Backdoor investing – Meme stock ETFs – Decentralising psychedelic research – Reinventing Pilates – In-venue sound – Web3 sports gaming – Pickleball and Padel
Week 28
Skin In The Game is a weekly newsletter dedicated to sports investing. We highlight the startups and investors shaping the future of sports and its adjacent markets.
We also run a regulated startup investment club connecting investors with visionary sports, health, and entertainment startups – a platform for investors and founders to collaborate and co-invest.
Get in touch if you want to find out more.
Confessions
The venture industry is in full swing and secondary deals are all the rage.
For the uninitiated, a secondary sale is when an existing investor (or employee shareholder) in a private company offloads their shares to another investor. It’s a way to exit a startup position without having to wait for the company to be acquired or go public. For investors, secondaries grant access to startups without playing in officially-sanctioned funding rounds. Think of it as “backdoor investing”.
In contrast, a primary sale is your typical startup deal – a company issues new shares to investors and the proceeds of that sale flow directly into the company as runway. Think pre-seed, seed, Series A, Series B, Series XYZ.
Secondaries seem to offer something for everyone:
Employees love them because they can realise some of the value of their shares here and now, without having to wait for years to exit.
Investors like them because they bring liquidity to the market – secondaries provide entry and exit points for people to play in startups. They also help to de-risk startups by enabling investors to enter at an attractive point on the risk curve.
Founders love them and (some) hate them – some like the fact that secondaries promote liquidity and (theoretically at least) raise the value of their own shares – but some are wary because they provide strangers with backdoor access to their beloved cap table and enable employees with stock options to dis-align interests through premature divestiture. Increasingly founders are using secondaries as a way to realise value and elongate the time that companies remain private, giving them greater control over the direction of the business (and exit economics).
When I first started learning about venture capital I heard the term “secondaries” being bandied about and I wondered what it meant – in the bond market where I started my finance journey the term referred to bonds that has already been issued and were now trading as liquid securities on the open market – so I naively figure that there would be a relatively liquid market for startup shares. I was completely wrong, and it is precisely that wrongness that makes startups interesting and potentially lucrative.
As startup investors, we’re looking for inefficiencies. The lack of liquidity in startups drives returns, since it forces investors to sit on their hands, through thick and thin. It’s a kind of involuntary discipline which conditions our reptilian brains to overcome the fight or flight response to bad news and commit to things over the long run.
Secondaries used to be rare but they are becoming more prevalent as more and more people get into angel investing – both individuals (enter retail) and institutions (enter private equity and hedge funds). They are simple to understand but in practice, complicated to execute. Secondary transactions are a lawyer’s best friend – to get them right you often need to navigate multiple ownership structures and legal regimes. It’s not uncommon for shares to sit within an SPV, that sits within another SPV, that sits within another SPV. This Russian Doll effect makes secondary deals paperwork heavy and laden with risks that can make early-stage investors uncomfortable.
Speaking of Russians… Perhaps the most famous example of secondary investing comes from Yuri Milner, a Russian investment banker who runs Digital Sky Technologies (a multi-billion dollar fund) and acquired a big position in Facebook early on in its development via a series of secondary transactions:
“The $10 billion valuation Milner put on the social network famously grew to $50 billion by January 2011 when Goldman Sachs Group Inc. bought in with its own innovative structure. Milner's DST, which kept buying bits in the interim, had by then amassed 10% of Facebook for an estimated $800 million, delivering a paper profit over two years of $4.2 billion. By the time Goldman arrived on the scene, Milner had cashed out much of his equity.”
Milner was able to use secondary acquisitions to gain meaningful exposure to Facebook despite missing out on early funding rounds.
Secondaries are not typically the domain of angel investors and seem better suited to venture capital and private equity businesses (perhaps even hedge funds) that have in-house legal counsel and economies of scale when it comes to heavy duty legal work. Pesky legal features – Right of First Refusal, Right of Co-sales, and a bunch of other pesky (but important) restrictions built into the DNA of startup shares all conspire to complicate the process by which owners can sell their shares. It’s not for a faint-hearted.
