Take Me Out to the Ball Game

This is The Startup Breakdown, the newsletter where we learn, laugh, and love startups. By joining this growing community of hundreds of future startup aficionados (think i spelled that right?), you're getting a beachside view of the ocean that is the startup and VC scene. This ain’t your grandpa’s newsletter, so prepare yourself for an inbox full of 4/20 jokes and Succession references. If you'd like to receive these newsletters directly in your inbox once a week, hit subscribe and never miss an email!

Happy Monday, folks.

A bit of an experiment this week. Instead of going in-depth on a specific startup, I’m diving into an individual team within a VC firm that I think is really fascinating and has made some really strong bets in the past.

Also got the suggestion that you guys don’t carefully digest my every single word (wait what? what do you mean you have better things to do?), and to help you guys get the real meat and potatoes (more of a chicken and rice guy myself), I made this week a bit easier to skim read.

Finally, I had a reader submit an awesome resource, and I added it to the bottom in the recs section.

Enough yappin’. Let’s grab a brewski, paint our chest, and bark at small children as we talk sports.

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Kickoff: The Venture Scene Behind the Game

With college football kicking off this week (sorry, vandy and hawaii DID play a real nail biter a couple of days ago), I have literally nothing but inflated balls on my mind. And to give myself an excuse to spend half of my waking hours on ESPN and Bleacher Report this past week, I’ve been diving into venture scene behind the games we so rabidly love and cherish.

Investors love their athletics, too, and I mentioned a few weeks ago how more American investors are looking to Europe as a way to get their fix. In addition to just buying teams (or the sport itself if you’re the Saudis 🏌️), there’s also a rapidly growing market for sports and sportstech startups.

Sapphire Sport: A New Player in the Game

While Sapphire Ventures has been around for a phat minute, the firm’s athletics arm (aptly named Sapphire Sport) is still new, only being established in 2019 and gearing up for just its 2nd fund.

The firm focuses on early-stage startups in the intersection of sports and tech, leading the charge for the next generation of fan acquisition, consumption and engagement, changing the way we as people desperately needing healthy hobbies fans interact with sports media.

• Average check sizes range from $3-$10 million

• Fund II was oversubscribed, raising $181 million

• The team will back ~20 companies after backing 15 with $115 million in its first go-around

In case you needed any further proof of their notoriety in the space, the investor’s backers include team organizations like the NY Jets, Indiana Pacers, and Boston Bruins as well as Adidas and City Football, the fund’s biggest investor. Not sure whether providing Aaron Rodgers with a darkness retreat Mojo Dojo Casa House was part of the deal.

The portfolio has some pretty recognizable names, including Overtime, Tonal, and POAP. However, there are a few others that are a bit more under the radar that I’m excited about:

• Manticore Games:

  • massive metaverse where players can interact across an infinite number of player-created games, keeping their digital assets and earnings across worlds

  • now valued at more than $500M with other investors including Lightspeed and RocNation

  • taps into the massive creator and game economies, keeping dev costs low and content relevancy high through focus on player-generated content (like Roblox and Fortnite)

• Buzzer:

  • API service helping streaming platforms to provide personalized features such as automatically switching between live sporting events based on action

  • has raised more than $44 million from team owners and stars (patrick mahomes, myles garrett, naomi asaka)

  • coincides with major sports networks like espn trying to make the move to streaming, and this tool could make the experience 10x better for viewers

• PlayVS:

  • building the go-to platform for organized scholastic esports

  • has raised more than $100 million from

    investors like softbank

  • has partnerships in place with the biggest titles in gaming, making the competitive experience unmatched for players looking for organized esports

It’s not just the players that are getting bigger (looking at you, Wemby); the market for sports is rapidly growing. In 2022, the global sports industry was worth an estimated $487 billion. This is expected to grow to $623 billion by 2027. A few of the fastest growing sectors are all ones Sapphire can capitalize on, including:

• Esports: 15.7% from 2022 to 2027, reaching a market value of $16.9 billion by 2027

• Betting and Fantasy: expected to reach USD 106 billion by 2027, growing at a CAGR of 13.7%

• Media and Tech: expected to reach $129.5 billion by 2025, CAGR of 9.8%

The fund was founded by

• Doug Higgins: former BD and strategic partnerships for Lucasfilm (May The Force Be With You) and fund manager for Intel Capital

• Michael Spirito: former BD of digital media for FOX regional sports networks before joining YES where he actually led the launch of the first ever sports streaming product in the US

The team has a track record in the space, something which is necessary to understand all of the industry’s intricacies, like why you would trade a former #8 overall pick coming off the best year of his career for a 7th rounder and toaster strudel.

