Courtside Ventures — By the Numbers
When we started Courtside in 2016, we did so out of desperate market need. Not only was there no venture fund that focused on sports, but existing VCs would run to the hills every time they saw a sports deal. This left entrepreneurs constantly having to look for alternate sources of funding, mostly from the very people that we call LPs today. Fast forward 7 years, and through 3 early stage funds, over 100 investments, and $200M+ in AUM, Courtside has proved the thesis that venture returns can be achieved in sports and associated categories. While Fund III is still in its infancy, we thought it made sense to share our learnings from Fund I and Fund II, which we hope will not only bring more venture dollars into the sports, gaming, and lifestyle ecosystems, but also help entrepreneurs understand the economics of venture scale businesses.
Fund I
In 2016, Courtside Fund I was launched as a $35M vehicle backed by just 2 LPs. If only fundraising was that simple today! In every sense of the phrase, Fund I was very much a “proof of concept” fund. We needed to not only show that there were enough quality deals in our area of focus, but also that we could win them, and generate sizable enough returns to compete against the general venture capital space. In total, we made 41 investments out of Fund I, but in hindsight thought that we had probably made 6–8 more investments than we should have (lesson #1 as first time fund managers).
Our average initial check into a company out of this fund was $359K and our largest overall position in any company was $5.6M across 3 checks. Out of 41 investments, 9 have exited in some sort of net positive outcome, 18 are dead, and 14 are still active. The 9 exits in aggregate allowed us to generate a 1.7X DPI to LPs in 5 years, although almost all of that came from just 2 deals, and we recycled the proceeds from the other 7 smaller exits. The value of the 15 remaining positions today is ~$28.7M, which if we were to add to the ~$60.3M we have generated in proceeds already, gives us a MOIC / TVPI of 2.83x / 2.46x respectively.
In order to do 41 deals over the course of ~3 years, we looked at ~6000 deals. That’s about a 0.6% success rate. To put that in perspective, Harvard’s acceptance rate is about 3.6%. What’s truly amazing about venture is that even after being so selective, less than 10% of a fund’s portfolio drives nearly all of the returns, and this seems to hold true for a thesis driven thematic fund as much as it does for a generalist fund. Two deals thus far have generated almost all our returns to date, and differ wildly from each other in scope and investment size. In “Deal #1”, we led the Seed and Series A rounds, reinvested in the Series B, and sat on the company’s board until exit. In aggregate we invested $5.6M and generated ~$31.2M in proceeds. In “Deal #2”, we invested $200K in the Seed round and another $117K in the Series A, yielding a total investment of $317K, ultimately selling 80% of our stake in a secondary transaction and returning ~$29.7M of proceeds. Wildly different paths to similar outcomes!
Fund II
On the back of Fund I’s success, we raised Fund II in 2019 as a $54M vehicle, with significantly more than 2 LPs. Seeing the increasing crossover of sports and gaming, we added a third partner who exclusively focused on gaming investments. Having learned our portfolio construction lesson from Fund I, we knew we wanted to have greater conviction in each deal, thus writing bigger checks and taking larger ownership stakes. As such, in Fund II, we made 30 investments with an average check size of $763k, with our largest position in a company totaling $5.5M. Out of the 30 investments, 3 were acquired, 7 are dead, and 20 are still active. None of the 3 acquisitions returned any meaningful capital, but the 21 active companies are currently valued at ~$106M, giving us an MOIC and TVPI of 2.34x and 2.02x respectively. Once again, showing the power law of venture, 70% of that value comes from just 2 companies, and 91% of it comes from 6 companies. Given the larger fund size and our focus on making higher conviction bets, our winning deals in Fund II look a little more alike than in Fund I. In “Deal #1”, we initially invested $3M, followed by an additional $2.4M in a subsequent round. The company is wildly profitable, hasn’t had to raise any money for the past 2 years, and our holdings are currently valued at ~$38M. In “Deal #2”, we led the Seed round with a $2M check and then invested another $1.6M in a subsequent round. This company is doing north of $50M in revenue and our stake is currently valued at ~$33M. Unlike in Fund I, we see at least 3 other companies that currently have line of sight to being fund returners, given our ownership and their traction. Similar to Fund I though, we looked at over 6000 companies in aggregate in order to do 30 deals, dropping our success rate to 0.5%.
Fund III
In 2021 we raised Fund III, which was a $100M fund. It’s still too early to share any metrics or learnings from this fund, but we will likely end up with about 34 investments, with an average check size of $1.5M. Our largest initial check to date has been $4.0M and 35% of our deals were based outside the US, with a specific focus on gaming in emerging markets such as India, Latin America and parts of Africa. We look forward to having (hopefully positive) numbers to share in a few years time.
7 years ago, conventional wisdom in the venture world was that you couldn’t generate outsized returns in sports. Part of that was certainly a myopic view of the industry being products that were sold to sports teams and athletes. Today, everyone knows that sports is so much more than just that. It encompasses the world of media, fantasy, betting, gaming, wellness and collectibles. There have already been numerous billion dollar plus companies created across these verticals, and we have no doubt that there will continue to be large outcomes in the years to come. We look forward to being in the Seed round of as many of those unicorns as possible!