Still, in recent years, a host of platforms and brokers have sprung up to cater to demand from buyers and sellers – some good, some just plain ugly. Often these platforms bend (or blatantly break) the rules by listing shares in companies that have not sanctioned secondary sales in their name (and more often than not, startups passively go along with this to cultivate culpable deniability). This is the shadowy periphery of the venture capital business and all the more fascinating for it.
Many people have attempted to bring liquidity to the startup investment market – typically by bolting on secondary markets to traditional crowdfunding platforms, or creating employee liquidity programmes in partnership with startups - but nobody has cracked it. For me, the horse has already bolted – by the time that traditional web-based multi-sided platforms have nailed this space, tokenisation will have normalised fractional ownership of startups and the secondary market will be hosted on blockchains.
But even that doesn’t mean startup investing will ever be a liquid enterprise. Liquidity is a function of supply and demand, not technological infrastructure. Platforms and blockchains re just the pipers and levers by which ownership is transferred, registered and validated – they do not create demand. For startup shares to become truly liquid, there needs to be a groundswell in engagement from investors globally, alignment between disparate regulatory jurisdictions, and much, much more supply. In other words, startup investing needs to become ubiquitous – like buying a house, or betting on your favourite football team. I can actually see this happening (my interest in angel investing is in part my response to this vision of the future), but it’s going to take decades and centuries, not months and years.
Will Skin In The Game play in secondaries? Never say never. We are predominantly an early-stage investor and secondaries tend to come post Series A, but if we are approached by the right seller with the right startup exposure, we will certainly consider the opportunity on its merits. And we’ll use the collective intelligence of our community to assess the opportunity and de-risk the transaction.
Startup investing is evolving and we need to adapt to the new reality that not all deals will come via the primary market. Our mission to provide angel investors with access to superlative startup investment opportunities, and that means considering different ways of sourcing deals and different methods of execution.
Deal flow
🧠 Cerebral Lands $300M in Funding, $4.8B Valuation for Mental Health Platform – SoftBank led the round, with participation from Prysm Capital, Access Industries, WestCap Group, and Artis Ventures. Launched in January 2020, Cerebral has already raised $462M in funding.
📈 Investors invite Gen Z to the moon with meme stock ETF – While traditional exchange-traded funds (ETFs) dominated the market in 2021, a handful of boutique investment firms have begun offering thematic and sector-specific funds for younger investors.
⛹️♂️ British Basketball League gets UK£7m investment from 777 Partners – The British Basketball League (BBL) closed a UK£7 million investment from Miami-based alternative investment firm 777 Partners for a 45% stake in the organisation. The investment is set to be used to deliver an ambitious development plan across the sport, from community grassroots through to the overall infrastructure of the elite game in the UK.
🃏 NIKE Acquires RTFKT – NIKE acquired RTFKT, a leading brand that leverages cutting edge innovation to deliver next generation collectibles that merge culture and gaming. RTFKT leverages the latest in game engines, NFTs, blockchain authentication and augmented reality to create one of a kind virtual products and experiences.
🏃♀️ Restore Hyper Wellness Secures $140 Million Investment led by General Atlantic to Accelerate Growth and Innovation – Founded in 2015, Restore is designing an integrated wellness experience and creating proprietary protocols to improve consumers’ near and long-term health. Restore delivers expert guidance and the most extensive array of cutting-edge wellness modalities integrated under one roof.
🧘♀️ ONYX Interactive Adds Celebrity Pilates Instructor & Chicago Bears Linebacker to Its Team as It Seeks to Reinvent the Pilates Industry – ONYX Interactive is excited to announce Liz and Christian Jones have joined the ONYX team as investors. In addition to their investment, Liz Jones will join the company as a master trainer.
🧖♀️ Fresha, the booking platform for salons and spas, extends its General Atlantic led Series C fundraise to $152.5 million, valuing the company at over $640 million – The extension investment was led by Michael Lahyani and BECO Capital, and also included new contributions from Fresha's existing investors General Atlantic, Partech, Target Global and FMZ Ventures.
