The DPI Mirage: Why VCs Are Abandoning Games at the Worst Possible Time

Just got back from Slush, and it remains the best conference in our industry - nothing else comes close. The quality of the organization, the people, the content - all world-class. Every year I'm reminded why it's worth the Helsinki winter.

I'm not going to do the usual "here are my five takeaways" post. Instead, there was one theme that came up consistently across multiple conversations - with founders, investors, and platform folks - that I think deserves deeper examination. Not because it was surprising, but because of where I think it's heading.

VCs are moving away from equity investments in games, pivoting instead to UA financing.

On the surface, this makes sense for them: faster capital deployment, cleaner DPI reporting for LPs, no more zombie portfolio companies burning through runway for years. Deploy $200K into a proven game's user acquisition, see returns in months not years, move on.

But here's what became clear across those conversations: this shift might be VCs optimizing for short-term fund metrics while simultaneously ensuring there's nothing left to invest in - and making the chronic funding crisis for creative studios even worse.

Let me explain why.

The Logic of the Pivot (And Why It's Appealing)

To understand why VCs are making this shift, you need to understand the pressure they're under. Limited Partners want to see DPI - Distributions to Paid-In capital. It's how funds prove they're actually returning money, not just sitting on paper valuations. The faster you can show DPI, the easier your next fundraise becomes.

Traditional equity investments in games are DPI killers. You write a check, the studio spends 18-36 months in development, maybe they launch, maybe they don't. If they do launch and it works, great - but you're still years away from an exit. More likely: the game underperforms, the studio pivots, you do a bridge round, they pivot again, and five years later you've got a zombie company that can't quite die but will never return meaningful capital.

UA financing looks like a solution to all of this:

• Capital deploys in weeks, not years

• Returns (or losses) materialize in months

• No equity stake means no messy cap tables or down rounds

• Failed campaigns don't create portfolio companies that haunt you for half a decade

• You can report money out the door and back much faster

From a fund management perspective, it's elegant. From an actual returns perspective? That's where things get interesting.

The Validation Crisis

Here's the fundamental problem: equity investment in games was already hard, but it was a bet VCs understood (or thought they did). Back a team, give them time and money to build something, hope it's a hit. The skill set was pattern matching on founders, understanding market opportunities, providing strategic guidance.

UA financing requires an entirely different skill set - one that most VCs simply don't have.

When you write a $200K check for user acquisition, what are you actually funding? You're betting that:

• The team's LTV curves are accurately modeled

• Their attribution is set up correctly and not subject to fraud

• Their creative won't fatigue after the first $50K of spend

• They understand their competitive landscape and bidding dynamics

• Their cohort analysis methodology is sound

• They're not being overly optimistic in their forecasting

• The platform, distribution strategy, and creative angle all align

Who validates all of this before the check gets written?

Let me give you a concrete example that came up in conversation: A fund considering deploying multiple six figures into an awareness campaign. Impression-based. On Facebook. In Azerbaijan and similar emerging markets. No validated ROAS, just a belief that "awareness" would eventually drive installs and revenue.

Now, maybe this works. But here's my question: who at that fund has the expertise to validate whether this is a sound strategy or $200K about to disappear into the Facebook algorithm? Who understands the nuances of impression-based attribution in emerging markets? Who can model the expected conversion funnel from awareness to install to paying user?

The honest answer: probably no one.

And this isn't an isolated example. It's the core problem with VCs pivoting to UA financing: they're moving from a business model they were already struggling with (patient capital for creative development) to one that requires even more operational sophistication - just different sophistication.

The Operational Impossibility

This brings us to portfolio operations, which is where the whole model falls apart.

Portfolio operations teams within VC are already stretched thin or non-existent. As a founder, one of the core things I hear consistently from other founders is that they wish there was more support outside of that core capital. Most funds have 1-2 portfolio ops people (if any) supporting 20-40 companies. Beyond the initial investment and maybe some warm intros, founders are largely on their own.

