A look at the investment landscape in esports in Q3 2020

Two panels in particular from Esports Insider’s Digital Summit in May – Esports Investments in 2020 and The Clutch Digital – shared a peek into the minds of some of the industry’s top investment and startup talent, perhaps hinting at what’s to come in Q3 2020 and beyond.

Here Esports Insider has provided Esports BAR a three-pronged write-up with takeaways from the Esports Investments in 2020 panel, as well as catch-ups with panelist Spike Laurie, Venture Director over at Hiro Capital and James Duffield, Co-founder of TEAMS.gg, the latest victor of The Clutch Digital.

London-based Spike – whose firm announced a €100m investment fund for esports and gaming in Q4 2019, told Esports Insider that, indeed, the connection between potential investors and the teams behind the businesses, as was addressed during the panel, continues to be imperative to securing backing in the space.

Virtual angel investment hasn’t enjoyed a proportionate uptick, unlike the virtual meetings and conferences who’ve been filling in for their analog counterparts during lockdown months. The constraints of meeting face-to-face will likely continue to impact investment numbers unless investment culture or the dire situation changes.

The notable shift from esports team and league investments toward platforms and infrastructure in esports, is likely a result of the jury still being out on the profitability of the former two. Spike offered that he’s seen more interest in investment toward gambling within esports, especially in North America – where people believe legislation will soon change.

A lot of people think this will be a new gold rush in esports investment – Spike

The industry wants esports startups to succeed, but many of these startups are based on other companies’ IP, which makes these startups risky to invest in. Developers might adopt the functionality of these startups into their owned IP, essentially making the startup irrelevant, or publishers could decide one day that the startup isn’t allowed to do that with their IP.

Spike hinted that startups that make products and services which are IP agnostic have a strong attraction for investors, who want the industry to grow but also want to see their money well invested.

Continue reading for more insights from May’s ESI Digital Summit’s Esports Investments in 2020 Panel and the winner of The Clutch Digital.

ESI Digital Summer

Takeaways from Esports Investments in 2020 – Opportunity and Challenges

Archie Stonehill, Investor at Makers Fund, came out of the gate addressing the harsh reality likely lurking in the minds of investors, noting that

A lot of monetization for esports peripheral organisations relies on brand advertising, and I think in a recession you see a hit on brand advertising and that could hurt ad based business models – Stonehill

Archie believes that most investment coming from traditional sports due to the last minute substitutions, will unfortunately selectively apply to sports with an esports alter-ego. While the overall umbrella of gaming has seen increased and sustained interest from investors, regarding specifically esports, Archie suggested that investors remain wary, perhaps waiting for a new ship to come to harbour, now that the initial investments into teams and tournament organisers have effectively sailed in many northern markets.

Christian Christoefl, Investment Banking Vice President at Deloitte Corporate Finance and co-author of Deloitte’s Opportunities and Challenges for Esports in 2020 piece in the Fourth Edition of Esports Journal, spent his lock-downtime analysing the comparisons for YTD investments from last year, noting there has been a sizable drop off in both deal count and dollars invested. However, he also noticed an increase in investments into esports infrastructure – backend systems, platforms, and community support – perhaps the new ship has been in harbour all along.

The group agreed that many investors do indeed have an interest in the esports industry, but are unsure of how to most meaningfully invest. Christian was clear to point out that investment slowdowns are likely entirely due to the macroeconomics of the state-of-the-world and not intrinsically aligned with the esports economy. No real signs of anyone preparing to jump ship.

Christian attributed the dip in VC backing as an effect from inability to meet face-to-face, which remains an important aspect of making investments – despite social-distancing measures. While many have opted for the digital alternative, just as many aren’t comfortable pulling the trigger completely remotely.

Spike took pause when contemplating if even he would invest in a company having never met the founder face-to-face, stating that the firm has not had to cross that bridge yet.

Spike echoed the sentiments of the other panelists that the importance of esports startups proving their business models outweighs proving they will be profitable in order to secure backing, especially in this conservative era. But the team themselves are the most important aspect of any esports business, Spike asserted, because it is the team that will duck and weave the business through the gauntlet of the industry when the plan goes out the window, not the business model.

Quoting Mike Tyson: everyone has a plan until they get punched in the face. Understanding why a venture capital fund would want to invest in your team, what your moat is, how is what you’re doing is interesting or defensible or different and dropped the bombshell question bound to come after a pitch, “how does this get big?” –  Spike

Startups and organisations have their work cut out for them answering these questions, but having this mindset while one is working on growing in the industry might give a team an advantage over the other guys who spent their points in the business plan or turning an early profit.

