As VCs slow gaming investments, Frost Giant turns to community for fresh capital

Video games haven’t been a niche hobby for ages now, but the scale of the industry built around gaming is still not as well known as it deserves. Revenue from video games totaled some $39.4 billion in the United States during the first three quarters of 2023. Meanwhile, the box office for films in the United States was worth a comparatively modest $9 billion in all of last year.

Big, global revenue numbers have not saved the video game industry from layoffs, but people around the world are still spending on new titles and hardware. It’s a great time to be a gamer, but is it as good a time to be a gaming studio? One gaming startup is shaking up its fundraising approach in a way that could chart a new path for studios that are seeing reduced appetite from traditional, private investors.

Frost Giant, a venture-backed startup building a real-time strategy (RTS) game called Stormgate, is turning to its community to top up its coffers ahead of the game’s launch this year. The company’s decision to test the waters for an equity crowdfunding round comes after it sold millions of dollars’ worth of goodies to supporters on Kickstarter earlier this year.

TechCrunch caught up with Frost Giant’s CEO and production director, Tim Morten, about the company’s choice to pursue community capital, which they said could bring more marketing and operating capital.

It’s not hard to see the logic behind the choice to raise more funding before returning to venture capitalists. The venture capital market for gaming companies has retreated sharply since Frost Giant last raised money (a $25 million Series A back in 2022). And with Stormgate expected to launch this year (an early access launch is pegged for Q3 2024), more funds could give the company enough leeway to launch its game and collect early revenue from its release. That may even be enough to entice another tranche of traditional venture funding for its enterprise.

Gaming, venture and the state of RTS

Esports has received much press over the last decade, often centered around multiplayer titles like League of Legends, Dota 2 and Counter-Strike. But in the early days of competitive esports, RTS titles like StarCraft and StarCraft II were trailblazers. That part of the video game industry has grown a lot since those games were released, but RTS games were critical to the early development of esports.

Frost Giant has already gained some credibility, thanks to its pedigreed team, some of whom worked on acclaimed games like StarCraft II and Warcraft III. Stormgate is a spiritual successor to the StarCraft franchise in many ways, and the studio is not afraid to show that off. Fans of those storied RTS titles will therefore find that this new game feels familiar, and that promise is proving to be a boon for Frost Giant: The company’s Kickstarter event sold $2.4 million worth of bonuses to over 28,000 backers, who paid for things like entry to an upcoming “preview week” for the game, access to its Discord server, beta access, and even physical items.

Morten said that his team was “positively surprised” by the amount of interest the Kickstarter engendered. But it was not designed as a fundraising effort; instead, the company pitched the event as a way to offer its fans something special before the game launched.

The company had also seen interest from some folks regarding investing directly into the company both before and after its Kickstarter campaign, he added. While Frost Giant expects that the audience for its upcoming community raise, structured as a Reg CF (regulation crowdfunding) offering, won’t match perfectly with the gamers it attracted to its Kickstarter, Morten does expect some overlap.

Thus far, Frost Giant has picked up $611,421 in reservations for its community fundraise on its Start Engine page. That’s a good start and the momentum implies that the company will be able to raise some operating capital when its equity crowdfund does go live.

Reg CF offerings are limited to $5 million, so Frost Giant has a hard cap on how much it can raise. But such offerings require financial disclosures. We got a similar peek into Substack’s financials when it raised capital from its community last year, and we’ll get a similar influx of data from Frost Giant.

Frost Giant has said publicly that “Stormgate is fully funded to release,” which means that the new capital could extend its post-launch runway, affording it more time to grow its revenue and better attract venture dollars should it need to. Still, if the Stormgate crew decides to look to traditional private-market investors, it could face an uphill battle: Venture investment into gaming companies declined 79% globally and 86% in the United States last year compared to 2022.

Stormgate will be free to play at launch but will let gamers spend money inside the game. Per Morten, fans of StarCraft II liked the increased amount of campaign content, cosmetics, and heroes they could choose in co-op modes in that game, so expect to see similar products from Stormgate in time. As someone who owns a chest of Caitlyn skins for League of Legends and has spent more time than I want to admit redressing my Tiefling paladin in Baldur’s Gate 3 to ensure that her armor all matches, I can assure you that gamers can get pretty damn fond of their digital avatars and are willing to invest money and time into them.

Of course, no amount of Kickstarter wins, equity crowdfunding or low-pressure monetization will be able to make Stormgate a success if it doesn’t attract an active and passionate player base. How well is the title doing in that regard? The company points out that it is the 36th most wishlisted title on Steam today, and it has racked up more than 50,000 followers on that platform.

That’s a good start, but the proof will be in the early access pudding.