Global private equity and venture capital investments in metaverse companies slowed significantly in 2023 as technological setbacks challenged the metaverse's potential and investors fled to generative AI company deals.

Funding rounds involving 278 metaverse companies tracked by S&P Global Market Intelligence Kagan raised roughly $530 million in 2023, down 87% from $4.09 billion of investments in 2022.

The 2023 transaction total marks the lowest annual investment value since at least 2018, according to data from Market Intelligence. Deal count dropped for a second year, closing at 48 in 2023 from 65 in 2022.

Declining capital investments as hype wanes

Market Intelligence defines the metaverse as the long-term vision for the next phase of the internet, which will feature a single, shared, immersive and persistent 3D virtual space where humans and machines interact with one another and with data, enhancing the physical world as much as replacing it.

Capital investments in metaverse companies overall, including equity and debt capital markets, rounds of funding, buybacks and shelf offerings, were at $9.72 billion in 2023, down 35% year over year, according to an analysis by S&P Global Market Intelligence Kagan. Capital investments have been declining since 2021, the analysis shows.

The excitement the metaverse sparked in 2021 and 2022 is waning, according to an EY report analyzing metaverse investments.

Technological bottlenecks, hardware limitations, and concerns about privacy and security are among the issues challenging the metaverse's potential, the report said.

"It became increasingly clear that while the metaverse was promising, it was not a quick fix for every challenge or desire. Eventually, the venture capital world found a new darling, GenAI, and the interest in funding metaverse projects waned," the report said.

Regional investment totals

Metaverse companies in the US and Canada accounted for over 50% of the funding round total value and a third of the total deal volume in 2023.

Largest metaverse deals

Epic Games Inc. accounted for the four largest largest private equity and venture capital-backed deals in the sector since 2018. Its largest funding round, announced in April 2022 and completed in October 2022, raised $2.00 billion. Sony Group Corp. and Kirkbi Invest A/S participated in the round.

– Download a spreadsheet with data featured in this story. – Read about trends in global venture capital funding rounds in January. – Read about trends in global private infrastructure fundraising.