Esports funding throughout the years
By: Viktoria Oushatova
Tags: Esport, Venture Capital, Growth, Entrepreneurship, Funding

Esports investing journey from niche to mainstream

Photo Credit by Tzido Sun on Shutterstock

In our previous article, Esports market shows first signs of maturity, we briefly discussed the increase in investments attracted by the esports industry, driven by the rise of mega rounds. In this article we summarize in detail the funding journey of esports by stage, country and sub-sector and provide our predictions for esports funding going forward.

Steady increase in esports investments throughout the years

During the period 2011–20 esports number of investment rounds has increased every year with the exception of 2013 and 2020. Despite the decrease in number of rounds in 2020 (from 85 to 78), we have seen an increase in the total amount of funding by 127% to $1.3bn, driven by a few mega rounds. Overall, esports ventures have closed 492 rounds over the past 10 years with number of rounds growing at a 2011–20 CAGR of 29%.

During the same period, total esports funding increased steadily until 2018 when it peaked at a record amount of $2.9bn driven by a few mega rounds. Top three investments in 2018 accounted for c90% of the total raised funding (Epic Games at $1.8bn, Huya at $537m and Chushou TV at $265m). 2019 saw a dip bringing back investments almost at the level of 2012. Overall, esports ventures raised a total funding amount of $8.0bn over the past 10 years with total funding growing at a 2011–20 CAGR of 44%.

Source: Tracxn

Total funding growth outpaced growth in number of rounds, signalling that the average ticket size per round has also increased. Excluding some outlier years, the average ticket size per round in esports was about $17.5m during this period (Tracxn, 2020).

Esports funding is driven by growth in early and late stage rounds

The growth in esports funding and number of funding rounds has not been equal across different stages. Based on data from Tracxn, the main funding rounds closed by esports companies are at seed, early and late stages, while PE (private equity) investing is still very rare (top PE investors in the sector include Raine Group (5), Eldridge (5), and Lowercase Capital (4)). During the period 2011–20, the esports sector has raised total of $8.0bn funding split among the following stages — Seed (4%), early stage (40%), late stage (52%) and PE (4%). Over the past five years there has been a significant increase in total funding at late stage (2015–20 CAGR of 88%) and early stage (2015–20 CAGR of 34%), while seed and PE funding have remained broadly unchanged (Tracxn, 2020).

Source: Tracxn

In terms of number of rounds, seed stage is still the most common funding round. Out of the total 492 funding rounds raised during 2011–20, 54% were at seed stage, 37% at early stage, 8% at late stage and 2% contributed by PE funds. The increase in total number of rounds though has been driven by an increase in number of late stage rounds (2015–20 CAGR of 32%) and early stage rounds (2015–20 CAGR of 10%) mainly (Tracxn, 2020).

Source: Tracxn

This trend is also confirmed by the average ticket size per stage. While seed stage average ticket size has remained broadly unchanged at c$1.2m, early stage average ticket size has increased over the years, showing that the funding growth has outpaced growth in number of rounds. The average ticket size at late stage has varied over the years with no clear trend (Tracxn, 2020).

Source: Tracxn

Start-ups in US and Asia have attracted most funding

Source: Tracxn

Out of the total $8.0bn esports funding raised during 2011–20, US start-ups have attracted 56%, followed by Asia at 38% and Europe at 6%. Majority of the esports funding in Asia has been attracted by only three countries — China, Singapore and India. Most interestingly, esports funding in Asia has been growing at a much faster pace than US and Europe, implying in the future Asia might become the most funded esports region.

Broadcasters, league organizers and game developers attracted majority of the funding

In the table below we have summarized the most funded business models within esports. In terms of total funding amount, the top three funded sub-sectors are broadcasters, game developers of FPS (first-person shooter) games and league organizers. The three of them combined account for 71% of the esports funding during 2011–20. In terms of number of rounds, broadcasters and esports platforms focusing on competitive gaming are the top funded subsectors, accounting for 41% of all funding rounds in the industry. Game developers of FPS games stand out as the sub-sector with the highest ticket size per round. The sub-sector of esports platforms in competitive gaming stands out with the highest number of companies that have received funding (Tracxn, 2020).

Source: Tracxn

Our forecast for esports funding going forward

As 2020 is coming to an end, one has to acknowledge it has been a milestone year for venture capital with record number of VC-backed IPOs and record amount of raised funding. Although some sectors have benefitted more than others, we believe esports has become mainstream in terms of the audience and investors it attracts. Our prediction for the next 5–10 years in the industry are: i) number of late-stage rounds will grow at a faster pace, while we will also see more PE funding activity, ii) Asia will become the most funded esports region, surpassing US, and iii) funding will shift towards companies and business models which target monetization such as fan engagement, betting, real-money gaming and in-game advertising. Overall, we remain very excited about the esports sector and the opportunities it will bring going forward.