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ANALYSIS: Why The $1B eSports Industry Is Set To Explode

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The global gaming industry has seen significant changes over the last few decades. Ever since the first computer game called Nim was designed by American physicist Edward Condon in 1940, there’s no looking back for the industry.

The video game console was introduced in the 1970’s and this evolution was rapid over the next few years. As video game graphics improved, companies such as Electronic Arts [EA] and Activision Blizzard [ATVI] were found.

Heavyweights such as Sony [SNE] and Microsoft [MSFT] soon wanted a piece of the gaming pie and introduced popular consoles such as the PlayStation and Xbox. The global gaming market has grown at a spectacular pace and is expected to reach $137.9B by the end of this year, according to Newzoo.

The growth of eSports

The latest growing trend in the gaming space is eSports. eSports is a multiplayer video game played competitively by professional gamers.

While video games were traditionally played for recreation, it has now become a viable career option for gamers. The inflow of funds into eSports is set to drive prize money and sponsorship deals higher.

Gaming research company, Newzoo expects eSports to reach $905.6M by the end of 2018, a rise of 38% year-over-year. Newzoo estimates brand contribution alone to account for 77% of the eSports market or $694M this year. Better yet, the global eSports audience is expected to cross 380 million this year.

Major video game companies have entered the eSports space

The eSports segment has attracted the attention of top gaming companies. Activision Blizzard is already a market leader with its hugely successful launch of the Overwatch League.

The first season of the Overwatch League garnered attention from sponsors as well as spectators. The global audience spent 160 million hours watching matches of this league.

Activision recently announced the sale of eight new franchise teams bringing the total number of teams to 20. The gaming giant aims to have a total of 28 teams for the Overwatch League. While the first 12 teams were sold for $20M each, the next round of franchise sales was between $30M and $60M, according to ESPN.

Activision signed broadcasting deals with Amazon’s [AMZN] Twitch to stream live matches. It has a content partnership with Twitter [TWTR]. The company also bagged sponsorship deals with Intel [INTC], HP [HPQ] and T-Mobile [TMUS]. The broadcast rights and sponsorship deals have generated over $100M for Activision.

The worldwide eSports audience is estimated to reach 580 million by 2021 and this will lead to an increase in eSports tournaments.

Gaming firm’s such as Electronic Arts [EA] organized The FIFA Interactive World Cup, an annual video gaming competition. Companies including MLG, AHQ and Denial have multiple sports leagues as well.

Key drivers for eSports growth

Research company Newzoo expects the eSports market to touch $1.65B in 2021.

The company estimates that the growing industry will bring in contributions from sponsors and advertisers. Companies such as Twitch and YouTube [GOOG] will also eye media rights and broadcasting deals. Gaming publishers are paid ‘Game Publisher Fees’ to host tournaments.

There are also tickets and merchandise revenue generated via ticket sales for eSports events. The industry’s sponsorship revenue rose 55% to $250M last year while Twitch paid $90M this year to broadcast the Overwatch League.

Increase in viewership data and prize money

Twitch is an online streaming platform and primarily focuses on broadcasting eSports competitions from around the world. It has managed to grow its viewership base at a compounded rate of 21.3% in the last three years.

In 2017, viewers tuned in to watch 6 billion hours of content on Twitch. Earlier this year, YouTube made its largest eSports investment to date and signed a multi-year broadcasting deal with Faceit.

These partnerships and deals have resulted in a substantial increase in prize money. The total prize pool for the Dota 2 tournament exceeded $20M.

The above chart shows the earnings of top gaming players. Japan’s Kuro Takhasomi leads the eSports earnings with a prize money of $3.74M to date.

Tencent expects China to lead the eSports market

Tencent is the leading global gaming company in terms of revenue. The company estimates China’s eSports sector to reach 350 million users by 2020 and generate annual revenue of $1.5B. If this happens, the country will account for 59% of total viewers.

What’s more, the total number of eSports viewers might exceed Tennis viewership in the United States. As per Newzoo estimates the most popular eSports team will have a Twitter following exceeding that of Golden State Warriors.