🌱 McCain Foods Invests $55 Million In Plant-Based Startup Strong Roots – Strong Roots, the Irish plant-based frozen foods startup that is seeking to become a global brand, has sold a minority stake in the company to frozen food giant McCain Foods for $55 million. Strong Roots will continue to operate independently, but the deal gives it access to the supply chain and worldwide distribution networks of one of the largest frozen food brands.
🧠 Therify hopes to build a more diverse and inclusive therapist network with $1.3M seed round – The $1.3 million seed round is led by SoftBank’s SB Opportunity Fund, Looking Glass Capital, Y Combinator of course, Flexport, True Culture Fund and K5 Global, plus a raft of individual investors including former Reddit CEO Ellen Pao.
🍦 NadaMoo! Closes Series B Funding with nearly $10M raise – NadaMoo!, the dairy-free ice cream pioneer closed a Series B funding round with a total raise of nearly $10M led by existing capital partners, District Ventures Capital and InvestEco, and a new partner Killam Investments, a South Texas based family office.
💼 Tava Health Raises $10M Series A to Provide Access to Mental Health Services for Employees Everywhere – The round was led by Rose Park Advisors with participation from Peterson Partners, Toba Capital, Springtide Capital, Contrary Capital, and SaaS Ventures. The company provides a platform that employers can leverage to make it easy for their team member to connect with a professional mental health counselor.
🧒 Mightier Raises $17 Million to Support Growing Number of Kids Struggling with Emotional Health due to Pandemic – Mightier, an accessible and clinically proven video game system that helps children learn coping skills to improve their emotional health, closed a $17 million Series B funding round. The round was led by DigiTx Partners with participation from the Sony Innovation Fund and Boston-based PBJ Capital. To date, Mightier has raised $29 million.
🎮 FanUp Closes $4M Seed II Round With Lead Investors of DraftKings, Skillz and The Score – FanUp, an ultra-innovative mobile gaming company (US and India), closed an oversubscribed Seed II Round of $4 million led by industry titans, including Accomplice (DraftKings, Skillz), Alumni Ventures Group (Circle – Crypto), John Albright (co-founder, Relay Ventures, lead investor in The Score), Ruttenberg Gordon Investments, and The Carpenter Family (former owners of the Philadelphia Phillies).
⚽️ CVC’s $2.2 Billion LaLiga Investment Gets Green Light From 37 Clubs – LaLiga’s general assembly has ratified the joint venture Boost LaLiga, with 37 of Spain’s top 42 clubs from the first and second divisions voting to accept the $2.253 billion investment from CVC Capital Partners.
🏈 'We have a huge opportunity’: A-Leagues finalises $140m equity sale – Marquee players, an expanded A-League Women’s season, the return of youth football and a greater investment in digital, marketing and community programs are all on the agenda for the A-Leagues after a deal to sell one third of the competition to an American private equity firm for nearly $140 million was finalised.
🏟 Ticket Reseller Vivid Seats Acquires Betcha Sports – The ticket reseller Vivid Seats has acquired the sports gaming app Betcha Sports in a deal that could ultimately be worth up to $65 million. The company will pay $25 million in Vivid Seats equity, as well as additional payments of $40 million in earnouts that — if earned — will be made in cash and equity.
👂 Mixhalo raises US$24m to develop in-stadium audio mobile app – In-venue sound application Mixhalo has raised US$24 million in new funding that it says will be used to scale the business and expand its engineering capabilities. The Series B round was led by hedge fund Fortress and included live event sound specialist L-Acoustics, as well as existing investors Foundry Group, Sapphire Sport, Founders Fund, Defy Partners, and Another Planet Entertainment.
🍄 Maya Health Raises $4.3 Million to Decentralize Psychedelic Medicine Research – The leading real-world data platform connecting psychedelic therapists, patients, and researchers, closed $4.3 million in its first investment round. The funding includes an $800,000 angel round and a subsequent $3.5 million in seed funding. Participants in the funding round included The Conscious Fund and Leafy Tunnel, who led the round, as well as Heather Jackson Revocable Trust; Mark A. Zittman Revocable Trust; Michael Blitzer; Deep End Partners, LLC; BWC Group, Inc.; Ambria Investors, LP; MA Fund I, a series of Psychedelic Medicine SPV, LP; KP Investment Partners; Psynergia Labs, LLC; Noah Levy; Aquanta Group, Inc.; Craig Nerenberg; Nicholas Henry Moryl Revocable Trust; Cosmo Feilding-Mellen; MA Fund I, a series of Team Uplyft, LP; Meyer Mishkin; and Rinat Family 2006 Trust.
