Athletes, the new business angels banking on tech
If you were watching the Ellen DeGeneres Show over the summer, you might have caught ex-NBA superstar Shaquille O’Neal explaining how he invested in Google in pre-IPO in the late 90’s after watching someone else’s kid at a Four Seasons Hotel in Los Angeles. That person ended up putting him on the Google investment opportunity which then went on to becoming one of the biggest tech company in the world. According to Shaq, he made “a really big return” and still owns shares as of today.
In fact, an investment right after Google’s IPO in 2004 would be yielding a x15 return today and I think Shaq is looking at somewhere around a x100 return. As funny and surprising it may sound, the 7ft1 and 325lbs investor might have been one of the earliest athlete banking on tech and it’s interesting to notice that it happened hazardously.
The thing is, tech investing has long been reserved to a certain typology of investors and atypical HNWI such as athletes have been overlooked. The public image of athletes not understanding what to do with their money is still in the heads of many, and their financial advisers often didn’t bother suggesting complicated tech investments. On the other hand, good early stage tech companies are very hard to find, and they would likely prioritize targeting more educated investors.
As athletes became more aware of the investment opportunities available to them and with the tech ecosystem maturing, the gap between athletes and tech has been reduced. Investing in tech notably became a lot more accessible since technology started spreading across all industries. As a result, there was an increasing number of tech companies going public, which created liquidity as well as diversification options for investors. Internet further contributed to bring athletes and tech companies closer together by offering direct communication channels but also by allowing both parties to collect information more efficiently; but the gap is still there.
Over the last decades, economies started growing at a slower pace and tech companies became a portfolio “must have” for investors struggling to find good investment opportunities. Innovation and disruption have been key to create real economic value and it drove garage startups to become some of most powerful public companies in the world today. In 2019, 7 of the 10 largest companies were tech companies (Microsoft, Amazon, Apple, Google, Facebook, Alibaba, Tencent). In 2009, it was only one (Microsoft, at about a fifth of today’s value).
From an investor’s perspective, tech companies and tech stocks have simply been generating some of the most exciting returns for some time now. By taking a simple look at the performance of the NASDAQ (index tracking the biggest US tech companies) and the S&P 500 (index tracking the biggest US companies at large) over the last 10 years, the NASDAQ has been returning about 107% more (181% vs. 289%). Relatively recent mind-blowing return examples include Amazon, Google, and Netflix. For instance, if you invested $100 in Netflix back in the 2002 IPO, you’d be looking at more than $33k today. Let alone if you invested pre-IPO.
Hence, returns in early and growth stage startups can sometimes go as high as two to three-digit multiples. Among some of the best VC deals, Sequoia Capital turned a $60 million investment in WhatsApp into $3 billion from 2011 to 2014 when it was acquired by Facebook. Pieter Thiel, famously known as Facebook’s first investor, received more than $1 billion in proceeds from his $500,000 initial investment.
2019 will be remembered as a breakthrough year for athletes investing in tech as a few of them reportedly made a killing in major tech IPOs. Carmelo Anthony, Stephen Curry, and Lance Armstrong invested respectively in Lyft, Pinterest, and Uber while Andre Iguodala was an investor in Zoom, Jumia, and PagerDuty. In fact, Armstrong was vocal about his investment in Uber and told CNBC it even “saved his family”.
The road to success for Lance Armstrong has been bumpy to say the least. The cancer survivor and former road racing cyclist was once deemed the greatest cyclist to ever do it after winning a world championship, 7 tour de France, and an Olympic bronze medal. At the peak of his career, Lance Armstrong was worth an estimated $125 million from salaries and endorsements that brought him as much as $20 million per year at some point. However, Armstrong later admitted to doping accusations and was stripped from his sponsors including Nike, Trek, Anheuser Busch, and Oakley while being held liable in repayments for damages. In the end, Armstrong lost his tour de France titles and his Olympic medal, but he also suffered losses of about $75 million in terms of lawyer fees, endorsements, and legal settlements. Nevertheless, before the financial meltdown Armstrong made a $100,000 investment in Uber through Chris Sacca’s Initialized Capital as early as 2009. According to Bloomberg, the Uber investment returned Armstrong about $20–30 million 10 years later. That’s somewhere close to half of his $50 million net worth as of 2018.
The recent success stories of athletes investing in tech come with no surprise as a selected group of athletes has been pushing an influent movement about players investing in tech for a few years now.
Carmelo Anthony was the first one to really get some skin in the game when he took advantage of his trade to the New York Knicks to develop his business activities. In 2013, he started Melo7 Tech Partners with Stuart Goldfarb, former president and CEO of a billion-dollar corporation and member of the WWE Board of Directors. Melo7 Tech Partners invested in more than 30 early stage tech companies and 6 years later the fund realized 12 exits including deals like Lyft (ridesharing app, IPO), Bonobos (clothing brand, $310 million acquisition by Walmart), or Luxe (on-demand valet parking app, undisclosed acquisition by Volvo). The portfolio also includes fast-paced growing startups like Casper (Mattress manufacturer) or Andela (HR tool).
