Video games as a professional sport made no sense to Lars Windhorst, a European oil and agriculture investor, until a summer evening in Seoul. Before him lay an impressive sight: Thousands of kids in lawn chairs outdoors watching teams battle in the 2012 championship for “League of Legends.”

“It was exotic,” Windhorst recalled. “Huge energy and enthusiasm.”

Over the next four years, his firm Sapinda Group invested upwards of $40 million in Azubu, a Sherman Oaks start-up developed to stream such e-sports matches online.

But in the last year, several employees resigned and the only other major investor clawed back funding, exposing long-simmering troubles inside Azubu.


Windhorst, 40, now admits he devoted insufficient attention to Azubu, allowing features to launch months late and its recently departed chief executive to work from Canada. And Windhorst acknowledges his loans to Azubu were unusual for Silicon Valley standards.

Sapinda drip-fed funds — $1 million or so a month — in a tactic intended to accelerate the company’s march toward profitability. In effect, the strategy constrained budgeting, confused unpaid vendors and frustrated employees with late paychecks, according to interviews with 10 people close to the company.

Azubu’s near collapse — as people described it last year — shows the risks of start-ups relying on nontraditional sources for venture capital. Such “new” money flows readily in hot, emerging industries, and e-sports fits the bill as good as any today.

An “investor can be a real partner and help move the company along, but they have to have good decision frameworks to be able to do that… and very often that comes with experience or being in a well-regarded VC firm,” said Jeff Burkland, whose San Francisco firm Burkland Associates provides financial services to start-ups.


The bumpy road hasn’t halted Windhorst, who’s outlasted failed companies, personal bankruptcy and a guilty plea to charges in 2009 that he embezzled money from one of his firms. With opulence, uncommon financing methods and apologetic charm, he continues to persuade people to back him.

Azubu paid hundreds of top video game players to broadcast on its service, but many were disappointed with low viewership. (Azubu )

In new Azubu CEO Mike McGarvey, Windhorst said he’s roped a software veteran who knows how to think big. He said Azubu has fresh cash — in a lump sum this time — from a European hedge fund. And in the coming days, Azubu plans to announce the acquisition of Austrian rival Hitbox for tens of millions of dollars in cash, giving them as many as 20 million monthly viewers combined.

Windhorst calls e-sports “the fastest-growing media business today” and insists it can’t be ignored.


But e-sports business leaders can’t see Azubu competing with leading gaming-video streaming services YouTube and Twitch. In Windhorst, they find an example of an unprepared financier treading too far in their nascent industry — and leaving an unpleasant mark.

“It’s important for the folks involved in e-sports… to be authentic and deeply passionate,” said Steve Arhancet, co-owner of professional squad Team Liquid. “That’s critical for success, especially with as much nuance and idiosyncrasy as there is in e-sports.”

Windhorst and his then-senior advisor Seok Ki Kim, an investment banking entrepreneur, launched Azubu in 2012. Kim had big plans for the venture, telling executives at a swanky London hotel in 2013 that by buttressing Azubu with companies involved in video production and talent management, he would create an e-sports juggernaut based in South Korea.

But within a year, funding ceased to all but Azubu, which moved to Sherman Oaks to be near Hollywood. Kim, who couldn’t be reached for comment, vetoed giving the company a clean name during the move — his child’s first word was “Azubu.”


Most of Azubu’s viewership is outside the U.S., including in countries such as Brazil. Now joined with Austria-based Hitbox, it’ll have access to many European viewers too.

Then-employees say Azubu survived for a single reason: Amazon.com Inc.’s acquisition of Twitch for almost $1 billion came as Sapinda was re-calibrating. Windhorst saw a chance to cash in on a similar scale. Viewership at Azubu was growing, especially in Brazil, where Twitch hadn’t cultivated a following. Azubu executives also argued that Twitch’s and YouTube’s acceptance of other video genres provided an opening to focus on e-sports.

Azubu sought a foothold by paying hundreds of leagues, teams and players of varying popularity to exclusively broadcast on its service. Windhorst talked up using his private jet and giant yacht to lure streamers, but that never actually took place, a former employee said.

Fans griped about a buggy interface and the lack of a chat feature, which is a major draw on Twitch. Video stars found more attention and ad money on Twitch, which gets as many viewers in a day as Azubu in a month.


Azubu lost out to rivals last year when it could no longer afford the rights fee for “League of Legends” matches, which rose to nearly $3 million from $1 million in the past, according to people familiar with the matter.

Last summer, the company drew scorn from e-sports fans for delaying an eventual divestment in Esportspedia, a beloved online encyclopedia chronicling teams and matches that Azubu had done little to improve.

“There were too many letdowns, and not enough wins,” a former employee said, speaking on the condition of anonymity to maintain relationships in the industry. “You don’t get many second chances in e-sports, and we were trying for third chances.”

