with the same buyer in both conditions, what does that gap actually tell a founder about the cost of waiting to sell until it's almost, I don't wanna say too late, but a little bit more distressed? Do you have any feedback on timing?
Michael: Well, so I mean, Trak Racer was-- it's, I think, a very different situation than Fanatec, which was in bankruptcy.
And, Trak Racer is growing very nicely, highly profitable, and doing great. And it was also such a great synergies between what Fanatec already had provided with the steering wheels and so on ... and Trak Racers with the, with the frames, the seats, and everything else around it. So it was, I, I think a great win for everybody.
Um, timing in general, I think it's-- first it's, it's, it's hard to time. A lot of early stage founders, they always wanna talk about M&A and who's gonna buy them. Mm-hmm. I always recommend to them to get to know the buyers, that the buyers know who they are, and also build up a little bit of a relationship with even the CEOs of the large buyers or the senior executives.
But otherwise, stay heads down and focus what they do. Yeah. 'Cause sometimes people can get too excited about stuff, and it's just too early. And it's always good to, you know, seriously considering M&A if you have some inbound interest from people. If people reaching out to you, it's kind of a little bit of a sign you might be at the right point at the right time versus actively just going out.
Yeah. On the timing, I think, trend is your friend, so if you show significant growth, if you can show some historic growth, and then also reasonable can argue that you're gonna grow very significantly over the last few years, that's typically a, you know-
Kalie: The best time? ...
Michael: Gr- a gr- a great time, 'cause sometimes, deal with that all the time, companies are doing great, and then growth slows down or flattens out, and that's when the valuations come down a lot.
Kalie: Yeah.
Michael: So, you wanna optimize on, on growth. A lot of us deals in the gaming space, the, the, the good deals, those are companies that are typically highly profitable. So, there's, you know, Fanatic obviously out of bankruptcy, not doing so well.
Yeah. And there's a lot of gaming studios or gaming tech which companies just, just didn't make it.
Kalie: Yeah.
Michael: And they can't raise any more money, so it's a very difficult situation, and, sometimes those deals happen, but often the companies just go under. Planning also is if there are like some major milestones, some, some major releases it's sometimes worth exploring.
Does it make sense to have some of those M&A discussions just before a major release- Yeah ... or wait until a company launches a title, which sometimes then has more upsides if they do really well. But if they don't do so well, then there might be just no buyer out there. So, yeah, and I wouldn't worry too much about the overall market condition.
I think the market conditions will improve modestly over the next few years.
Kalie: Okay.
Michael: But I wouldn't say like, "Yeah, you need to wait till Q2 or Q3 next year. That's when a lot of stuff will happen." - I'm personally very optimistic on the excitement Grand Theft Auto- Yeah ... will bring to the- We all are, overall market, as well as the public market, because a lot of people ... A, a lot of the gaming equities have not performed great- Mm-hmm ... over the last few years, and some investors now seeing, like, a single game can be so massive and get so many users excited, players excited. So, yeah, I think it's supposed to come out November 19th or something. So pretty soon, and hopefully that's gonna lift the overall market.
Kalie: Totally, and I think it speaks to, like, also the longevity of the game, the UGC components of the game. I think there's so much there. I'm also very excited to see what's gonna happen. Okay, so we, we talked a little bit about mid-stage deals, and you actually brought up Hipster Whale being sold to Atari this last quarter.
And I believe ... So, they are profitable. They had 56% EBITDA margins, and the franchise was pulling in 6 million monthly players in 12 years. Is this ... When it comes to, like, multiples and comps, is this, like, what you're seeing, like 6X in the market in this size? Is ... I, I would just love to hear a little bit about what we're seeing in terms of valuations and multiples these days for, especially for studios.
Michael: Yeah. It's, it's a right ballpark.
Kalie: Mm-hmm.
