Investors Gave Me Money to Help People Win at Video Games. Here's What I Did. How startups in emerging industries should approach the big pitch.
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In 2016, $104 million was invested into esports businesses. That number more than tripled to $386 million in 2017. And at the rate money is coming in this year, we are on pace to see $1 billion dollars invested in esports businesses.
The best part? Some of that money went to me.
As the founder of an esports company, U GIT GUD, I can tell you that it's a great time to be an entrepreneur in this sector. My business partner, Alan, and I recently succeeded in raising money from some prominent esports investors, and we see tons of new startups popping up in this space.
Esports -- the business of competitive video gaming -- is an emerging industry, so I wanted to share some of our experience in pitching and successfully raising money for our startup. For anyone working in esports or other emerging industries looking to raise some money, this will hopefully provide a rough sketch of what to expect and how to improve your chances of success. It's not perfect, but it's what worked for us.
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Testing the waters.
To me, the opportunity present in esports is self-evident. But I can't tell you how many times I have walked into a meeting or pitch only to be greeted by blank stares, forced smiles and restrained nods.
My goal is to answer the most important question first: Does this investor believe in esports?
Pro tip: You aren't going to convince an investor to change their opinion on esports. Before you walked in the door, that investor has already made a decision on esports as a space. With that in mind, there are really only two possibilities:
- If you're lucky, you have a golden opportunity on your hands.
- If you're unlucky, they took the meeting on someone else's recommendation, and it will be a waste of time.
You have to figure out which camp the investor is in, and adjust accordingly. I have found a lot of success by starting the conversation with some version of one of the two following questions:
- What games do you play?
- What do you know about gaming and esports?
The answers you want to hear are along the lines of "To be honest, I don't know much. But ..." (insert something that indicates they have done some research on the space here) or "My kids play these games all the time, and I swear they don't want to do anything else."
Any other answer indicates they are simultaneously aware of how passionate the players in the community are and how little they understand of the space. This constitutes the perfect storm in which you have an opportunity to demonstrate your value and add to their investment portfolio.
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Diving in or "killing the unicorn."
Let's assume you are lucky, and the investor in the room has already bought into the space, conceptually. The next point to keep in mind is that you are not selling an idea, but rather how you personally add value to their investment.
A lot of entrepreneurs make a critical error here. They try to sell themselves as the guy who owns the shiny-unicorn-billion-dollar-idea. Investors have seen this over and over, and it is not impressive to them. Every entrepreneur should have a borderline unhealthy belief in their own product. Otherwise, the startup grind will chew you up and spit you out. This fact alone does not separate you from any other entrepreneur. It is merely a prerequisite.
Instead, it is critical to demonstrate how you will recognize when your idea is in the 90 percent of startups that fail within the first year. It is even more important to demonstrate your ability to impartially ask questions, to figure out if "failure" is an execution mistake that you can improve upon, and to make the hard decision when all signs point to a pivot.
For every Facebook, Uber and Twitch there are thousands of startups with incredible ideas and talented founders that burn through cash and fade into the ether.
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So, with all that in mind, here is how I structure my pitch.
After chatting about their knowledge of esports and answering any initial questions, I present my hypothesis and give my reasons why I believe the hypothesis to be true. It always helps to have preliminary results or traction. This is when the important dialogue begins.
You need to demonstrate to the investor how you will test or iterate on your idea. What are the important questions you need to answer? How are you going to design tests to find the answers to these questions? What strategic decisions will you make given different answers? How will you use this investment to find these answers? And lastly, if everything goes swimmingly, what is this investment worth?
At this point, you have the check in hand. Just kidding.
Pitching an investor is an elaborate song and dance. It never goes as smoothly as you would imagine. One meeting morphs into a follow-up call and, if you're lucky, a second meeting. Immediate action items are never resolved but rather turn into additional questions to answer. One week timelines become two weeks or a month. Understanding this is critical to startup life.
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Throughout it all, we've had to be nimble. My recommendation to others on the journey is always to take it as it comes and enjoy the roller coaster, the roadblocks, the setbacks and the victories. You need to be passionately humble. Don't downplay your knowledge of the space or your passion for esports. But when you don't know something, you shouldn't pretend to know.
The best investors I have worked with share a unique ability to identify when they do not know the answer. The best entrepreneurs take this a step further and figure out how to find these answers.
Investors are excited about esports and are willing to write a check. I am the fortunate recipient of an opportunity to build a great startup in this space, and I hope you will be, too.