Esports has become a global phenomenon and with this success comes a rapidly growing audience and industry.

The numbers tell the story:

2018 Esports Investments are already exceeding $4.17B in disclosed funding.

Franchised Leagues such as the Overwatch League are asking for reported fees up to $35M per team.

Projected revenue for the 2018 global esports market is $906M.

Bottom line: The esports industry is expected by many to become a major part of the entertainment industry as shown by studies and presentations from the likes of Newzoo, PwC, and Lagardère. Getting there will require sufficient funding for the industry’s players to build an ecosystem that is sustainable in the long run.

Who invests?

Investor Unique Companies Invested In Total Investments Recorded 1 BITKRAFT Esports Ventures 19 19 2 Tencent Holdings 13 14 3 Modern Times Group MTG 8 9 4 Courtside Ventures 6 7 5 Deep Space Ventures 5 5 6 Advancit Capital 5 5 7 Everblue Management LLC 4 4 8 March Capital Partners 3 6 9 Greycroft Partners 3 4 10 Boost VC 3 3 11 Crosscut Ventures 3 3 12 Unikrn 3 3 13 Lowercase Capital 3 4 14 Hersh Interactive Group 3 3 15 United Talent Agency 3 3 16 Founders Fund 3 3 17 Makers Fund 3 3 18 Paris&Co 3 3 19 Techstars 3 3 20 Vulcan Capital 2 4 21 Y Combinator 2 4 22 CRCM Ventures 2 3 23 London Venture Partners 2 3 24 Madrona Venture Group 2 3 25 Sterling.VC 2 3

This ranking is based on the esports industry-relevant investments reported on and tracked by The Esports Observer. If an investor is missing or misrepresented please let us know.

A greenhouse for esports companies, ideas, and founders – BITKRAFT

“First and foremost, BITKRAFT invests in people. We look for founders that are passionate, ambitious, streetsmart, no-bullshit, and of upright character with a get-things-done attitude,” said BITKRAFT co-founder Jens Hilgers.

What we know

BITKRAFT is the first esports specific alternative investment fund.

19 early-stage esports startups received funding from BITKRAFT.

The fund finds its investment opportunities through its own direct scouting work, its network, its existing portfolio companies, and its LP’s.

What ESL and BITKRAFT co-founder Jens Hilgers has to say:

Metaphorically speaking, if you had the chance to give the Jens Hilgers of two and a half years ago one piece of advice on how to approach founding and positioning BITKRAFT, what would it be?

“Spend less time educating others and more time getting shit done.”

What is the most worthwhile investment you made with BITKRAFT in esports (financial, time, personal, energy, etc.)?

“DOJO Madness.”

What is the most valuable asset in the esports industry?

“The gamers and community.”

Is there anything coming to mind, that is widely undervalued in the esports industry?

“The art of how to design a Triple-A esports game.”

You have been around in the industry for basically the “whole trip,” did you ever come across advice to investors looking to get involved, that one should avoid?

“If you don’t invest now you might be too late.”

Fast forward a couple of months: “Over the past two years, BITKRAFT has heavily supported the seed stage startup ecosystem by investing in 19 early stage startups. As the market matures, so will we. Our investment strategy will now start to include Series A and B investments, as this stage is now the most underserved in our industry.”

Drilling down

How does BITKRAFT support the esports industry and what are specific actions taken/strategies to help the industry grow into an economically sustainable ecosystem?

“We invest in esports companies, which spur innovation, new services, and products that drive growth in our industry. A very good example would be our investment in The Esports Observer. We invested in The Esports Observer because we believed that there was a lack of a central business media platform in our industry and that negatively impacted how transparent the industry was as a whole. We believed that by establishing a reputable, transparent platform, where brands and potential players could really understand the ecosystem would increase access and aid growth. Our goal is to add value to the industry.”

What is the purpose behind building such a broadly positioned portfolio?

“We invest only in esports, so the logical consequence is that we cannot limit ourselves to just one or two segments of the market. We strive to invest in every segment that appears attractive for us, and as you can tell by our diverse portfolio, there are quite a lot of interesting verticals.”

One might say a paradigm shift is happening in entertainment (the way it is consumed as well as the way it is created). Does this catalyse the development of the esports industry and how does one tap into that potential?

“Yes, happening. Live entertainment and direct interactions are the new standards, driven by digital natives. Esports is more often than not setting those trends and standards as is. As esports grew, streaming was initially more of a necessary side product but ended up becoming its own beast and heavily impacting how other content is consumed as well.”

Zoom out:

The single most active investor in the esports industry is about to expand their investment activities from purely focusing on early-stage investments to adding Series A and B funding rounds. This is a clear signal of the industry growing up and getting ready to take the next step.

A potent force from the East keeps buying shares in esports IP and streaming platforms – Tencent Holdings

What do League of Legends, PUBG, and Fortnite have in common with Chinese streaming platforms Huya, Douyu, and Bilibili? Tencent Holdings is invested in their developers.

Here is an overview

What’s raising eyebrows: By virtue of Tencent’s diversified investment strategy, a number of potential conflicts of interest have come to light. The Chinese conglomerate recently invested about $317.6M in Bilibili. This becomes problematic in two ways: A) Tencent operates the Chinese League of Legends Pro League (LPL) in which Bilibili owns one of the competing teams and B) both Bilibili and Huya are going to operate a team each in the 2019 Overwatch League which in turn is owned and organized by Activision Blizzard – of which Tencent owns a minority stake.

