As previously discussed in The Birth of a Venture Capital Investment Thesis, we are passionate about investing in early stage esports startups.
When I tell people about this focus area (family, friends, other investors, etc.), I usually get a pretty tight shot-group of questions about esports. Often the questions are accompanied by a look that conveys what I call “nerd shaming.” You know that look, when people feel sorry for you because you are just not cool - oh wait, maybe you don’t.
Video games aren’t just for nerds in their parents’ basements. These competitions often take place in arenas such as the one shown here, full of 50,000+ fans, just like a professional sports event you may be more familiar with already.
While there are a number of investors who have and will invest in the space, we are one of few actively deploying capital into esports startups pre-Series A. I've prepared another blog post outlining who I've identified as the most active investors in the space: [link here].
Here are the questions people keep asking me who are new to the space:
“What is Esports?”
Esports — a multiplayer video game played competitively for spectators, typically by professional gamers. Some people draw a distinction between the video game market, and the "esports" market, which I don't disagree with. However, I believe that anyone playing a game against anyone else, is part of the esports market. You don't have to be a professional basketball player to play a pickup game on Saturdays, so same goes for esports.
“Are you saying there are ‘professional’ video game players?”
Yes, that’s exactly what I’m saying. I’m surprised that people don’t know this (considering the size of the viewership market), just as people are surprised at the answer I give. These players make money from sponsorship, streaming (subscriptions to their streams), and by competing in and winning high level tournaments.
There is a professional organization, Major League Gaming (that was acquired by Activision), hosting professional competitions as well as championship matches hosted by the game-makers (Riot Games, Blizzard Entertainment, etc.), and numerous other competiitive outlets such as tournament platforms, smaller competitions, etc.
“People pay, to watch others play video games online?”
Yes, in fact, according to an industry report by NewZoo (which I will reference a few times in this note), the market for streaming is huge.
Fun factoid: More people watched the world finals of League of Legends in 2016, than watched the NBA Finals game 7 that year. 43 million viewers watched the LoL finals while 31 million tuned in for Game 7 of the 2016 NBA finals according to Nielson (with an average across all 7 games of closer to 20 million).
If you were to log in to Twitch (a streaming site acquired by Amazon for nearly $1 billion, where gamers can stream their video game play) at any time (literally try it on a Tuesday at 11 AM) there will be millions of people online watching others play. Login at midnight on a Friday night and you’ll see what I’m getting at here.
“Do non-gamers actually watch video game streams online?”
42% of people watching streaming video game play, aren’t playing the game themselves — So it’s not just nerds like me who want to get better at game play, this space is turning into a legitimate entertainment market. Here is some game specific data on this topic by NewZoo that can give you more context with respect to three of the biggest games in the world (based on playing and viewing data):
“How can it be fun to just watch other people play a game online?”
Just give it a try, go watch a few highly followed streamers, Dr. Disrespect, Josh OG, TSMViss, Summit1G (yes, I'm biased to PUBG streamers) or any others. Players such as Dr. Disrespect have tens of thousands of viewers at any given time and have had tens of millions of unique views. I call him the shock jock of esports. You will enjoy seeing this guy play a few games.
When you view a stream on Twitch, you get to watch a picture-in-picture image of the player, overlaid on top of the same view he has on his screen while he plays. At the same time, there is a chat room for the viewers, and the interaction between viewers and the gamer is constant. The players comment while playing and often the commentary is worth watching for. Dr. Disrespect is hilarious, go check him out for a half hour one day. Often I have this on in the background now while I’m working instead of ESPN or CNBC.
“Why Invest in Esports?”
Huge market — The video games market is just over a $100 billion market in 2016 (source: NewZoo 2017 Gaming Market Report) and esports specifically, is a large and growing niche within that gaming space. A recent industry report shows that there are over 385 million people on this planet that either play or watch video games - that is a mind boggling market size. In 2017 the market size for esports is expected to be $696 million. (source: NewZoo 2017 Esports Market Report).
Unparalleled growth — in the last year the esports market has grown over 43% year over year. By 2020, the market is expected to be over $1.5 billion per year while the broader gaming space will be over $128 billion by 2020 (source: NewZoo reports listed above). Those are conservative estimates; this report references a projection for a $5 billion esports market by 2020 (Tech Crunch Esports Article). Any way you slice it, this is a high growth market.
Extremely high user engagement — The number of people spending multiple hours per day playing and / or watching video games is staggering. Here is an article citing a survey result showing that the average gamer spends over 6 hours per week engaged with a game. This is an impressive average and indicates there are a lot of extremely engaged users, more so than many other markets (professional sports fans, etc.).
Under monetized users— According to this article in Venture Beat (which references this other report by NewZoo), “ Traditional sports leagues such as basketball monetize fans at about $15 per person. Esports right now is monetizing at $2.83 per person.” This screams opportunity to me.
Global audience — There are no borders, or boundaries or stadium restrictions. Anyone with an internet connection can be the best player in the world in any game and connect with and play with anyone. The potential of the market is understated in these reports I’ve linked throughout this blog due to the global nature of the market.
So, to recap, why invest in this space: Large, high growth market, with intense user engagement where monetization has yet to be realized. Tell me where to mail my wallet.