Sports will always be near and dear to our hearts, providing players and fans alike with the highest of highs and the lowest of lows. They spark friendships, fuel decades-long rivalries, and if you’re a certain defending National Champion based in Athens, Georgia, motivate you to bark at random children in the airport in the name of #TheDawgs.

It’s exciting to see what the next generation of these games look like, largely driven by the support of investors like Sapphire fueling the next age of innovation.

TLDR: Sapphire Sport, part of Sapphire Ventures, is investing in early-stage sports and tech startups, with its 2nd fund raising $181 million. The firm is tapping into a global sports industry expected to reach $623 billion by 2027, with investments in areas like metaverse gaming, streaming, and scholastic esports. Led by industry veterans, Sapphire Sport is at the forefront of innovation in a rapidly growing market that connects fans, players, and technology.

SEC Requiring More Transparency from Fund Managers

VCs everywhere are about to spill the beans on their daily decisions.

Last week, the SEC voted 3-2 to approve new rules meant to shred their shrouds of mystery and the carrots they use to dangle over particularly desirable clients.

Firms with more than $25 trillion in gross assets (think school endowments, pension funds, the guy who can afford double steak and quac at Chipotle) will now be barred from offering side letters which are agreements to better terms for certain phat-wallet investors over other LPs.

These firms will also be required to send quarterly financial statements with information on their performance and expenses, and they will have to be audited once per year. It’s possible that far more managers are really 5’8 than their bios indicate.

This won’t impact most VCs directly given the high barrier for the rules to be applicable, mostly impacting private equity and hedge funds, but nonetheless, it is indicative of the fundraising environment that LPs are able to leverage fund managers’ difficult fundraising position to demand greater concessions, something that many have been clamoring for years.

Frankly, rare Gary G W on this one. Hedge funds are a notorious black box, generally providing outsized returns to their investors though with mountains of faith required to part with the mountains of capital they look to raise and deploy.

Might not agree with the crypto stance, but I am supportive of a more open and transparent ecosystem from all sides.

Arm IPO to be Year’s Biggest

Well this one is gonna cost an Arm and a leg.

SoftBank got offended by my criticism a couple of weeks ago, so they decided to pressure portco golden child Arm to IPO. That’s the only explanation I can come up with.

The chip designer is expected to be valued between $60-$70 billion, meaning SoftBank could net $10 billion to return to LPs and free up some liquidity to reenergize its investment efforts after emerging from a post-Thanksgiving dinner level nap.

The listing is expected to be the year’s biggest, though as frequently noted here, that’s not exactly saying much. The year has been Adam Sandler bad for public offerings, the result of Jerome Powell deciding money shouldn’t be free. This has had a ripple effect throughout the VC space as the lack of exit ops has decreased the amount of capital ready to be redeployed into more startups.

I don’t anticipate Arm’s listing to open the floodgates, but it’s a sign of the thawing of the public markets that companies are seeing it as an attractive option again. In fact, massive companies like Instacart and Klaviyo are also looking to list, possibly even as soon as next month.

Hopefully, this is the case. I imagine writing this newsletter will be much more satisfying when I’m talking about ATHs and records rather than layoffs and “X industry just hit another quarterly low.”

First, though I mentioned it with the ad up top, getting your site to stand out in the minefield that is Google search results is nearly impossible.

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Next, had a reader recommend an awesome article going in-depth on the future of the payments industry. Grab yourself a redbull and give it a read through.

Finally, I’m always on the look out for other newsletters that you guys would enjoy, cause I just know you can never get enough. Luckily, I found an awesome one, adding yet another tool to the arsenal that is your startup knowledge case.

Cheers to another day,

Trey