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LA offers a fertile playing field for esports investments

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It’s 78° and sunny in Venice.  The southwest swell is drawing surfers and sun-worshippers to the beach. But inside a nearby house, the residents couldn’t care less.

They crowd around  high-end PC rigs, yelling into headsets.Their hands are blurs over keyboards, mice dart across tabletops.  The air is hot and and a cacophony fills the halls. Welcome to esports and the house of team Fnatic.

The Fnatic team plays Overwatch, Blizzard’s newest and fastest growing esports title. Fans are drawn by the opportunity to watch pros play at levels they can only dream about, like weekend golfers following Master’s pros across the fairways. Esports is well on its way to becoming big business and like all new businesses, entrepreneurs are founding companies to ride this wave of growth. Los Angeles is the Western epicenter of esports and fast becoming the hub for esports startups.

Los Angeles has always attracted  ambitious entrepreneurs who have built fortunes creating content — movies, music, television. In the ‘90s, entrepreneurs crossed computers with Hollywood and created today’s video game giants including Activision and Blizzard.

As those companies grew, related segments including mobile games, ad tech, analytics, multi-channel networks, social and subscription commerce evolved.  All this activity positioned Los Angeles to become the global capital of the next big sector — esports, which lives at the intersections of entertainment, games, and sports. Los Angeles is now the undisputed esports startup headquarters in America.

First, it is home to Riot Games, Blizzard and Activision.  These three video game companies collectively publish many of the largest esports titles including League of Legends, Hearthstone, Overwatch, and Starcraft II. To support the activities of these companies, the major esports tournament organizers ESL, FACEIT and Major League Gaming have offices here.

Also drawn to this burgeoning ecosystem are the North American esports teams, many of which have established team houses where their professional teams live and train — mostly train.  Counter Logic Gaming, Team SoloMid, Immortals and Team Liquid, all major esports teams, now have bases here.

Twitch, YouTube, Facebook, Twitter and MLB Advanced Media dominate distribution and, while none yet run their esports operations from Los Angeles, both Facebook and YouTube have significant presences.

Potential competitors for esports distribution rights include Snapchat, Netflix, Amazon Video and Hulu, all LA-based or hosting major programming operations in the city.

The last requirement for a robust startup ecosystem is capital.  Over the last few years, Los Angeles has seen tremendous growth in early-stage investors in the market.  Veteran seed investors like Upfront Ventures, Greycroft Partners and Idealab have been joined by new players like BITKRAFT Esports Ventures, March Capital, Amplify, Crosscut Ventures, Embark Ventures, Science Inc., Karlin Ventures, Mucker Capital, Arena Ventures, LOWERCASE Capital, Luma Launch and others.

Investments include companies like Scopely (mobile games), Zefr (video technology), Loot Crate (subscription commerce), Whipclip (video sharing), Fullscreen (video content), and Victorius (fan engagement).  There is a common thread that ties Los Angeles startups together — content. More often than not, the product that these companies are delivering is tied to content creation, consumption or monetization.  With their support, the final piece of the esports start-up ecosystem is complete.

Esports as a category is a natural evolution of this investing activity. While video games have existed for several decades, it is only in the last ten years that businesses have evolved around the idea that an audience existed that would want to watch them.

Twitch.tv, the platform that is the granddaddy of video game streaming, did not even spin out of Justin.tv until 2011.  And business models around esports are also fast-evolving with entrepreneurs focused on new ways to monetize sponsorships, digital goods, influencer marketing, and distribution. And so, we are seeing a community of esports startups beginning to coalesce in Los Angeles.

Investors like my own firm, BITKRAFT, and others like Amplify, Upfront, March Capital and Crosscut are intent on providing capital to them. Drawn to, and nurtured by, Los Angeles’ catalyzing combination of entrepreneurs, teams, publishers, platforms, organizers, and capital these esports companies are just the beginning of many more to come.