Michael: It always depends on does a company have a unique IP. So, Hipster Whale with Crossy Road had a very well-known IP. Th- that really helps, and then it comes back to, again, growth. Yeah. If the company's growing 10% a year versus 30, 40, 50, that plays ... P- buyers always project out what it's gonna do to them in a year or two out. So then if a company is growing a lot, has a great IP, uh, then you can, you know, potentially get into, like, the double-digit EBITDA. And, and it's also people ... Y- you know, um, EBITDA is kind of a simplistic way to look at it. It's also how much money is being invested in a title and specifically on mobile, how much money is being put into a UA.
Their buyers look much more what's the return on ad spend, uh, what's the retention and just, believe what the EBITDA will be, let's say, in a year or two or three. Okay. And that's how they value some of those deals.
Kalie: Um, yeah. Okay. And so, you've done deals with Zynga, Animoca, Reddit, Netflix, really different types of buyers.
What's the one thing that locks in a great fit when everyone's in the room and then just doesn't work once the deals close it, closes? I'd love to hear about some past experiences you've had.
Michael: So, for us, once a deal closes, we're kind of off the hook. Yeah. And, I mean, we sold nWay to Animoca. I think that worked out really, really well for Animoca for, for a long period of time. When we sold Echtra Games to Zynga, um... So Echtra Games was headed up by, by Max Schaefer who was the creator of Diablo, so very well-known person and, you know, somewhat celebrity in the industry. And Frank, when, when Zynga was looking to expand into the PC space Frank Gibeau thought that, you know, getting him and the team on would really help Zynga's next title across mobile, PC, and so on. And then, shortly after, Take-Two acquired them. Mm-hmm. And they brought obviously a lot of PC, um, experience with them. One deal that comes to mind is, we sold Lightstream. It was a live video streaming company to a listed company in the UK.
Kalie: Mm-hmm.
Michael: And, I think Lightship was doing great, and then I think it was a little bit-- they probably didn't manage it right or sometimes that's a challenge. And then I think nine months later, we were called again and say if we can find a new buyer. So, we ended up selling them to Xsolla a year later, obviously for a much lower valuation than the first deal, but at least for the first buyer, it was, you know, they got at least some money back. And, but yeah, I mean, some of those deals work out great and others don't work out great.
And it's, it's typically a lot of the gaming content deals, it's cash at close and then earn out. And during the earn out period, often the studios are being more or less left alone while maximizing synergies to help them grow. But sometimes when the deal is not structured like that and buyers come in and wanna implement all of their methodologies and whatever, and then sometimes that kind of kills k- kind of the entrepreneurial spirit. And that's when deals sometimes go south.
Kalie: Yeah. Okay. I wanna-- So you described entering twenty twenty-six with strong momentum and a very positive outlook coming off a year of some blockbuster transactions. Now that we're almost halfway through the year, how is it tracking against your expectations? And what do you think is the v- biggest variable that could shift it for the rest of the year?
Michael: I mean, as I mentioned, like, everybody's exciting about Grand Theft Auto. Mm-hmm. So that could lift the overall market. And when we look at M&A activity, kind of public equity valuations is always a key component.
Yeah. If, if the stock of some of the buyers has been flat or down, generally, they're more cautious. Some of certain situation, they say, "We really need to do something new," and then they do. But general, they're more cautious versus if it's slowly increasing, everybody feels great, and then they spend more time on inorganic growth, meaning acquisitions. So, so one hope is-- one, one big variable is depending how Grand Theft Auto will do and how the overall market looks at, it's-- the hope is the whole market will be lifted, but who knows? It could stay the same or it could drop. -
Kalie: That's al- also kind of high expectations on one game.
Michael: It is. And, and you can also argue it's maybe already built in, in the market because the market is forward-looking. So maybe the market expects a fantastic outcome, and if it's also really, really good release, then, you know, it could all come down. So it's really hard to say. Yeah, other big variables, I mean, - Stuff like the, the war in Iran doesn't help in general. Specifically if you look at deals between the East and the West. So hopefully that will settle soon, but who knows? Yeah, who knows.
Kalie: Okay. I wanna talk a little bit more about ad tech. So, I know a lot of investors in the gaming space and with- outside the gaming space are really looking into, especially where AI can have impact on programmatic specifically.
