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When St. Louis-based venture capital firm Stadia Ventures launched in 2015, it was primarily focused on traditional sports—co-founders Tim Hayden and Art Chou had both worked in that space prior to establishing the company. By the time that Stadia was gearing up for the second cohort of its startup accelerator/business development program, however, the firm began receiving applications from esports startups. It was an unknown space for them at the time.
“When we started asking around, not a lot of people knew in the traditional sports side about esports—the power of it,” Stadia Ventures co-founder and Managing Director Tim Hayden told The Esports Observer.
Stadia assembled a 2016 panel discussion with esports industry leaders and veterans, including Twitch Director of Strategic Partnerships Garvey Candella, and commentator Christopher “MonteCristo” Mykles, to help educate both their own team and hundreds of business leaders in the traditional sports space.
“It absolutely blew the minds of 300 people in the audience around what was going on in esports,” said Hayden. “From that moment on, we knew we needed to be in the space. Not as a buzzword activity, but more of—there is a lot of power in the business side of esports, and since we’re already investing in companies in traditional sports in the business side, it would translate extremely easily.”
Since then, Stadia Ventures has accepted esports startups alongside those in the world of traditional sports into its twice-annual accelerator cohorts, each of which typically includes five companies. Stadia provides up to $100K USD in investment funding to each company, and flies in founders every other week during each 14-week program for extensive face time with handpicked industry mentors.
Stadia is currently accepting applications for its Spring 2020 cohort.
Education is a key focus for the program, as Hayden said that Stadia seeks to identify startups that not only provide the best investment opportunity, but also the potential to grow and improve via the firm’s accelerator process. Mentors and advisors come from many different players in the space, including Complexity Gaming, Twitch, Blizzard Entertainment, and OpTic Gaming, as well as traditional sports ventures. Stadia also recently added a second operation in Frisco, Texas, near to Complexity, the Dallas Cowboys, Envy Gaming, and many other esports and traditional sports companies.
Hayden said that Stadia Ventures primarily engages startups that already have a product in the market with some kind of traction, and revenue up to $3M. “We actually want to speak to as many entrepreneurs as possible that are at the idea stage, but our real network in the sports and esports space is set up to be able to activate against founders that already have something going,” he said.
A Building Bubble?
Esports appeals to a different audience than traditional sports and is in a different point in its lifespan, Hayden said, with unique infrastructure demands and ecosystem needs. Still, he believes that many of the business principles are maintained between the two worlds, as evidenced by the rise in traditional sports executives moving over to esports companies.
Once Stadia initially got educated about esports, they quickly understood the potential. “It was painfully obvious that this is the next frontier for all sports,” he said. Stadia doesn’t invest in properties, teams, or game titles. Instead, the firm focuses on companies on the infrastructure side of things, as well as sponsorship and event plays, and athletic performance tech and initiatives.
After a few years of running accelerator cohorts with esports startups (Stadia’s 10th cohort will take place in spring), Hayden has had a unique view into the rising valuations of companies in the industry. Asked whether an esports bubble is likely, Hayden said that he believes that companies will eventually rise to meet what might seem like outsized valuations at the moment.
“They may see larger valuations for companies that are just starting to generate revenue, or are not even generating revenue, that are seeing higher valuations compared to other technology startups,” he said. “My thought is that all of these valuations, all of these things—the companies will eventually grow into them. I think what we are seeing is there is a lot of interest from a lot of different parties in the traditional sports space, the entertainment space—there is a sexiness factor to esports, and more in the mainstream than anything else. I see less on the valuations being out of control. I see it more that it’s just growing into this industry.”
Hayden added that there are still a lot of growing business opportunities to explore in the esports space. He pointed to property owners seeking esports properties to help offset real estate plays like stadiums, or brands looking to target a very specific audience that esports captures. Pure esports startups are earlier-stage than most traditional sports companies, given the age and maturity of each industry, he said, but there’s also the potential for traditional sports startups to add an esports component to their businesses.
For example, Stadia Ventures has invested in a company called REELY, which uses artificial intelligence to automatically create highlight clips from sports matches by reading score changes, audience and commentator reactions, and the action on the field. Hayden said that such technology could be refocused on esports to automatically produce highlights and condensed game videos within seconds of a match’s end.
Fully exploring opportunities across esports and traditional sports is one way for startups to live up to seemingly lofty valuations, he said. “We see that is also occurring,” said Hayden, “which from a valuation perspective is more opportunity to increase valuation in these businesses.”
