Investing in Esports – The Current Meta

[Music] hi guys I also requested some walk-on music like David did but I was told it was too explicit so we won't be able to play that today I apologize do you steal the clicker as well they didn't okay you got to watch that guy who take anything so hi guys I'm spike I'm going to talk to you about some dry stuff the money stuff around eSports and where that is not as exciting is what you've heard before I apologize so what do I do I wear two hats at the moment I am the venture director for hero Capital we are a hundred million euro fund that is

focusing on games eSports and digital sports founded by Ian Livingstone which many of you will know and I also have a startup that I launched with the ex-president of ESL America about a year ago now called price payments so I've seen from both sides from a small start-up raising our first million dollars in the eSports space on the west coast to deploying large amounts of capital across businesses in the games in eSports space so hopefully you trust me when I say that I know enough about this to be dangerous I want to do a reminder you've heard all through the day about from about eSports what it is what it means I'm gonna just take it back to basics and just remind you that eSports is the natural evolution of multiplayer gaming and that's what it is I've put an n64 controller there because that was one of my first experience with

multiplayer gaming four of us sitting on the couch arguing over who had players odd job because he had the smallest hitbox while another four of us stood behind the sofa watching being entertained and swapping over when the time was right so you go back you've seen sides on space invaders and tournaments back in you know the early 80s but just want to remind everyone what we're talk about when we talk about eSports so what's the market overview well it's good news there are some very strong macro tailwinds in the space what does that mean it means that I think everybody agrees eSports is getting bigger and bigger and it's going to continue to grow there's no there's no defined formula for success although eSports in its current guys my previous employers ESL have been around for 20 years in the space what Ralph Indians have been doing in the guys there there is no sort of success to easily

replicate there's also a lack of understanding in the space and that's something that needs to be addressed as well we'll go into these into more in more detail there's a lack of mature deal flow what does that mean it means that unlike other areas of investment there it is not super clear you know aren't lots of established companies at different stages that you can invest in and also the valuations are very unreliable so what do I mean everyone all if you work in eSports you'll recognize this new zoo graph the infamous new zoo graph which tells everyone how big eSports is and how big it's going to be but what do I mean by this so um there's no doubt that eSports is continued to rise and to get bigger there's continual advances in technology back in my day if I wanted to play a game of Counter Strike I had to type in server IPS and port numbers and make

sure that my anti-cheat was updated my config file was right and I had to find games on IRC or you know then HL SW came and it blew everything open but my point is that continues to make eSports and competitive games easier to play easy to talk to your friends and communicate discord is the current sort of teamspeak Ventrilo mumble kind of thing that everyone is using but that will obviously evolve as well as as time comes there's a convergence of digital sports and eSports we're both learning from each other and and that means we're blurring the lines as well between what digital sport is one nice board is formula e formula one great example the simracing space right that are learning from eSports but those sim raters are then going on to become professional drivers or what formula e did with the social media boost clearly inspired by the current sort of trends in the digital space longevity in eSports

continues to make the space grow as well you know how many four year olds support Westham because they thought you know that's a really great team rather than their parents talk brought them to a Westham game I mean that's the same right the SK resonates with me Bo's and not that it's around at the moment but SK resonates for me because I remember the days of heat and and squirt commandos so if I had a kids luckily I don't he would certainly be brought up in that ecosystem of eSports teams and finally brands and sponsors are spending more and more in their space so it's all looking really good however there's no defined formula success very few in the ecosystem are profitable and what I mean by that is the publishers are making money players are making money everybody else is figuring it out with 99 percent of them not making money and the industry is young publishers are

making speculative bets what Nate Nan's are created at overwatch league is going to be very different to what he creates in a fortnight coming up and that was a speculative investment by the teams and by Activision into overwatch League and I spend a very large amount of money on that there is no template to copy there is no sort of I'm gonna be the what this is to Facebook or I'm gonna be what Twitter is to this market doesn't exist yet because the companies are still very frothy tools are evolving fast I'm aware of the time apologies and also gaming networks are esoteric and hard to understand why is escape from tarkov so poignant right now and so cool right now why is slay the spire so cool why do people prefer back in the day prefer playing Counter Strike to urban terror why do why is quake 3 why this quake 3 Norway's quake not resonate anymore when it used to be so pivotable pivotal in the eSports space so again

it's hard to read the the market there's a lack of understanding in the space the eSports talent pool is very thin and it continues to be difficult for people to find expertise we've heard about a lot as a Wild West of eSports consultants we want to know how many eSports consultants currently are on LinkedIn good a red eyes Twitter page and he'll let you know ok that's it I was a ninja is fine and eSports is esoteric enough within the games industry it's extraordinary in venture capital and therefore there aren't a lot of people who really understand the space well enough to be making the right investments lack of mature deal flow I would have made this even more aggressive but unfortunately my Microsoft PowerPoint skills aren't what they used to be but the point stands that what is great about this industry is there are a lot of really