💰 Hong Kong accelerator Brinc raises $30M Series B – Brinc has expanded its scope a fair bit in the intervening years, with big focuses on things like food, health and deep tech. Seems it’s set to continue expanding its reach, going forward with eyes on categories like web3 and NFTs.
🕶 Pair Eyewear focuses on adult glasses as it takes in $60M - Between 2020 and 2021, Pair grew its revenue 10 times year over year and attracted the attention of investors who pumped $60 million of new Series B funding into the company to give Pair $73.5 million in total funding. The round included investors like Rick Yang of NEA, NFL player Christian McCaffrey, Olivia Culpo, Sterling K. Brown and YouTube and professional gamer Ninja.
🌍 4DX Ventures closes second fund with $60M, adds Dikembe Mutombo as senior advisor – As for industries, 4DX Ventures says it is a “generalist,” but most of its investments have taken place in African fintech, B2B e-commerce, healthcare and logistics.
🇮🇳 Fitness tech startup fitpage raises $3.7 mn from Astra Ventures, angels – This investment came from Gaurav Jaitly – MD and head of equity, Goldman Sachs India and Maj. Manoj Verma, MD of Jaguar Security. This takes the total investment to $3.7 million this year.
🇺🇸 Unicorn corporate fitness startup Gympass acquires online personal training company – Gympass, a corporate fitness platform, has acquired Trainiac, a Seattle startup that makes software to facilitate 1-on-1 online training workouts. Gympass, which raised $220 million in June, will now provide users with access to personal training via Trainiac.
🍊 Five Startups Accelerate in Lake Nona Courtesy of LeAD Sports and Health – The LeAD Sports & Health Tech Accelerator in Lake Nona, Florida, has graduated five startups from its second annual program. The four-month accelerator concluded with a Demo Day earlier this month and saw the five startups receive commitments for 65% of their combined funding goals.
🎾 Serena Williams, Michael B. Jordan Invest $1 Million During Startup Competition at Legacy Classic – Construction industry management app TracFlo won a startup pitch competition held as part of the inaugural Invesco QQQ Legacy Classic HBCU men’s basketball event played Saturday at the Prudential Center in Newark. Williams invested through her Serena Ventures company, while Jordan contributed through MaC Venture Capital. Kevin Durant’s Thirty Five Ventures served as an advisor during the pitch competition, which was sponsored by Amazon’s Black Business Accelerator and Audible.
☘️ Plix raises $5M from Guild Capital and RPSG Capital Ventures – Plant-based nutraceutical seller Plix raised $5 million in Series A funding from Guild Capital and RPSG Capital Ventures.
⚽️ English Soccer Club Close to Being Purchased by US Crypto Investors That Include 76ers President Daryl Morey – Philadelphia 76ers president Daryl Morey is part of a crypto-fueled investor group that is nearing a deal to buy an English soccer team. The group, Wagmi United, has not specified which team it is close to buying, but The Washington Post reported that the club is a member of the English Football League.
🎮 Rumble Kong League, a new web3 sports game, raises $4.5M in funding – Rumble League Studios raised $4.5 million in a round of funding for Rumble Kong League, its first web3 sports title. Rumble Kong League will be a play-to-earn 3v3 basketball game. Players will be able to compete in leagues and tournaments, as well as purchase branded fashion, wearables, banners, and stadiums. They might even be able to buy players patterned after real people.
