8 eSports Startups Streaming and Dealing the Action
We must admit that we’re not the biggest sports fans. Sure, we’ll meet up with some buddies at the baseball stadium, if we can score the cheap seats, to drink overpriced beer and occasionally watch a play or two—mostly to ensure we don’t get beaned by a foul ball. Superbowl Party? We’re there. Again, mostly to swill beer and nosh on the food stadium. So while we understand the appeal of blowing isht up or dismembering opponents in graphic video game fashion, the whole concept of actually watching other people do this when we could be binge-watching Black Mirror and dreaming of a dystopian future doesn’t really compute. Apparently, we’re in the minority when it comes to the popularity of eSports.
As we noted last year in our report about the pending IPO of gaming hardware manufacturer Razer, about a third of the world actively plays video games. The global audience for eSports is somewhere north of 300 million, according to Newzoo, a data analytics firm focused on eSports. It’s like CB Insights but different. The firm estimated the global eSports market would generate $660 million in 2017, a 34 percent hike from a year ago. It predicts the market will hit $1.5 billion by 2020.
It’s no wonder that the industry is attracting some serious investments from venture capital firms. This time we turn to the real CB Insights for some more hard numbers. In 2016, investors poured $1.5 billion into eSports startups. As of last September, financing was on pace to break that record:
The biggest deal to an eSports startup in 2017 up to that point went to Singapore-based Sea Limited, which raised a $550 million Series E, which brought total funding to $772 million. About five months later, the company went public on the New York Stock Exchange under the symbol SE. Valued at nearly $5 billion at its IPO, the company raised $884 million, and today has a market cap of about $4.5 billion. In addition to its gaming and social media platform Garena+, Sea also dabbles in e-commerce and financial services in Southeast Asia. The company’s stock is down from its opening of $15 in October, trading just under $14 as of Jan. 7. Ditto for Razer: The company, which trades on the Hong Kong stock exchange, opened at about HK$5 (64 cents) and today is down around HK$4 (51 cents).
It doesn’t look like eSports IPOs are exactly setting the world on fire (albeit, this is a very small and early-stage sample size). But the story we want to talk about is the explosive growth in eSports startups that are streaming the action in China to those that are dealing out the action with homegrown tournaments and online better parlors.
Live from China
The ESPN2 of eSports has got to be Twitch, which Amazon gobbled up in 2014 for $970 million. The next year, Google got into the game with YouTube Gaming. With eSports audiences expected to double to more than 600 million in just a few years, there are a number of eSports streaming services competing for business, particularly from the economic powerhouse known as China.
Founded in 2013, China’s Douyu TV was originally part of a company called AcFun, a Chinese video-sharing website. The company became independent in 2015 and has since raised a whopping $500 million, including CN¥1 billion (about $153 million) last year. Its investors include the usual Chinese suspects like tech giant Tencent but also top U.S. VC firms like Sequoia. Valued at more than $1 billion, Douyu (“fighting fish”) has expanded beyond streaming video games to other sports and even cooking lessons. As we’ve preached here at Nanalyze, the savvy investor can no longer ignore China. The South China Morning Post reported that nearly 400 million people (bigger than the entire population of the United States) regularly watch live broadcasts via mobile devices.
So it shouldn’t surprise you to learn that several major competitors in this space are also from China. Panda TV out of Shanghai has raised nearly CN¥1.7 billion ($260 million) since its founding in 2015. At the helm is the son of one of China’s richest men, Wang Sicong, who also founded a professional eSports team that has won at least one major championship. He’s also a certified douchebag, having given his dog eight new iPhone 7s. Just because.
It’s no secret that Google is trying to get itself back into China since its search engine and most services were banned in 2010. The internet giant announced in December it would open a research center focused on artificial intelligence in Beijing. This month, Google further got its tentacles back into China by joining an undisclosed Series D in another eSports startup focused on mobile streaming—Chushou (“tentacles”). Total disclosed funding is $120 million, according to Bloomberg, which reported that Douyu TV has eight million unique streamers with an average of 250,000 live streamers active on the site each day.
Rounding out our Kung Fu Panda group of eSports streaming startups is Huya, which is being spun off from YY Inc. (NASDAQ:YY), a live streaming social network company. Huya raised a $75 million Series A last May from the likes of Banyan Capital and Morningside. The startup hopes to pull in another $200 million this year with an eye toward going public, according to Bloomberg.
Coming to a Theater Near You
Founded in 2014, Santa Monica, California-based Super League Gaming is one of the countless eSports startups offering gamers an online platform, specifically for League of Legends and Minecraft. It has raised $34 million, including a $15 million Series C last year. Investors include Nickelodeon, Softbank, and Cinemark. Its primary differentiator is taking competitions to the big screen. It hosts tournaments in state-of-the-art movie theaters featuring eardrum-splitting sound systems.
Show Them the Money
It’s apparent that with the rise of artificial intelligence and automation, most of us will have plenty of time to practice our video game skills in the future. In fact, eSports gamer is one of our top jobs of the future. Gamers have earned nearly $400 million, according to eSports Earnings.com. And if you want to see the best compete, you have to pay for it. That’s the idea behind Seattle-based Matcherino, which has raised about $2.9 million, including a $1.5 million Seed round last year. The company is the Kickstarter of eSports, allowing both organizations and fans to pool additional money together to attract top talent to tournaments or to create the ultimate grudge match.
It’s just like the scene from Mad Max Beyond Thunderdome: Two men enter, one man leaves. Except everyone lives unless they develop a blood clot. Seriously, guys, take a break once a while. It’s a friggin’ game.
Working at the Grassroots Level
Another eSports startup that preaches local involvement is Smash.gg, founded in 2015 and based in San Francisco. The company has raised $14 million, including an $11 million Series A last year. It has some pretty impressive investors behind it, including Accel Partners and Horizon Ventures, as well as a partner from Spark Capital. The idea behind Smash.gg is to create a platform that allows eSports users to host tournaments and leagues rather than rely on tournament companies or game publishers like League of Legends. The company runs about 2,000 events per month, according to VentureBeat, and helps handle everything from fundraising to promotions.
Let’s Make Some Money
Perhaps the only thing more exciting than watching eSports is betting on them. That led to the creation of Unikrn, an eSports startup out of Seattle that has raised $50 million. Its most recent round last October was a $40 million initial coin offering (ICO) that was completed in December. The eSports startup is led by Rahul Sood, who has done something with his life, like founding VoodooPC and starting Microsoft Ventures, the PC company’s investment arm. Notable investors include Mark Cuban, host of Who Wants to be a Trillionaire. Wagers are made using UnikoinGold, an ethereum-based, decentralized crypto token. Games include the ever-popular League of Legends and Defense Against the Ancients (Dota). (Read this and this before you go down the road of cryptocurrencies and blockchain, especially if you’re in Vegas).
When nearly as many people tune in to watch the finals of the League of Legends as they do the World Series, you know it’s time that we start cutting the salaries of baseball players. Seriously, though, eSports is in the midst of an explosion in popularity, accompanied by the usual horde of entrepreneurs racing to cash in on the latest thing. Some crazy amounts of cash are being sunk into leagues, streaming channels and ancillary services like cryptocurrency bookies. One thing to watch will be whether the industry remains fragmented into numerous leagues and streaming services or some sort of consolidation (accompanied by exits through mergers and acquisitions) eventually gives us something approaching the NFL or MLB. At this point, it’s all TBD.
Here at Nanalyze, we hold the lion's share of our investing dollars in a portfolio of 30 dividend growth stocks. Find out which ones in the Quantigence report freely available to Nanalyze subscribers.