What are you excited about in the ad tech space, and where are you seeing the biggest crossovers between ad tech and gaming?
Michael: Yeah, I mean, if you look at ad tech, I mean, in my mind there's two portions of it. One is actually the ads that are being shown, and that's, you know, obviously heav- heavily in mobile, and some adoption on, on, on the PC side to a much lower extent.
But then there's also the user acquisition part which is what all this, a lot of the ad tech companies actually do. And, yeah, there I could see that AI and, and will dramatically help for companies that have a leading edge in there to just make them more efficient.
Kalie: Mm-hmm. Better targeting.
Michael: Better, get to better ROAS and all this kind of stuff. And companies that maybe don't have that leading or bleeding edge might, might lose market share. That's probably the biggest driver I see moving forward. And in mobile, it seems it's gonna be even more and more really paid marketing versus PC is kind of a very different segment. It's a lot of them building up the community, working more with influencers versus kind of, brute force paid marketing. So, it's-- that's why I look at those two segments being very, very different.
Kalie: Yeah. Absolutely. If you were to identify one category of gaming company that you think is being undervalued right now, what would it be?
Michael: I mean, I'm personally-- I think there's a lot of potential in, like, those AA studios.
Kalie: Okay.
Michael: And it's, it's similar. It's always hard to judge which one's gonna do well and which ones don't, but I think that's a segment where you still can build up your audience. With a little bit of luck, you have a highly successful launch, and it's highly profitable.
For new, like, founders getting into it like mobile is so tough at this point.
Kalie: Mobile is so tough, yeah.
Michael: And then, I don't know, there's some companies, again, doing stuff intersection between AI and gaming, like trying to really create games much, much faster with AI and obviously with some creative input. That maybe might be not low on the valuation side because probably- Yeah, well, you saw Meshy,
Kalie: They just raised- ... pretty, pretty- ... four hundred million. I think it was- a seed round too. Yeah. Not sure how undervalued that is.
Michael: Yeah. Pretty high. But yeah, probably the kind of double A space, and we've seen, I think both V Games and Griffin Gaming have kind of this new indie double A fund.
Kalie: Mm-hmm.
Michael: So that's sometimes also a sign there's more opportunities there.
Kalie: Yeah. Okay. And then I just have one final question for you. If a founder listening to this is sitting on a strong asset and trying to s- to decide whether 2026 or 2027 is a better window to start the process, what would you tell them?
Michael: Well, going back what I said before, I think founders should mainly stay heads down and focus what they do, and build relationships, get to know the right people.
Kalie: Can I interrupt you there for one minute? 'Cause you, you did mention that before, but th- this sounds so basic, but what's the best way to do that for a founder?
Like, should they be at Gamescom, GDC? Should they be leaning on their investors? But especially a bootstrap company that doesn't have VC manpower, what's the best way to get to know your acquirers or potential acquirers?
Michael: Yeah, just, conferences are probably the easiest. And maybe they don't meet the CEOs of Take-Two or EA, but they meet, might some, you know, senior executives at those companies.
And just, conferences probably are the best one. And they, if they have investors, they should leverage the investors. I think that's great. And then again, it's always good if there's some inbound. If there's no inbound, just looking what would make the at- , the asset really attractive.
So, I wouldn't look into what's the overall gaming market in '26 versus '27. I don't think it's gonna be materially different. Got it. It's more like, what are the key inflection points in the company? Mm-hmm. Are we gonna see significant growth? There's gonna be a game launch. Are there some other expansions where a lot of the buyers would be interested in it?
I would center it more around that than kind of what the macro M&A environment is.
Kalie: Got it. Is there anything else that we haven't covered that you'd like to discuss?
Michael: I think we covered a lot.
Kalie: Okay. Well, the- Michael, thank you so much for taking time out of your very busy Gamescom schedule to sit down with me and the Naavik Podcast. We really appreciate you being here.
Michael: Thank you so much for inviting me.
Kalie: Awesome.
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