Now consider what UA financing actually requires:

Pre-investment:

• Deep dive on attribution setup and fraud prevention measures

• Validation of LTV methodology and cohort analysis

• Assessment of creative strategy and testing framework

• Competitive landscape analysis and spend dynamics

• Platform relationship and account health review

Ongoing:

• Real-time monitoring of ROAS across campaigns

• Creative fatigue detection and refresh recommendations

• Fraud signal monitoring and attribution validation

• Platform algorithm changes and bidding strategy adjustments

• Competitive response and market condition shifts

Crisis management:

• When campaigns underperform (and they will), who diagnoses why?

• Is it creative fatigue, audience saturation, competitive pressure, attribution issues, or just a bad bet?

• Who has the expertise to troubleshoot in real-time?

  
  

A fund doing 50-100 UA deals annually (smaller checks, faster deployment for that DPI) would need a portfolio ops team of specialists - not generalists who can make warm intros, but people who deeply understand ad platform algorithms, creative testing frameworks, attribution methodologies, cohort analysis across different game genres and platforms, and competitive spend dynamics.

This isn't augmenting existing portfolio ops. This is building an entirely different function. It's the difference between having a CFO who can help with board decks versus having a team of forensic accountants auditing every transaction in real-time.

The cruel irony: VCs are moving to UA financing partially because they lack the patience and operational depth to support creative development (which takes years and requires genuine product and design intuition). But UA financing actually requires more operational intensity, just different skills - skills they're even less likely to have.

What Actually Happens

Without proper operational infrastructure, here's what will likely happen:

VCs will:

• Rubber-stamp self-reported metrics from founders

• Spot-check a few campaigns but miss systematic issues

• Default to generic advice ("try different creative!" "optimize your bids!")

• Only discover problems when the money's gone

• Blame "market conditions" or "platform changes" when campaigns fail

Founders will:

• Take capital they're not ready to deploy efficiently

• Lack the sophisticated support needed to scale UA properly

• Learn expensive lessons with someone else's money

• Move on to the next check when this one burns

The result:

• Neither side builds institutional knowledge

• No equity stake means no long-term alignment to figure it out together

• The best founders (with mature metrics and disciplined UA) won't participate because they can see the ops gap

• The founders who do participate are precisely the ones who shouldn't be deploying six figures into paid acquisition yet

This is adverse selection at its finest.

The Wider Funding Crisis

Here's where this gets really concerning: this isn't happening in isolation. It's happening against a backdrop where every other funding source for creative game development is also disappearing or becoming more restrictive.

Publishers are consolidating and risk-averse. They're increasingly focused on live-ops of existing IP rather than new bets. When they do fund external development, the deals are often punitive - aggressive milestones, heavy recoupment terms, limited IP retention.

Government and arts funding has a bias problem. Money flows to film, TV, fashion, and "serious" or educational interactive experiences. Commercial entertainment games - the mid-budget creative projects that aren't quite indie but aren't AAA - largely don't qualify.

VCs were supposed to fill this gap. Patient capital for the 18-36 month creative development phase where games actually get made. But as they've learned (the hard way) that games are hit-driven, require creative intuition, and have long development cycles that don't map well to traditional VC timelines, they're exiting.

The pivot to UA financing isn't an evolution of games VC - it's an exit strategy dressed up as innovation.

What Dies With This Capital

Let's be specific about what disappears when this funding model collapses:

The $5-20M game. Too big for bootstrapping or friends-and-family money. Too creative and risky for publishers who want proven formulas. Too long-cycle for VCs who want faster DPI. This is where some of the most interesting games get made - the ones with genuine creative ambition but not AAA budgets.

Teams that want to retain IP and creative control. If publishers are your only option and they want heavy recoupment and IP ownership, you're trading away your future for today's development budget.

Innovation outside established genres and platforms. The experimentation that comes from having patient capital and the freedom to try things that might not work. When every dollar needs to show returns within months, creative risk becomes unaffordable.

The career path for mid-tier studios. There used to be a path: start indie, have a modest hit, raise capital to grow to 20-50 people, build IP, eventually exit or become self-sustaining. Without growth capital available, that path is closing. You either stay small or you join a larger studio/publisher.

This isn't just about companies failing to get funded. It's about entire categories of games that won't get made, and a creative middle class of game developers that won't be able to exist.

The Uncomfortable Questions

So who funds creative risk now?

