Esport Teams: Chance of an Investor?

Yesterday I published an article on investors and sponsors in esport teams. As promised, I would like to devote a little time to individual sub-areas in the following articles. Since chronology never a bad idea I, I start with investors.

In doing so, I put forward the steep thesis that professional and commercially successful esport teams cannot currently be boottrapped. Of course, I stick to the basic thesis.

But what do you have to/should consider when searching for and acquiring investors? Here are a few small hints. The whole topic is of course very extensive and, finally, clients also pay me for my knowledge and my experience from 20 years as a businessman. I can only address the problem areas very rudimentarily.

First of all, it needs

• A business concept
• A team
• Basic funding
• A legal framework

The business concept or model must be ready. The core team has to stand, you have to think about costs, revenues, potentials, growth, risks and everything else. Please do not contact investors without such a business plan being written, read by an experienced consultant and best coached for the upcoming interview. Yes, it costs money and does work. But no one has said that it will be easy to build a profitable company in esport. Approaching investors too early can be fatal and, above all, burn contact. Here the golden rule applies that the first impression always counts. There are countless forms for business plans on the Internet and also at various Chambers of Commerce. The creation of a business plan is quickly underestimated, abbreviated or taken lightly. The creation is so enormously important. Not only for investors, but also for yourself. Ideally, you think about risks, problems, challenges and the next steps. The business plan is the future of your own company and thus also of the professional and therefore profitable esports team. And foundations should always be carefully planned.

The team should not be underestimated either. Many investors do not invest in ideas or even concepts, because they often exist and from many others. Investors like to invest in teams. In the future, they will have to run, build and make the company profitable in order for an investment to be worthwhile. Therefore, a team can identify with projects and be committed and motivated. This also applies, of course, to the financial side, which is why serious investors and business angels do not seek majorities in initial investments. The team must also stand, be ready to give everything, above all be ready to work full-time and, of course, be prepared for the topic of “burning”. The team must be able to convince and cover the various areas such as management, player management, IT, marketing, sales, etc.

Basic financing is also a prerequisite for a discussion with investors. No investor will throw money, performance, not even his time, into an empty hole in which not even the founders are willing to invest their own money. To a minimum, this would be the share capital for the establishment of a limited liability company or a public limited company (all other legal forms are in principle hardly suitable for investors!). It is also even better for one’s own negotiating position if the first steps are also covered financially. This money typically comes from the founders themselves, who receive this from previous activities or Friends & Family.

Through these, we also come directly to the subject of the legal framework. In addition to things such as corporate form, shareholder shares, contracts and the like, we also need to think about the way an investment is made. In addition to legal issues (participation, profit distribution and much more), tax law issues are also relevant here. Balancing an investment for a young start-up on the balance sheet can sometimes be very complicated. One must be aware of the way in which the legal implications and the financial consequences are before the discussions with investors. Otherwise, a successful and serious investment meeting cannot take place. Of course, there are numerous connections to the business concept. For example, the business plan must first be used to determine capital requirements. Both too much money as an investment and too little money are usually problematic and leave a fatal impression on investors. A lot can be done wrong here, as you fall on your feet later.

In fact, the business plan should also explain why an investor should acquire shares in his own esports company. If you don’t know, you’re just not ready yet and you should get professional help. In principle, however, one should take into account the difference between sponsor and investor mentioned in the last article. An investor typically does not want direct consideration. There are exceptions, such as strategic investors. But that would go beyond the scope of this blog post. Typically, investors want to increase their money and thus generate a profit. Since investments do not guarantee profit and every experienced investor knows this circumstance, the targeted margins of investors are usually higher than many founders think. As a rule, investors expect up to ten times the profits from your deposit. Depending on the risk and period of the investment, also more. This circumstance must be taken into account in the business plan and in the capital requirements.

Once you have achieved all these points and you are also ready to take a professional step in esport (and the time is right for it at the moment), the question arises, which investors you approach and where to find such investors. As a rule, only business angels are eligible at an early stage, which usually invest in the range of 50,000 to 100,000 euros. Within the framework of cooperation agreements, with absolutely convincing concepts, strategic investors can also be willing to invest more money. For example, media companies that want to get a foothold in the esports industry and want to expand existing social media reach, real estate companies that might be interested in doing things like Tournaments, team houses or the like, or endemic companies, such as agencies that could bring in not only capital but also know-how, contacts, reach or labour. All this, however, must be carefully planned, conversations and business plans adapted and adapted to your own idea or strategy.

Investor talks and the management of these talks and negotiations are an issue in themselves. If I am interested, however, I am happy to address it again. Here too, a great deal can be done wrong, for example through a lack of patience. In reverse, charismatic individuals and professional founders can achieve much more than many first believe. Investments have more than you think they have something to do with sympathy and persuasiveness.

There is currently a chance that 4-5, internationally successful and financially secured organisations can emerge in the Federal Republic of Germany next year.

But this can also be achieved with a professional approach, personal commitment, mostly professional help and good planning.

For questions, about the article, but of course also my own services, I am always available via Skype (alphateddy), Whatsapp, Twitter, e-mail or phone.

The next article will focus on the sponsors, how to achieve them, what they want and why things like long-term player contracts are indispensable for them.

Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.