smart people doing cool stuff that understand eSports and there's a lot of examples of those startups and they are at the angel investment phase so they're getting their first 250,000 their first 500,000 and then their bill that's trying to build out the product or their self funding there's a lot of that going on which is really really good and it's extra-specially good our chart a 1 on the next slide next there's this sort of seed level of funding so this is when a company now wants its first couple of million and it's ready to prove the concept and now it's ready to go to market get users continue to iterate and that is the amount of deal flow in there the amount of companies that are at that stage is there is a lot it's very very small at the moment and that's just because of the industry in general because of the the the how immature it is and then finally series a this is where my personal interest is on the investor side and that is when a company

now has made its first success is ready to go out a scale take on new countries build out its second or third product and those cheque sizes are sort of between two and ten million and there is probably I could count on my hand how many companies are ready for that stage in the eSport space and even less of them are really serious about it so for an investor that means there isn't the supply in order to create the demand of institutional investors at the seed in series a star safe at this at this time and unreliable valuations eSports valuations are hot they are almost ridiculous in some in some instances and that's just because investors you know in it when interest rates are so low around the world I'm sure there's people much smarter than me in the room who can elaborate on this more than I can but it means that they need growth and venture

funds and things like that create growth industries create a high demand from investors and we've seen with we work and things like that how that ends up sometimes signal-to-noise ratio is high for every young talented eSports exit expert has come up with a great idea there is a someone who has played the venture game before played the investment game before who is trying to leverage that hotness of the market to get some quick money the valuations are driven by team investments and franchise slots David talked a little bit earlier these are very very high prices for on tested returns also that the sort of investors that invest in teams these are high net worth individuals or family offices that is a very different investment category

to someone a venture capitalist who wants to invest in a platform or technology or something like that so again that is skewing the market and it will I think crystallize a little bit there's a lack of quantifiable benchmarks for traditional venture analysts traditional venture funds are very risk-averse these days and normally there's a large committee of lots of analysts diving into all sorts of different things to try and understand where this is going to go because of the market because it being immature because it being young there aren't those benchmarks and therefore the risk profile goes up and and and finally this general industry trend away from growth profitability is also having a sort of a push and pull effect in the market with wework and uber and we've seen what happens there when you start to throw silly valuations out for growth businesses how it can crash crash down pretty quickly so again increases the risk profile however there is some great

news for you all there is no better time to be raising money in eSports for a lot of reasons that we have already covered there are a lot of industry veterans now who have exited from their previous ventures and want to send the elevator back down which means from angel investment perspective from early seed stage investment there is a lot of money there that people want to invest and want to make work for them in a space that they know so that is good news there are some really good focus seed funds that understand the space bit craft perfect example someone that really understands it really well and it's out there deploying capital for their investors in a really good way in the seeds in seed stage if you go back to that graph of the eSport space convoy another great example of a fund that is doing some some really clever guys doing some really clever stuff so it is there

and finally when you're ready for Series A and Beyond hero is here to help you achieve that and it would be our pleasure to do that once you get ready and for that so thank you I hope I hope that was all right I'm aware of time or slap on so if there any questions that we have to answer them if not we'll crack on do you guys have any questions good fine now I hear yes so what if you what sort of investments would you be basically looking for I know that you're saying people are ready to invest no what are they looking for they're looking for games looking for studios or what is it in this space that they're looking well games I would put separate so I think

that's a separate tranche of investment I think people who look into eSports are looking for platforms for technology and you'll hear this word picks and shovels which is one of those horrible buzz words that people use but it gets the point across ie the technology that runs and underpins what's happening in in the space so you know if you look on the on the on the platform side you could look at for example smash Gigi battlefied challenge those sorts of things that's one sort of vertical there's a lot of companies coming at the moment who are trying to solve the matchmaking issues and finding players so the tinder for gamers really of trying to find teammates to play with and so that you could sorry play with in a gaming sense and yes so I think people are looking for those platforms those technologies that underpin it yeah cool I'm still stuck on

the tinder for gamers sorry we can scrub that scrub you could be careful these days no it's on video there's nothing you can do about it said they're looking for the tinder forgave mine and as long as you put my explicit music tracking as well Lee you guys have any other questions great thank you very much guys you can they can find you around as well my hero dot capital or spike says here on twit cool thank you thank you very much [Applause] you [Music]