I don't have a satisfying answer, but here are the possibilities:

Creator-led funds - Successful developers funding the next generation, a16z-style but for games. This is happening in small pockets but doesn't scale to meet the need.

Sovereign wealth and long-term capital - Saudi Arabia, Singapore, and others are investing heavily in games. But this comes with legitimate questions about creative control and cultural influence.

Platform dependency - Epic Games, AppLovin, Roblox, and others offer funding. But you're trading autonomy and often IP for that capital, plus betting your future on platform alignment.

Revenue-based financing - Could work if structured properly with genuine alignment, but the models I've seen still require proven revenue, which doesn't help with the development phase.

Community funding at scale - Kickstarter showed this can work for certain genres and audiences, but it's limited and comes with its own pressures.

Studio collectives - Groups of studios banding together to cross-fund development. Interesting in theory, hard to coordinate in practice.

Or maybe the darker possibility: games increasingly bifurcate into mega-franchise IP exploitation (AAA) on one end and ultra-lean mobile/social (indie) on the other. The middle - where creative ambition meets sustainable business at human scale - simply dies.

Why This Matters Beyond Games

The shift from equity to UA financing is VCs admitting that the traditional model never worked for creative industries. The problem is they're not replacing it with something better - they're just finding a faster way to deploy capital and report DPI while claiming they're still "in games."

But games are part of a larger creative industries ecosystem that includes film, TV, music, fashion, and emerging forms of interactive media. And across all of these, we're seeing the same pattern: patient capital for creative development is disappearing.

The consolidation of publishers and studios, the focus on proven IP and franchises, the difficulty of funding anything that takes time to develop and might not work - these aren't unique to games. They're symptoms of a financial system that increasingly can't or won't fund creative risk.

What happens to culture when the only projects that get funded are the ones that can show returns within months? When creative ambition becomes unaffordable because it can't be validated in a spreadsheet before the work is done?

The Real Cost

Here's what keeps me up at night about this shift: VCs are solving for fund economics at the expense of the ecosystem.

By pivoting to UA financing, they get:

• Faster DPI for their next fundraise

• Cleaner portfolio management (no more zombies)

• Less operational burden (in theory, though we've established this is wrong)

• The ability to claim they're still "in games" without the messy reality of patient capital

What the ecosystem loses:

• The funding source for creative development at scale

• Patient capital that can absorb the hit-driven nature of games

• Investment in teams and IP, not just distribution

• The possibility of building sustainable, creative, mid-sized studios

The tragedy is that in optimizing for short-term fund metrics, VCs are ensuring there will be nothing left to invest in. Because the games they want to fund the UA for? Those need to be created first, with patient capital during that 18-36 month development phase. And if no one is providing that capital because everyone's chasing faster DPI...

Where This Goes

I think we're heading toward one of two futures:

Future One: New funding models emerge that are actually designed for creative industries. Maybe it's sovereign wealth with proper creative independence. Maybe it's platform funding that's truly aligned. Maybe it's something we haven't seen yet. The VC exodus creates space for capital structures that acknowledge the realities of hit-driven, IP-creating, culturally significant work.

Future Two: The middle collapses entirely. Games become either mega-budget franchise exploitation or ultra-lean indie passion projects. The space where creative ambition meets sustainable business at human scale simply disappears. And the creative talent either goes to AAA (with all its constraints) or builds in their spare time (with all its limitations).

I suspect we'll get some version of both - innovation at the edges while the middle hollows out.

The Slush Reminder

What struck me most at Slush wasn't just this specific trend, but the reminder of why that conference works: it brings together people who are genuinely trying to build things, fund things, and solve hard problems. The quality of the conversations comes from the quality of the people who show up.

And that's what makes this shift so frustrating. The games industry is full of talented people trying to create meaningful, entertaining, culturally significant work. The audience exists - gaming is the largest entertainment medium in the world. The craft and artistry are there - games are increasingly recognized as an important creative form.

What's missing is the patient capital that matches the reality of how creative work actually happens.

VCs entering games promised to provide that. Instead, in the name of faster DPI reporting, they're becoming the world's most expensive, least competent performance marketing agencies - funding distribution for games that still need to be created, by studios that still need to be funded, with capital that's increasingly nowhere to be found.

That's not evolution. That's exit.