With the game-streaming content set to exceed 10B hours across major platforms, the world’s 10 biggest cities might just invest in a dedicated eSports stadium.

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Alternative Financing And Why Equity Financing Has Lost Its Luste

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When a startup founder is ready to transform their idea into a viable business, they almost always look to equity financing–whether that’s in the form of checks from friends and family, an angel syndicate, or in rare cases, a early stage Venture Capital fund. This thought process is justified. In the embryonic stage of the startup lifecycle, exchanging equity for capital is often the only legitimate option to amass enough cash reserves to build an initial team, create an MVP, and hit the market, as debt investors will want security over non-existent assets and personal loans/credit cards can quickly become dangerous liabilities. Equity financing is also a proven (and expected) option for creating runway and providing growth capital for business expansion through a potential IPO or acquisition.

However, equity financing has its weaknesses–dilution of ownership stake, relinquishing board seats and autonomy of decision making, and irrational growth expectations, amongst others–and make raising a follow-on, or even first-time round less appealing to entrepreneurs who have creatively bootstrapped their way to post-revenue status. Every founder feels protective over their startup baby, and the thought of having a “growth at all costs” investor take over the helm is irksome. Removing the vagaries and potential biases of founders’ opinions, it’s an industry truism that only a fraction of startups looking to attain equity funding will ever achieve that goal.

What’s interesting though, is that demand for equity financing transcends the allure of other useful financing instruments to the point that it has become intoxicating for any founder expecting to reach unicorn status as quickly as possible. Take, for instance, this generally relatable financing example. New home buyers are always happy when their bank lender is willing to extend a mortgage that will provide reasonable financing terms on their dream house. Rarely do those new home buyers then leverage the accumulated equity in the property plus all of their assets to go out and take mortgages on ten additional properties, making a bet that they can 10x their annual earnings within a year simply to cover the many mortgage payments. As an aside, this situation did occur, and as you all know, it was one of the main precursors to the 2008 financial crisis. When it comes to the startup ecosystem, this mentality has become increasingly normal for the hottest new companies who go from a $10M series A to a $100M series B within three months, inadvertently forcing founders to 10x their monthly burn, headcount, and revenue run rate simply to meet the requisite moonshot growth expectations.

Just this month, well known venture industry and NYT reporter Erin Griffith published an excellent op-ed analyzing the growing founder malaise towards traditional VC fundraising and the potential pitfalls of taking on equity financing when it’s not the appropriate long-term option. In the piece, venture capitalist Josh Koppelman of First Round Capital candidly remarks, “I sell jet fuel, and some people don’t want to build a jet.” Everyone knows what happens when you put potent jet fuel in a slow but steady single-engine prop plane—it stalls out and explodes.

Fortunately, alternatives have emerged to dislodge the binary outcome of either banking VC jet fuel or sputtering out entirely. This piece will shed light on the other financial options.. These providers have emerged to both complement and supplement the old guard of financiers, with most focused on helping post-launch startups meet short- to mid-term cash flow needs—without injecting so much capital as to force their trajectories towards the sun (or seabed). The advent of the cable car did not kill off transportation by horse—it simply served as a flexible alternative to meet local demand. Much like a startup idea, it was edgy, scalable, and pragmatic. Alternative financing upstarts today provide flexible, non-dilutive financing to entrepreneurs whose capital needs are not met by a time-consuming equity fundraise or difficult-to-obtain and restrictive institutional debt financing.

Breaking down alternative financing options for the startup economy (what’s alternative financing, anyways?)

Alternative financing is an umbrella categorization of non-standard financing solutions to supplement plain vanilla equity and institutional debt. For the startup economy, these solutions range from the more traditional: term loans, lines of credit, asset-backed loans, convertible debt, receivables/payables financing to the more creative: hybrid equity funding invoice/SaaS factoring, crowdfunding, microloans, grants/tax credit financing, revenue-share agreements, to the “wild west” of fundraising instruments–crypto/tokens.