A Scandinavian media company goes esports powerhouse – MTG

In 2015 the Sweden-based international media company Modern Times Group (MTG) entered the esports industry stage by acquiring 74% of Turtle Entertainment’s shares – the company behind tournament organizer brand ESL.

Some background

In an 2015 interview with The Esports Observer, Arnd Benninghoff – who leads MTGx’s strategic investments in esports (ESL/Turtle Entertainment and DreamHack) and online gaming (InnoGames and Kongregate) – gave an insight into the reasons behind MTG’s move into the industry: “Media companies all over the place are losing the younger demographic, because the so-called ‘millennials’ are not interested in traditional TV. Modern Times Group is therefore naturally looking for new opportunities to attract this audience. Now that watching esports is one of their favorite activities, it is obviously highly valuable for us to get involved in that field. Plus, if we look at sports broadcasting, MTG is already the most important player in Scandinavia and beyond, so it is natural for us to expand into electronic sports.”

The big picture

Sports and marketing entrepreneurs join forces to support esports – Courtside Ventures

Most people know Dan Gilbert as A) a businessman and founder of American mortgage lending company Quicken Loans and holding company Rock Ventures, B) a multiple sports franchise owner including the NBA’s Cleveland Cavaliers. Additionally, a majority of the esports audience also knows him as C) an investor in American esports organization 100 Thieves. Less known is the fact that D) he joined forces with Bruin Sports Capital and WPP in early 2016 to invest $35M in technology companies that have a strong focus in sports and media – including esports. The name of the investment vehicle: Courtside Ventures.

Did you know

FanAI (twice) – An audience monetization platform

Upcomer – An app providing esports match schedules, notifications, and real-time stats

Epics.gg – A digital trading card platform

VY Esports – An esports content and service platform

all received funding from Courtside Ventures?

The bird’s eye view

The amount of esports investors that are also owning traditional sports franchises or clubs is constantly growing. It stands to reason that those investors see a potential to make considerable returns on investment similar to sports investments made in the 90s and early 2000s.

Due Diligence matters (both ways) – Deep Space Ventures

Esports is anything but a one-way street to success. Like any other industry, esports has its fair share of black sheep. The story of Deep Space Ventures is just one reminder to carefully assess who you are doing business with.

Here is a recap

In 2017 and 2018 Deep Space Ventures made seven early-stage venture capital investments in esports companies including OpTic Gaming’s ownership group Infinite Esports & Entertainment.

On Aug. 5, 2018, Deep Space Venture managing partner Stephen Hays got arrested in Frisco, Texas after he allegedly attacked his wife. In the process, Hays was charged with aggravated assault with a deadly weapon.

In reaction to those events, Infinite Esports & Entertainment, as well as esports startup PlayVS, cut their ties with Deep Space Ventures .

Shortly after, the online presence of Deep Space Venture ceased to exist and no further investment activities have been recorded since.

Hence

In the broad spectrum of investment opportunities, the esports industry offers (IPOs, ICOs, startups, teams, or everything else), attention to detail is of the essence when making an investment decision. This is not only true for investors that are more commonly applying a Due Diligence procedure to ensure the perceived value of an investment opportunity is based on solid numbers and claims but also the other way around.

Spot the difference – Types of esports investors

Early-Stage Venture Funding Corporate Strategic BITKRAFT BITKRAFT (tba) Tencent Tencent Courtside VC Everblue Management Modern Times Group Deep Space Ventures March Capital Partners Advancit Capital Greycroft Partners



Blue Ocean: A large number of investments made by early-stage and venture round investors indicate a general strategy of accessing untapped market spaces and creating demand as the industry is growing. The prime example for this approach is BITKRAFT’s method of creating a portfolio that helps them solve problems across the entire esports supply chain by challenging the entertainment and sports industry’s paradigms and conditions as well as focusing on a new target audience.

Red Ocean: In contrast, later stage investors are acquiring stock in businesses that are battling to grab a greater share of existing demand. In the growing esports markets, a few assets are already becoming commodities such as video livestreaming platforms or game developers/publishers. Those assets have drawn the interest of later stage investors. An illustration of this advancing strategy can be observed in Tencent Holdings’ investments in multiple companies serving the aforementioned market segments. Not only has the Chinese company invested in excess of $1.8B year-to-date in esports relevant companies, but is also hedging its investments by acquiring stakes in more than one company per segment (e.g. livestreaming: Huya, Douyu, Bilibili; and game developers: Riot Games, Epic Games, Activision Blizzard).

What’s next?

There is plenty to be figured out. The esports industry has come a long way and it has become undeniable that there are many great opportunities for the sector to evolve into a major player in the future everyday entertainment world.

Flashback: In October 1972, the first recorded video game competition took place at the American Stanford University. In the 70s and 80s, regional arcade game competitions became popular in a small sub-culture. With increasing internet connectivity, the 90s saw the first competitive online games. During the 2000s more and more global tournaments were established. In the 2010s esports is joining the entertainment mainstream, spawning a large number of endemic companies helping form the ecosystem, and driving industry growth from $130M market revenue in 2012 to a prospective revenue of $906M in 2018.

Moving forward: As it stands, the esports industry is rapidly growing. Probably the most essential growth that can be achieved by the esports industry lies within its audience, which is the bedrock of a long-term economic sustainability. Importantly, at this time amplifying the audience is primarily about the B2B audience and only secondarily about the consumer, as a majority of the esports industry revenue stems from sponsorships and media rights deals and it looks like the potential of that market is still widely untapped. Getting there will require sufficient capital availability for esports companies to reach those key partners.