Tennis superstar Serena Williams might let you think that she got the tech buzz after marrying Reddit and Initialized Capital co-founder Alexis Ohanian. In fact, even though she publicly announced the launch of Serena Ventures this year, the fund has been investing since 2014 into early-stage companies led by women and people of color, and those that value “individual empowerment” and creativity. Williams teamed up with former asset manager at JPMorgan, Alison Rapaport, to oversee the investment activities and at the time of writing, Serena Ventures has invested in more than 30 companies including startups like Impossible Foods (food from plants), Mayvenn (hairstylist platform), or the Daily Harvest (food delivery). The duo noticeably just realized their first exit with Olly (wellness and nutrition product manufacturer, undisclosed acquisition by Unilever).
Former NBA Champions Andre Iguodala, Stephen Curry, and Kevin Durant just so happened to all end up playing for the Golden State Warriors, in the Bay Area — birthplace of the Silicon Valley and HQ of some of the biggest tech companies in the world such as Apple, Google, or Facebook — and piled up close to 50 investments altogether in the past 3 years. Iguodala, Durant, and Curry have all been very active in the tech ecosystem developing relationships with venture capital wizards like Ben Horowitz, speaking at major tech events like TechCrunch Disrupt, and most recently launching the Players Technology Summit which has been running for 3 years now.
Iguodala, who’s probably the most prolific tech athlete-investor of the bunch, has partnered on his investments with Rudy Cline-Thomas, founder and managing partner of VC fund Mastry Inc. With a dozen of investments in his portfolio and a previous exit with Tristan Walker’s Walker & Company (undisclosed acquisition from Procter & Gamble), Iguodala just added a great trio of exits this year with Zoom (video conferencing, IPO), Jumia (e-commerce platform, IPO), and PagerDuty (operations performance platform, IPO). He’s also a shareholder in hot startups like Casper, Lime (electric scooters), The Player’s Tribune (publishing platform), or GOAT (sneakers marketplace). Iguodala has been one of the most vocal players to get athletes to follow his path and is well on his way to become a figure of the VC ecosystem post-retirement.
Durant started Thirty Five Ventures in 2016 with his partner Rich Kleiman, an ex-agent and co-founder at Rock Nation Sports, and has been a very active investor to say the least. KD invested into more than 30 startups with shares in some of the hottest deals including Lime, Postmates (on-demand delivery), Acorns (trading app), or Coinbase (cryptocurrency exchange). Through Thirty Five Ventures, Kevin Durant had his first exit with Grove (financial planning, undisclosed acquisition from Wealthfront) and is also doing well with other investments like with his stake in Postmates which has reportedly multiplied by 10 already.
Curry founded SC30 Inc in 2017 with an ex-Davidson teammate and a Stanford graduate, Bryant Barr, and adds up to the athletes realizing their first exits this year with Pinterest (visual bookmarking tool, IPO). Curry invested in a decent range of other startups as well, including TSM (e-sport organization), CoachUp (sports coaching), Team SoloMind (gaming platform), Brandless (ecommerce), Hooked (chat entertainment), Slyce (marketing automation platform), and SnapTravel (hotel deals messenger).
Following his Uber exit, Lance Armstrong just launched Next Ventures, a $75 million venture capital fund to back startups in the sports, fitness, nutrition and wellness markets. Armstrong notably teamed up with Lionel Conacher, a former investment banker and senior executive in several public companies.
Finally, Andy Murray partnered with Seedrs, an equity crowdfunding platform, and has done more than 30 deals since he first started in 2015. Murray invests mainly in tech startups related to health and wellbeing, nutrition, or even dogs. He reportedly works with a team of advisers to assess his investment opportunities.
Athletes and tech startups are a great match and I expect a lot more of them to keep pouring into the space. The recent spurge of athletes investing in tech has already led many others to jump right in and the recent successes will keep the momentum going. With tech spreading into consumer facing areas where athletes have an unfair advantage (sports, lifestyle, nutrition, wellness, or entertainment), they can use their leverage to add value to some of the hottest tech verticals such as marketplaces, e-gaming, foodtech, media and streaming, medtech, cannabis, or sportstech.
It’s worth noting that investing in tech also grew popular because of its societal dimension. Tech investments are often compelling to investors looking to have an impact in the world and the idea of investing in tech companies fueled with smart young people building cool stuff to solve complicated world-scale problems surely sounds like a good pitch.
On the other side, tech startups usually struggle to get funding in the very early stages of the company, namely pre-seed and seed stages (often referred as “the valley of death”). Athletes have the potential to be influent early stage business angels and to help these companies to reach later stages of financing with big premiums on their shares.