Directly following the Esports Investment panel was the digital sequel of ESI London 2019’s The Clutch – a live pitch investment competition for esports related startups. The startups can be at any status to apply, from idea and conception through to Series A, it’s more a platform for building awareness, finding potential business mentors and partners, connections, and of course potentially investment to industry startups and entrepreneurs.

 

Catch-up with TEAMS.gg’s James Duffield, winner of The Clutch Digital

To date, we’ve seen 13 startups pitch live as a part of Esports Insider’s The Clutch, at Twickenham Stadium in 2019, and more recently at the Digital Summit. The winner of The Clutch Digital trophy in May was multiplayer matchmaker platform: TEAMS.gg. Esports Insider caught up with co-founder James Dufflield, to chat about his experience and how things have progressed after securing the digital win.

James Duffield launched TEAMS.gg with two other gamers, Tom and Stu almost exactly one year ago. James with a background in design and Tom Stu being developers, the group knew that they could build anything. But they actually met long before this startup venture, experiencing the problem that TEAMS.gg has set out to solve.

We actually met 10 years ago when we met looking for our ideal teammates to enter a tournament. I ended up putting up a forum post on the tournament website and I ended up finding a couple of friends – Duffield

During his five-year stint at Twitch, he decided to check the analytics on an old Youtube channel he and the lads had uploaded content on years ago. One video incredibly outperformed the others, their video titled “How To Find a CS:GO Team” made it to the first page of Google search. The bit of algorithmic luck has led thousands of gamers to the video.

What was most fascinating was the comments below the video, there were hundreds and hundreds of `Counter-Strike players who were essentially advertising themselves, you know saying: ‘I’m 17 years old, I’ve got this many hours in game, I play these nights of the week, add me on Steam.’ And another one, and another one, and another one. Hundreds of them. And it was then when I messaged Tom and Stu and said ‘This is it. This is the thing. This should be the thing we’re trying to fix’ –  Duffield

In 2019, James and the team attended The Clutch’s maiden voyage at ESI London.

We saw The Clutch as a fantastic opportunity to spread the word about what we were building, specifically for the esports industry and investors in general. We were going through and are still going through a period of fundraising to accelerate the production of our product in many different ways. Not only being in front of the judges that we would be pitching to on the day, but also being on a platform that hundreds if not thousands of people in the esports and gaming industry would watch – Duffield

Almost a year later, James stepped on the digital stage alongside esports player betting platform Puntt, a part of RPGG Media; mobile focused esports service provider Gamerpro; and fan-funded platform FANFUNDER – and gave a winning pitch from his home kitchen to the panel.

Dave Martin, Director of Esports Global summed up why he and the other judges – Malte Barth, Founding Partner of BITKRAFT; Fabio La Franca, Investment Director at Station12; David Gowans, Head of Creative Technologies at Barclays; and Patrick Mahoney, CEO of Nations Ventures – chose TEAMS.gg:

We felt that [TEAMS.gg] had a scalable offer that brought potential real return for publishers that enabled individuals to stay within the titles that publishers have by finding new friends groups – Martin

Watch Esports Global’s Dave Martin, the Presenting Partner of the competition, announce TEAMS.gg as the winner and James’s winning pitch to the panel below.

 

 

After the victory, James noted that there was a market uptick in attention via LinkedIn connection requests and messages on Brella, the digital networking system utilized throughout ESI Digital Summit.

There were people for weeks afterwards who wanted to get in touch. some of which were from the investment world, some of which were from esports in general. A little bit of advice if someone would be in a position where they won The Clutch, I would say don’t discount some of the people who are coming and getting intouch with you because it might not be obvious straight away how that is valuable to you. Don’t just pick out all the investors, and only talk to investors, because there are actually a lot of classic networking to be done off the back of that – Duffield

That’ll come in handy if you ever find yourself on stage pitching your esports startup, like James, in front of VC judges from across the world, such as at the next edition of The Clutch Digital during ESI Digital Summer on its second day; August 18th. Applications for startups for this edition close on Friday 7th August, and judges including Spike himself representing Hiro Capital, Matthieu Dallon of Trust Esport Ventures, and Helen Sarah Gammons of HSBC Private. You can find out more about that, and indeed apply, right here.

About Author

Kerry Waananen

Journalist at Esports Insider.

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