What’s the mindset like of venture capital firms, who have hundreds of million of dollars in investment money, when they examine startups and early-stage technology companies? How do they analyze young founders and CEOs with fresh ideas looking to deploy capital to take their business to the next level?
SportTechie recently asked investors at three VC firms — Courtside Ventures, Revolution Growth and SeventySix Capital — a series of five questions about how they approach the sports technology space, what are the key characteristics they’re looking for in a CEO and where are the biggest opportunities for growth over the next two to five years, among other topics.
Below are emailed responses in their entirety.
1) How would you describe the vetting process for you/your team as a potential investor when a technology/media company approaches you?
We don’t invest solely in ideas; we invest in people. We’re looking for smart and nice entrepreneurs who are building game changing, consumer facing companies including companies in the sports world; those with the ability to see around the corner and enable the future we will one-day live in. This approach is really what differentiates us from other VC firms. We invest time in getting to know the entrepreneurs, and once we move forward we back them with the full weight of our knowledge, expertise and relationships.
— Wayne Kimmel, Managing Partner, SeventySix Capital
Our initial vetting process is dependent on whether the company comes in from a warm intro or cold in-bound. We always review any investment opportunity that comes to us through either channel, but coming from a trusted connection enables us to gain initial comfort on the most important factor, which is vetting the quality of team.
Our process then consists of ongoing checks and balances — there is no set timing in terms of how long our process takes. In some cases we’ve been able to make a decision and invest within 10 days, whereas for others we’ve spent months diving into the technology, work with the team to validate the market and product through our team and LPs and in some cases, helping piece together their investor syndicate.
There are a number of categories/questions that we validate and gain consensus on internally, in order to proceed forward with an investment. Among them are founders background/skill set, ability to out-execute, market size, aligned fit within our thesis, co-investors, unit economics/monetization, sales cycle/end customer needs, Courtside’s ability to add value (from both our core team and strategic LPs/partners — Dan Gilbert, WPP and Bruin Sports Capital), among many others.
Scott Belsky from Benchmark Capital recently said “Great entrepreneurs make the most of the cards they’re dealt, while great investors fold until they get a good hand. Optimism vs. Discipline.” This is something that constantly runs through our mind when going through the entire diligence process and ultimately making final investment decisions.
— Deepen Parikh, Partner, Courtside Ventures
Revolution Growth evaluates a wide range of investment opportunities within sports technology and digital media spaces, many of which come through the relationships of our founding partners. One of the most important investment criteria is company maturity. This can be measured in a few ways, including revenue scale, stage of profitability, traction with commercial partners/customers, and years of operating history. In the sports tech/media world, measuring maturity can be tricky at times as growth can often be a lumpy, step function for companies signing business deals with deep-pocketed teams, leagues and media clients. For us to get excited as potential investors, an opportunity must check three boxes: (1) a track record of commercial success with reputable sports/media partners (which often come with the added positive of strategic investments), (2) revenue maturity of at least $10 million and (3) a market opportunity that justifies north of $100m in revenue.
— Patrick Conroy, Vice President, Revolution Growth
2) What qualities do you look for in a CEO, entrepreneur or company founder when he/she pitches their product or company to you for investment?
We definitely look for entrepreneurs that are passionate, smart and nice. I know, it sounds so simple, but it’s part of our guiding principles. We want to work with people who share our DNA.
Of course, we also look for CEOs, entrepreneurs and founders who have real leadership qualities. It’s great to have an idea that solves an issue or makes the world a better place, but you need the ability to rally people behind you to actually make that idea come to fruition.
And I think it goes without saying, we look at an entrepreneur’s track record and relationships. Have they been successful in the past? What do their business associates say about them? Why are they passionate about building this business?
— Wayne Kimmel, Managing Partner, SeventySix Capital
At the Seed and Series A stages the two most important qualities for us is 1) sheer hustle 2) ability to thoroughly convince others (customers, key hires, etc.) of the grand vision.
Further, we believe each successful entrepreneur has an X factor in being able to out execute potential competitors and develop relationships with key constituents (customers, channel partners, large corporate incumbents, etc). There’s a lot of discussion amongst the VC community about investing in founders that have strong industry experience. Some believe it could be a hindrance to out of the box innovative thinking, while others believe it’s vital to fully understand the nuances of navigating an industry. Being more vertically focused around sports and media, at Courtside our goal is to invest in founders that have strong experience is building similar business models or selling to similar end customers/users.
— Deepen Parikh, Partner, Courtside Ventures
A CEO with a good investment pitch anticipates the hardest questions an investor is likely to ask and addresses them head on, rather than hoping someone will not ask them or fail to identify the potential holes in their product or market positioning. For example, saying you have “no real competitors” is never fully true. A more thoughtful CEO has an answer that addresses current or future competition and has a plan on how to out execute them.
Also, I look for high EQ, humble CEOs who can communicate how their own strengths/weaknesses compare to the skill sets of the rest of the management team. They are candid about where they need the most help from investors and board members.
