Look around the eSports world lately, and it’s clear that Venture Capital (VC) money has made its way into the picture. Over the first two quarters of 2015 seed funding has been doled out for several notable companies, including: Dingit, Mobcrush, and AlphaDraft. Late last year an eSports VC firm also launched. While these represent the first wave of VC funds into the eSports landscape, they are focused on monetizing the engaged, captive audience represented by eSports, more than anything else.
I’ve written about the importance of industry and how it can drive needed changes in the past. However, it’s important to understand how the VC world works to grasp the expected effect on eSports. First of all, VC money does NOT validate a business model. In fact, early stage investing is fraught with risk despite the large sums of money involved. In other words, the raising of $x millions does not mean that profits will be realized or that the company will thrive over the long or short-term. Here’s what early stage VC funding does indicate:
- Critical mass – industries needn’t be mature but they must have reached (or be very close to reaching) critical mass in terms of general acceptance.
- Market validation – there are existing customers/consumers with enough, preferably significant, room for growth
- Potential for high ROI – VC funding is not charity or a loan. The expectation is several multiples on the initial investment, ideally 10x – 30x.
It’s important to remember that the funded companies are looking to monetize around the eSports community. As any self-respecting enterprise, they are committed to growing their own bottom line. Given the early stage of these companies, this most likely represents an early exit via acquisition. The VC funds involved, while excited about the opportunity presented by eSports, are more attracted to being first movers into a rapidly growing space. Whether it happens to be eSports or wearable computing or whatever else is irrelevant. At the end of the day, how their business models grow the overall eSports ecosystem is NOT a primacy. Generating a profit is the governing objective.
Meaning the fundamental challenges associated with running eSports organizations will remain, mostly, unchanged by the most recent infusion of VC money. Granted, more ancillary $$$ means more potential sponsorship flow (a great thing). However, since the day-to-day for these organizations are define what we’ve come to know as eSports, it’s still top priority to see significant roadblocks removed. Crucial topics like increased player protections, better profit margins (for the orgs), and media rights, all represent significant hurdles to continued maturation of the space.
With all that said, eSports is an undeniable movement that can’t be written off as fringe anymore. So expect a linear increase in VC eSports-related investment throughout 2015. Regardless of how much $$$ flows from the VC spigot it pays to keep an eye on how many make it into the players, teams and orgs at the heart of the eSports landscape.
Alex Fletcher finds and recruits top talent in the eSports world – by working with and nurturing the next generation of rising stars. Visit Entiva Group for more info. When he isn’t glued to a screen, he spends time with his wife, their two dogs, and pretends to learn Polish.