It seemed like good news.
In June, Mythical Games, a Web3 gaming startup, had just secured $37 million as part of a Series C1 funding round led by crypto investor Scytale Digital, with participation from Andreessen Horowitz, Ark Invest and others. “NFL Rivals,” Mythical’s mobile game, had surpassed 1 million downloads, and the company had held on to its unicorn valuation. Mythical had now raised over $300 million, making it second only to Dapper Labs among VC-backed Web3 gaming startups, according to PitchBook data.
Then the layoffs came.
In an all-hands meeting coinciding with the funding announcement, CEO John Linden informed employees that the first close of the round had fallen short and was about half of what Mythical had aimed to raise. Moreover, it was a down round, cutting the company’s valuation by 20% and putting its pre-money valuation at $965 million, according to PitchBook data. The company was about to go through its third round of layoffs in less than nine months.
It was yet another sign that the Web3 gaming gold rush has come to a halt. Companies like Mythical were fueled with ambitions of becoming the next big game publisher by integrating NFTs and crypto, but those hopes have fizzled out. Investors—and gamers—are looking elsewhere, but the startups left in the wake must manage this harsh new reality.
Employees at Mythical were stunned. In total, the company has cut 15% of its staff across three waves of layoffs since November, according to company spokesperson Nate Nesbitt.
“Our layoffs were not connected to these fundraising activities and were related solely to right-sizing the business and focusing on priority opportunities with the most likelihood of success,” Nesbitt said in a statement.
Linden did not respond to requests for comment.
PitchBook spoke to several former employees on the condition of anonymity to understand how one of Web3 gaming’s biggest stars could see such a sudden shift. Some said they saw the writing on the wall as the leadership became increasingly focused on profitability. Others lamented the unrealized potential of Web3 gaming.
Game over
Starting in early 2021, investors saw massive potential to be a part of the next big thing in gaming, which promised a way to make more money off interactive in-game assets. Web3 gaming was meant to be the entryway into the so-called metaverse. Money poured in alongside the crypto and digital assets. Andreessen Horowitz, in an announcement of Mythical’s funding, said “creative floodgates” were about to open in crypto and that Mythical would play a “seminal” role.
Now, VC investment in Web3 gaming has been on a steady downward trajectory. In terms of both capital invested and the number of deals, global investment in the sector has declined more than 78% from its peak in H1 2022, accounting for only $261 million across 42 deals in H1 2023, according to PitchBook data.
As gamers have failed to embrace Web3 gaming, the capital has stopped flowing.
“Mythical, like all companies, has been affected by this economic downturn and has had to restructure some areas of our business accordingly. Amidst this economic turmoil though, Mythical has been one of the few companies that has successfully raised money, largely due to our steady growth and expansion in this difficult environment,” Nesbitt said in the statement.
Dapper Labs, another Web3 gaming startup, raised a blockbuster $305 million Series A in March 2021 followed by a $250 million round in September 2021, both led by Coatue. But in July, Dapper Labs held another round of layoffs, its third in nine months, letting go of 51 people. Web3 startups outside of gaming are also having a hard time. Recur and Nifty’s, both of which help brands create and manage NFT collections, are shuttering.
“Web3 gaming is sitting post-hype cycle while simultaneously going through a macroeconomic downcycle,” said Josh Chapman, a managing partner at gaming-focused VC firm Konvoy Ventures. “There’s a lack of truly engaging content for gamers.”
The wave subsides
Employees who joined Mythical Games were enticed by the promise of an exciting new venture in gaming. Many described a community of employees who loved what they did. But following the November layoffs, the collective mood began to shift.
Several described a subsequent environment of “crunch,” a video game industry term for extremely condensed deadlines and employee burnout.
In November, Mythical informed employees that their cash bonuses were being canceled. Months later, the company increased staffers’ annual allocation of its cryptocurrency. MYTH, the cryptocurrency in question, has seen an 80% decline in value since November.
Former employees also said the startup began to lose focus. Several games in development were canceled as resources shifted toward “NFL Rivals,” the licensed mobile football game with Web3 integration. “Blankos Block Party,” the company’s first game, has struggled to find a player base, according to a Bloomberg report.
Talent wars
During the frenzy, competition for talent also grew, with many Web3 startups aggressively recruiting.
Right before the November layoffs, a group of top executives—co-founder Rudy Koch, former COO Matthew Nutt, and former senior vice president of corporate strategy and development Chris Ko—left Mythical to start their own Web3 gaming startup, Fenix Games. In November, Cypher Capital and Phoenix VC led a $150 million round into the new company.
Then the lawsuit came.
Mythical sued the trio last November in Los Angeles, claiming fraud and breach of fiduciary duty. The lawsuit alleges that the trio stole VC investments for use on their own startup. The three had been tasked with meeting investors in Dubai in February 2022 to raise money for the creation of Mythical’s venture arm.
Mythical claims that instead of wooing investors for the company, the executives locked in investments for themselves. In a previously unreported deposition, Koch claimed that the executives were lured away by investors Phoenix VC and Cypher Capital, who were more interested in investing directly with the trio, not Mythical.
Phoenix VC wanted to create a publishing giant that could rival big video game companies like Activision-Blizzard, Ubisoft and EA, according to Koch’s deposition.
Mythical declined to comment on the ongoing litigation. Fenix games and lawyers for both sides didn’t respond to a request for comment.
In less than a year, Mythical transformed from one of Web3 gaming’s most well-funded startups into a cautionary tale for an overzealous sector. Investors and executives who once saw limitless opportunity have turned to layoffs, lawsuits and other harsh measures to salvage value from what remains.
But a rebound for Web3 gaming may still be possible. Carlos Pereira, Bitkraft‘s head of Web3 gaming, said the volatility of crypto markets has rankled gamers and investors alike, but those ups and downs may simply be part of how Web3 gaming evolves.
“You’re building the plane while you’re flying it,” Pereira said. “And the direction you’re flying is also in constant flux.”
Update: This article has been updated with additional commentary from the company and to clarify that the Series C1 round was a first close. (Aug. 30, 2023)
Featured image by Jenna O’Malley/PitchBook News
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