Why so many options? If the demand is there, you better believe a savvy capital provider will attempt to manufacture a solution. Plus, the more arcane the structure, the lower the initial competition, and the higher the margins and ability to grab market share. These solutions are not only rising in popularity and easier to obtain, they’re also well-suited for the “torso” of the market—companies with varying levels of traction, a proven user acquisition strategy, and a readiness to grease the wheels on the marketing machine.

Flexible Financing to Drive Growth Without Dilution

When it comes to early- to mid-stage startups, some customizable financing instruments have emerged as clear winners in a competitive market where flexibility is the ultimate selling point. In addition to an emphasis on ease of use, the demand for many of these offerings is spiking thanks to quick access to liquidity and an a la carte menu of fee structures to decide between, from interest rates to transaction fees to revenue share agreements.

This is a unique segment of the market, where high growth rates and monthly revenue volume upwards of $500k-$2m remains unattractive to institutional banks offering single-digit APR debt. While $24 million a year in revenue might seem impressive, a revolving line of credit or an AR line on that sum at 8%/yr will gross just $192,000 prior to cost of capital, which could wipe out at least 50% of that margin. Again, low six figure fees might appear attractive to your average “Joey finance,” but they’re nothing for abank turning billions in volume a year.

In our overextended bull market where cash seems to be omnipresent, here are four of the most prevalent alternative financing categories providing liquidity geared towards growth, without the friction points of traditional debt and equity instruments.

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How Did Amazon Go From $3B to $10B In A Year

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Amazon is well known for its trillion dollar valuation. If you don’t have Amazon Prime, I am sure you still take advantage of the 2-day shipping through a close friend or family member’s account.

Amazon planned on bringing its HQ2 to New York . However, they recently decided to leave the city but they sure haven’t left the spotlight.

This video breaks down how this GIANT makes its money, sustaining significant growth year over year.

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Business

Over One-Third Of Americans Ignore Their Brilliant Business Ideas. Here’s Why You Shouldn’t

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An overwhelming number of Americans who’ve considered launching their own business shied away from doing so. With a crazy lot of opportunities out there, most of them stopped chasing their business idea due to a large number of reasons – lack of capital, blamed inertia, fear of bankruptcy, or even their age.

Let’s be honest – entrepreneurship isn’t easy. It takes an incredible amount of time, effort and drive. With that said, there’s never a better time to start your business than now. Not next week, not next month – but now. Here’s why you should.

You can take the risk.

If you never try, you’ll never know. There’s going to be a time when you’ll eventually get to “If only..” and that might throw a lot of regrets your way. With every risk you take, you’re constantly learning and you can always, always recover from them over time.

Of course, you have the money!

Let’s face it – there’s never going to be ample or enough capital. Entrepreneurs are always going to need more. The trick is to do more with less – think: less time, less overhead costs, less staff. Despite the crazy cost-cutting ideas you have, if the money still doesn’t meet the mark – change your business plan.

You can create anything – even beam heat to space. The ability to create anything you want shouldn’t be lost while running it across a string of approvers or bureaucratic hurdles. Got a big idea jotted down? Figure out a way to make it work. Network, research, chalk out a solid business plan, splurge your creative skills, let people know what you’re doing, but make it happen.

Related: Raising Startup Capital: 4 Funding Sources You Can Bank On

Acquiring customers has not been easier.

With super useful marketing tools, social media and analytics, the farthest you need to get to are a few clicks.

It’s possible (and cost-efficient) if you plan it right.

With some of the best software at hand, nearly everything can be set up quickly and sometimes free. Crawl the internet for credible sources to help you out when you’re stuck. You can seek advice from specialized company formation agents who can help you out with legal and other bureaucratic hassles, so you focus on driving your business.

It’s super easy!

Many who look to take the plunge just stall simply because everything seems overwhelming or difficult. Here’s what’s surprising: it’s not. What’s more, this Inc piece tells you how you can set up your business in two or three hours.

What’s holding you from realizing your business goals?

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