Why we prefer not to invest in eSports

It's a bubble and everyone in games outside of tech knows it.

ESports has taken the better part of the last decade to become worth over/under $1b as a global industry. Meanwhile the REAL game industry grew $26b just last year alone. The lack of understanding among tech investors of just how big the actual game industry is and how small the eSports component for it is relative to the amount of investor support it receives. The hype of eSports being mostly investor-driven but divorced from the reality of revenues/profit is a big reason to start this fund. Investors are funding the wrong end of the market! Someone has to do it right and more importantly, invest in the reality of things.  We'll still probably know more about eSports than the average tech investor or generalist fund but those seeking exposure should look elsewhere.

Everyone who's in gaming knows what investors usually don't. It's a bubble and a terribly overinvested one. If there's one article anyone needs to read about the eSports business it's this one.  Shady Numbers And Bad Business: Inside The Esports Bubble from Kotaku.com

Common sense would explain why you don't invest for billion dollar / unicorn outcomes in sub-niche of a greater vertical that isn't even worth a single billion as an industry. The biggest boosters of eSports are almost 100% other investors who aren't gamers themselves and like the idea of it, especially when overlaying a sports lens and analogy on top vs the actual reality.  From a basic business standpoint, businesses work when people are looking to pay money to receive something. In the case eSports, the customers are looking to take money from the biz either in the form of prize money from events or player salaries from the teams.  The real money in games still comes from selling product and has always been the case.

That's not to say that the growth of eSports has been without merit.  There is money in terms of licensing things like broadcast rights, ancillary streams such as selling merch but ultimately most eSports businesses really own or control no part of what they are selling which is at best a service or promotional layer on top of the game where the IP owners hold all the cards. Whether it's the right to participate (team licenses) or whether a league gets to be "official" or not. No one owns basketball or soccer. 

Another issue is the players themselves. For now the games that are successful in eSports are primarily twitch based which favors kids with the fastest player reaction times, the younger the better. It's been scientifically measured and proven that reactions slow down by around age 24-25 which is not coincidentally at all the usual retirement age for an eSports player with a typcal "career" being 18-25. This is a nightmare for branding and leagues as 7 years at BEST is not enough time to build players up into the kind of legendary status that then pays off in endorsements and crediblity being put to work for throughout a 10-20 year career. The players are often still using their gaming handles/names. Many of which are similar/nonsensical/change often/change per game.  

Another factor is access vs regular sports. The average fan does not get to play with or even meet NBA or NFL players very often. A big reason for the success of professonal sports is that typically only other professionals get to play against them and they can only be seen at official games, events etc. This places a premium on their "legend". Esports players on the other hand are extremely accessible, usually through streaming, casual play, practice sessions with random players. This diminishes their value and makes them both more commodified and replaceable. It's a long journey to even get drafted into professonal sports requiring a lot of support networks and expense. Meanwhile an eSports player could easily get dethroned or demystified on any given night online.  

These are only some weaknesses of the eSports industry. There's more to dive into but we also see the potential for future evolution of both the player model and the games themselves especially in ways that can be both inclusive and more appealing to older demographics and we have our own ideas. We'll keep watching this space, we're still tentatively open to pitches that can prove us wrong but please don't come to us with yet another team, league etc unless you are revolutionizing or addressing many of these known shortcomings. There are other better and often less informed places to raise capital.