In general, the Series A round is the tipping point where funding goes from angel investing to institutional investors (VCs or Corporate Ventures) and where risk of investing decreases considerably since companies are a bit more mature. Consequently it’s a lot harder for angel investors to join the rounds from Series A and onwards because of the increased competition and ticket size. And if investing in early stage startups is riskier, investors have ways to work against the risk and maximize the upside. For instance, they can hedge their bets with multiple investments of smaller tickets, co-invest with other experienced business angels, and even be granted tax exemptions.
Don’t let the incredible successes of tech companies and the hype of investing in startups fool you, however.
Even though investing in tech companies can bring sizeable returns to investors, it remains complex and riskier than other traditional asset classes. In technology, the only constant is change and companies have rapid obsolescence cycles. Companies often have to adjust along the way and pivot multiple times. It’s even not uncommon to see companies on top of their market go on to raise hundreds of millions of dollars to end up bankrupt a few years later, especially in economic downturns (e.g. pets.com or eToys during the dot com bubble).
Adding up to that, the greatest challenge of early stage investors is what we call the deal flow, or the incoming flow of startups screened by the investor. The best deals are usually in high demand and investors must be part of certain networks or have a significant track record to be granted a seat at the table. For instance, if it wasn’t through Chris Sacca, Armstrong probably would have never had the opportunity to invest in Uber.
Even with a good deal flow, the norm in the industry is that experienced VCs usually pick 10 out of 1000–2000 startups to hit the homerun on 1 out 10 investments. The other investments are more spread out with 2–3 investments performing well, and the rest being flat or underperforming. Not to mention that shares of startups are illiquid and that investing cycles usually last 5 to 7 years before investors can exit and make a profit.
Any amateur investor rushing into tech investing has a sure way to lose money. Indeed, it takes time before investors get to see qualitative startups under their radar and even then, it takes even more time and experience before investors can make sense of their deal flow to pick the winners. Athletes are notably often assaulted by the wrong kind of companies and it can be extremely confusing at first.
This is how we go back to athletes needing to surround themselves with a qualified team to make investment decisions, and it couldn’t be truer with tech startups. Finding good startup investments work somewhat like the law of large numbers, the greater the number of startups screened, the greater the chance to discover good deals. In fact, very few are the athletes who did well in occasional tech investments and that’s probably why athletes succesfull in tech opted for setting up their own VC funds or partnering with one instead. Even the great investor Magic Johnson reportedly partnered with Detroit Ventures.
Interestingly in August 2018, one of the most renowned VC in the world Andreessen Horowitz launched a $15 million Cultural Leadership Fund featuring Afro-American athletes (led by Kevin Durant) and entertainers to “invest in companies in the Andreessen Horowitz portfolio who are interested in partnering with the cultural leaders who invested in the fund”. The same summer, Intel and the NBA reportedly worked together on investing in startups in sports while the NFL Player Association launched One Team Collective, a technology and business accelerator for new businesses in the world of sports.
These initiatives come supporting a SportsTech ecosystem that has been growing at a fast pace over the last few years with an increasing number of sports dedicated funds, incubators, or innovation hubs joining the space. The list includes and is not restricted to: Hype Sports Innovation, Sapphire Sport, Global Sports Venture Studio, NYVC Sports, Stadia Ventures, Courtside VC, Bruin Sports Capital, Advantage Sports Tech Fund, Aser, Bitkraft, Shorai, Sports Investment Partners, Trust Esport Ventures, Full Stack Sport Ventures, Capital Sports Ventures, PodiumVC, Le Tremplin, leAD Sports, KICKUP Sports, Active Lab, GSIC Sport Thinkers, Score, SportTech Hub, TenKan-Ten, UEFA Startup Challenge, Wylab, Stakrn, SportUp, Platform A, Spin Accelerator, Dodgers Accelerator, Blue Star Accelerator, Black Lab Sports, Sport eXperience, The Pitch, Sloan Sports, ASTN, Sixers Innovation Lab, Chelsea Foundation, Arsenal Innovation Lab, and Barça Innovation Hub. Most recently, the FC Barcelona announced a 120 million € fund (Barça Ventures) and Seventure and La Caisse d’Epargne partnered up on an 80 million € fund (Sport & Performance Capital) to invest in sports and nutrition related startups.
I believe this is the beginning of a trend that is about to get much bigger. Athletes will increasingly intend to take advantage of their social capital in the tech ecosystem, while other investors and startups will put on an effort to bring them into more deals. This will push traditional VC investors and sports dedicated fund to offer more opportunities for athletes to invest alongside them and leverage their influence. Eventually, athletes will grow even more influent. It’s interesting to see how athletes will embrace these new opportunities and how it will affect the way they get through their careers financially. As athletes gradually get better financial counseling, I’m particularly looking forward to seeing the tech ecosystem allowing them to unleash all their investment potential.
Originally published at https://www.linkedin.com.