Finally, having a clear strategy for how you will deploy a large sum of VC money against an exciting market opportunity is a must. This sounds like a no-brainer, but not every CEO can explain where exactly that money will be invested and why, what he or she needs help with and what type of investor he or she wants.
— Patrick Conroy, Vice President, Revolution Growth
3) How do you foresee the sports, technology and media landscape changing over the next 2-5 years? Where do you see the most opportunity for growth and why?
We believe athletes are the next great entrepreneurs and investors. The traits that athletes possess — dedication, relentless pursuit of positive results, the ability to assess a situation quickly, and the ability to use their own personal and social capital — seamlessly translates to investing and business. We think there’s a real opportunity for athletes to extend their career beyond just the playing field, and be an integral part of the next game changing company.
We are also studying the esports phenomenon. People are packing arenas to watch pro-gamers square off in tournaments and competitions. It’s been a true explosion, just looking at global revenue estimates for esports, it is expected to break $1 billion by 2019. We’re watching the industry’s progress closely, and are excited about what’s coming next.
— Wayne Kimmel, Managing Partner, SeventySix Capital
We believe the next five years are going to be by far the most interesting in terms of technological innovation and contrarian thinking when it comes to the sports and media industries. As it pertains to the sports industry itself, the majority of the pro and college media rights are coming up for renegotiation during this period. We’re seeing an accelerated pace of companies, from both the large rights holders and consumer platforms down to early stage companies, developing innovative and cost-efficient models from content creation and capture, down to content distribution and consumption.
— Deepen Parikh, Partner, Courtside Ventures
I think the two largest emerging forces in sports tech/media are the proliferation, collection and analysis of data and enhanced viewer/fan experiences.
On the data front, innovations in both software and hardware will enable players, coaches, fans and the media to measure and analyze sports outcomes in new ways. Player monitoring and tracking will advance with smart cameras as well as motion sensor chips, which will provide coaches, officials, fans, and players themselves with more insights into player performance and sporting strategy. Companies like Sportradar (disclosure: Sportradar is a Revolution investment) are at the forefront of this trend, working directly with stakeholders in major sports leagues to capture deeper and more expansive data sources that can be used to drive insights.
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Enhanced viewer/fan experiences will be an obvious benefactor from the advancement of data collection and analysis. Additionally, technologies such as VR experiences (view the game remotely as if you were there), interactive content embedded into video streams (multiple camera angles during a single live event, built-in commerce functionality, statistical overlays), novel in-stadium experiences (beacon technology plays), and real-time social gamification of events (ability to compete with friends on live, intra-match outcomes) will revolutionize the viewing experience. These technologies should allow sports teams and organizations to bring legacy sports more fully into an evolving digital world and promise to widen the appeal to younger, tech-savvy fans.
— Patrick Conroy, Vice President, Revolution Growth
4) What one or two areas at the intersection of sports/technology are you particularly weary about investing in right now? Why?
We are bullish that there will be amazing innovations in the sports tech industry, and we want to back the entrepreneurs who are leading this charge.
— Wayne Kimmel, Managing Partner, SeventySix Capital
Given Revolution Growth’s strategy as a later stage venture investor, it can often be more difficult to find companies of scale addressing the amateur sports market. A lot of the innovative and exciting technologies currently implemented and paid for by professional teams and large media companies covering such events have yet to drive meaningful revenues in amateur applications where organizations and fans have tighter purse strings.
— Patrick Conroy, Vice President, Revolution Growth
5) What is one company that you either passed on investing in that you wished you hadn’t or a company that you wished you could have been a part of early on that has had much success?
In the venture capital business, you have to be optimistic and think positively. We are always looking forward and trying to help our companies be successful. We follow a rigorous investment process and look to invest in companies that have the right kinds of people running them and a business idea that we truly believe that our knowledge, experience and relationships can help. If the company does not fit that criteria, we simply pass.
— Wayne Kimmel, Managing Partner, SeventySix Capital
Best advice I received when starting investing was “the quicker you get over the fact that you’re going to miss out on a billion dollar company, the more disciplined and successful investor you’ll be.” That certainly sounds good, but I’m sure when/if we reach that point, it will still hurt.
Given we’re still in the earlier funding cycles at Courtside, we haven’t had a chance to perform many post mortems yet. One company that we passed on earlier which looking back on, I wish we’d invested in, is Aaptiv (fka SkyFit). We spent months with their stellar founder/CEO, Ethan (Agarwal), but ultimately could not all get comfortable given the stage. Lesson learned here: Sometimes very strong initial engagement of a product’s community plus being a loyal customer myself, far outweighs all other conventional venture metrics/initial monetization.
— Deepen Parikh, Partner, Courtside Ventures
One asset that has had both a home run exit and will almost certainly have many years of success ahead of it is Twitch. It has emerged as a leader in its field and is currently riding the massive growth wave created by the confluence of online gaming, esports, and OTT content distribution & consumption.
— Patrick Conroy, Vice President, Revolution Growth