Venture

Esports Continues To Go Mainstream As Funding Surges In 2018

The esports craze is only getting bigger.

Global venture investment in the fledgling field of organized professional competitive video gaming surged to $701 million over 60 deals in the first half of 2018, according to Crunchbase research. That’s up 73 percent compared to $403.7 million raised across 53 deals in the first half of 2017.

Recently, Citi Ventures named esports as one of ten technologies poised for major disruption.

And if there is any remaining doubt about esports’ increasing popularity, allow me to present you with a few statistics.

Market researcher Newzoo estimates the global esports market grew by 102 percent to reach $655 million in 2017 and that it would further climb to $905.6 million in 2018. Interestingly, Newzoo projects the Asia-Pacific region will account for 53.4 percent of esports enthusiasts in 2018.

Newzoo also estimates that by 2020 esports will become a $1.4 billion market. Meanwhile, Goldman Sachs, in a June 2018 report, said it saw esports surpassing Major League Baseball and National Hockey League viewership.

Further evidence in the increasing popularity of esports lies in the fact that the 2017 International eSports tournament offered a prize pool of $24.7 million—larger than the prize pool of the 2017 Confederations Cup (FIFA) and more than double the size of the 2017 Masters (golf) Tournament—and all but $1.6 million of that $24.7 million was crowdfunded, according to Citi Ventures.

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Goldman analysts believe that eSports viewership is moving more into the mainstream, noting that Epic Games in May 2018 announced that it would set aside $100 million in the prize pool for the first year of Fortnite esports tournaments.

Meanwhile, the National Association of College eSports currently has more than 80 member colleges and universities, with 79 of them providing partial or full athletic scholarships to student gamers. On top of that, esports is being considered as a demonstration sport by the Olympic Committee.

Venture Capitalists Go For Gaming

In esports, it’s not just about the best player, but also how the best player knows how to talk to his fan base on social media. Click To Tweet

Venture capitalists are also bullish on the sector.

Anna Khan, vice president at Bessemer Venture Partners, believes there is great potential in the burgeoning esports field.

Earlier this year, Bessemer led a $37 million Series A round in esports darling TeamSoloMid (TSM). That round also included participation from NBA player Stephen Curry and Australia’s Telstra Ventures. Founded in 2009 by then-17-year-old Andy Dinh, San Francisco-based TSM has been praised for its ability to run a lean operation while carving out a name for itself in the increasingly crowded sector.

Dinh’s charisma and business acumen was just one of the things that appealed to Bessemer about TSM, according to Khan. His ability to become a media asset was “very valuable” in Bessemer’s view.

“In esports, it’s not just about the best player, but also how the best player knows how to talk to his fan base on social media,” Khan said. “There are very few teams, I think, that can train their players to do that and TSM has developed that ability very well.”

Before making that investment, Khan noted that Bessemer looked at more than 60 esports teams. But TSM’s stood out.

“Their core team has won the most championships in the west in esports, and they have one of the largest and most loyal fan bases,” she said. “But we saw more than the winning record. Their standings also indicated revenue potential and business capability.”

Overall, the way the video game industry has evolved is noteworthy, Khan said.

“People used to just buy a console and cartridges, and a company wouldn’t get any additional revenue no matter how many times we played,” she told Crunchbase News. “Now because of all the engagement and how much people buy post-play, the revenue potential is much greater.”

In terms of teams, Bessemer has placed its bets on TSM. But it is open to exploring other companies in the esports space such as startups creating tools for developers to build games more effectively.

“I think we’ll continue to look at tools and platforms that support the ecosystem,” Khan said. “But in terms of teams, we’ve bet on TSM and will continue to help them grow their media platform.”

An Early Start

Among the dozens of esports companies that have raised money this year so far is Los Angeles-based PlayVS, which is on a mission to build the infrastructure for high school esports.

The startup raised $15 million in a Series A funding round in June that was led by New Enterprise Associates (NEA) and included participation from Science, Crosscut Ventures, Cross Culture Ventures, 49ers Enterprises, rapper and entrepreneur Nas, Michael Dubin (Founder of Dollar Shave Club), Kevin Lin (Cofounder and COO of Twitch), as well as a few professional athletes, among others.

Delane Parnell founded the startup last year and has since formed an exclusive partnership with the National Federation of State High School Associations (NFHS) and NFHS Network. PlayVS is introducing esports into more than 19,000 high schools in the U.S.

“This marks the first time students will be able to compete in esports for an official state championship and be recognized by their state athletic/activity association,” Parnell said. “We are the first company to introduce esports into high schools as a state-sanctioned sport.”

Delane Parnell

Parnell credits gaming as one of the main activities that kept him off the streets and got him into technology. He said he wanted to create a company that would allow him to give back and help kids excel by doing something they loved.

“By turning it into an organized activity in high schools across the country, I’m excited to get millions of kids involved and set them up for success, both by teaching core values like teamwork and by making them eligible for hundreds of scholarships and even more professional opportunities,” he told Crunchbase News via email.

PlayVS is using its capital to build out its team, specifically on the product and engineering side, to complete the development of its platform in preparation for the early access season.

So far, the 15-person company has built out onboarding technology as a scalable turnkey solution for states to enable schools to develop esports programs.

“We also want to leverage these funds to create unique esports experiences for high school students that have never existed before, including live state championships with spectator audiences,” Parnell said.

As for critics, Parnell counters by arguing that there is both physical and mental exertion in esports.

“Gamers have to make constant quick decisions that are super complex and require a lot of mental space,” he said. “Just because they do not have third-party trainers providing support like professional players do doesn’t mean they’re not exerting just as much mental energy.”

Players pay $64 per season to join. High schools across Connecticut, Massachusetts, Georgia, Rhode Island, and Kentucky will have early access to the platform starting this October.

As the mother of a tween who is an avid video game player, I find the esports space particularly fascinating. I guess I can no longer lecture him that there’s no future in video games. Because apparently, as these numbers and statistics show, there actually is.