Internal attitudes toward the company took hits too. The slice of employees who worked in Sherman Oaks felt collaboration suffered when an office with cubicles replaced a smaller, open-floor-plan space. Website development felt rushed, yet deadlines were never met.


A former executive and former developer tied mismanagement to heavy alcohol drinking in the office and rifts between executives about priorities. Developers in Los Angeles, working in tandem with contractors in Ukraine, griped about orders to build unneeded “eye-candy,” such as customizable dashboards, to impress Windhorst’s firm.

All the while, CEO Ian Sharpe mostly worked from Vancouver. Windhorst said he didn’t know about the arrangement initially and expressed disappointment with Sharpe’s refusal to move.

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People close to Sharpe, who worked at Atari and Electronic Arts, say Azubu’s discomforting financial outlook left him wary about moving his family to Southern California. Sharpe, who left the company last summer to found an e-sports video advertising company with another former Azubu executive, declined to comment for this story.


Most start-ups receive investment cash through infrequent large deposits. They may start with $1 million, get tens of millions of dollars from venture capitalists 18 months after and take an even bigger chunk from deeper-pocketed funds a couple of years later.

Azubu saw nothing like this. It got tiny, monthly installments of debt that could be paid back with company stock. Sharpe demanded six months of advance funding so he could make long-term budgets, but he received recurring $1 million transfers days after bills came due for slightly more, multiple sources said.

Former workers said vendors such as technology providers and contract software developers found Azubu’s situation bizarre. The company was often late and rarely paid the full balance, but never went into default.

Employees say they received delayed paychecks on occasion, and for a time were paid once a month in violation of state law requiring two paydays. Morale disintegrated as plans fizzled to award workers a promised 10% company stake.


“The product was slow. The strategic leadership was absent. The funding situation was monstrously counterproductive,” said a former high-ranking employee speaking on the condition of anonymity. All “in a ruthless competitive environment that included a tough hill to climb.”

Sharpe struggled to even beg for Sapinda’s attention, the source said. The CEO once spent hours outside the investor’s London office, hoping to see a familiar face pass by.

Venture capitalists and mutual funds Sharpe pitched for cash rejected involvement because of Sapinda’s monopoly over Azubu, people said. Activision Blizzard, Yahoo and Tencent talked to the company about an acquisition, but didn’t bite.

Revenue, about $1 million a year from licensing deals and a tiny bit more from advertising, barely covered two months of payroll, according to people familiar with the matter.


Any remaining internal enthusiasm evaporated last February. Two months earlier, the company announced closing a nearly $60 million bond sale through Sapinda, providing more than enough for a major expansion of ad sales and video production. Executives expected $15 million upfront and planned to spend $35 million by mid-2017.

But the saving grace of funds never materialized as intended, and the misrepresentation sent employees fleeing.

Responding to inquiries from the Los Angeles Times in 2015, Sharpe noted a huge debt issuance was atypical for a tech start-up. He called it “very effective” nonetheless and described the investors as Windhorst’s friends.

Windhorst now admits only Sapinda purchased the bond. And he said he didn’t want to place all $60 million in the hands of an untrusted start-up team, pinning Azubu’s struggles on its leaders’ poor “execution.”


An earlier investor, Sallfort Privatbank of Switzerland, pulled out last year and successfully demanded its $7.5 million back. A representative for the bank didn’t comment.

Since McGarvey quietly arrived last May, he’s cut monthly expenses in half to about $1.2 million. He downsized to 50 employees from 75, ended contracts with dozens of less popular streamers and called for using Hitbox’s technology.

Soon, Azubu plans to relocate within Los Angeles and unveil a moneymaking plan that includes advertising as just one of several components. Through additional acquisitions and vertical integration, McGarvey expects Azubu to become a formidable alternative to Twitch and YouTube for gamers.

“There was some dysfunctional things that happened in the past,” he said. “But there wasn’t clarity in what the business was. There’s no longer a disconnect. There’s full alignment from Sapinda to me and my team.”


Burkland, the start-up finance expert unaffiliated with Azubu or Sapinda, said the strange financing arrangement until now has plausible explanations. Sapinda could have been short on cash, too distracted by its two dozen bigger investments or simply forcing people to scramble in hopes of bringing out the best in them. Whatever the cause, Sapinda issues consumed unreasonable attention of the previous regime.

Windhorst equivocated when asked whether he regrets holding back big checks.

“Maybe it would have been better, maybe it wouldn’t have been,” he said. “We have a portfolio of a few billion dollars of deployed capital, and this was a start-up. We’re not a venture capitalist. This was a not normal investment.”

paresh.dave@latimes.com / PGP


Twitter: @peard33

Times staff writer James Rufus Koren contributed to this report.

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