⛓ Michael and Jeffrey Jordan raise US$10m for athlete blockchain venture – NBA legend Michael Jordan and his son Jeffrey have raised US$10 million in funding to build a Blockchain-based social platform that will allow athletes to earn revenues and connect directly with fans. The Jordans have established Heir, a holding company whose name plays homage to the famous ‘Air’ brand established by Michael witih Nike, along with Daniel George, founder of marketing agency Limitless Creative and Jeron Smith, the chief executive of Unanimous Media, a production house co-founded by current NBA star Steph Curry.
🎮 Gaming platform Tournafest gets pre-seed funding from India Quotient, OYO execs, others – Tournafest, a one-stop destination for the gamer community in India, has secured pre-seed funding of Rs 3.05 crore from a clutch of investors, including India Quotient, FirstCheque and other angel investors. Investors in this round included Maninder Gulati (Global Chief Strategy Officer at OYO Rooms), Abhinav Sinha (Global Chief Operating Officer & Chief Product Officer at OYO) and other prominent angels.
⛓ Solana Ventures, Forte, Griffin invest $150 million in blockchain gaming – Solana Ventures, a unit of technology company Solana Labs, launched a $150 million investment initiative focused on blockchain gaming, in collaboration with Forte and Griffin Gaming Partners, two major players in the sector.
🥽 Solotech acquires XR Studios, expanding virtual production services with an LA -dedicated campus for extended reality – Martin Tremblay, President and CEO of Group Solotech, is thrilled to announce that Solotech has acquired XR Studios, a full-service agency specializing in extended reality, which is comprised of augmented reality technology for live broadcast and virtual productions.
⛓ NBA Top Shot Maker Dapper Labs Commits $80M for Startup Acquisitions – Dapper Labs had raised $6.5 million toward a $13.5 million goal in an equity offering. The company told CoinDesk in an email late Monday that the funds were used to purchase a “young, scrappy” company.
🇮🇳 Healthtech startup Spry secures $3 Mn in series seed round funding – India based health-tech platform, Spry has secured $3 million in series seed round funding led by Together Fund. The round also saw participation from Olx co-founder Fabrice Grinda’s VC Firm ‘FJ Labs’, Shutterstock Founder Jon Oringer’s Early-stage VC Firm ‘Pareto’, Knowledge Capital, AngelList, Whiteboard Capital, Innovaccer, and from other investors.
📦 Meal kit startup Sunbasket is combining with Prüvit, a keto supplements-maker – Meal kit delivery service Sunbasket and Prüvit, a maker of keto supplements, have combined in an all-stock deal that values the new company at more than $1.3 billion.
🏓 Pickleball and Padel have helped this startup raise €56m – It’s a bit like tennis, a bit like squash, played on a small court with oversized plastic ping pong bats. Invented in a Mexican beach resort in the late 60s, Padel is now thought to be the world’s fastest growing sport, and it’s a big reason behind the success of Madrid-based Playtomic, a racquet sports booking platform that’s active in 34 countries. The startup has raised a €56m round, led by GP Bullhound, to grow its tech team and continue its aggressive M&A strategy which has seen it acquire 11 rivals to date.
Some tweets
Christmas is coming, and with it, a once-in-a-year opportunity to binge on sports. Call it self-indulgent, unproductive, unhealthy… I really don’t care. It will be wall-to-wall football and and rugby in our house, if the dreaded Omicrom doesn’t torpedo the festive sporting schedule. Just don’t mention The Ashes 🤦♂️
Cheers,
Ed
—
Edward Rhys
Founder / Skin In The Game
www.skininthegamegroup.com
A favour
I hope you enjoyed this newsletter. If you did, please share with friends who you think will get something out of it.
And if you can spare the time, get in touch with your thoughts. Whether entrepreneur, investor, exec, or sports fan, your input will help me to improve what I’m doing and serve the Skin In The Game family better.
You received this email because you signed up via our website.
Skin In The Game is a startup investment club connecting investors with visionary sports, health, and entertainment startups. We provide a regulated platform for investors and entrepreneurs to collaborate and co-invest.
SKIN IN THE GAME LIMITED is registered in England and Wales under Company Number 13200102 and with the FCA as an Appointed Representative with FRN 946089. SKIN IN THE GAME LIMITED is an Appointed Representative of Finex LLP which is authorised and regulated in the UK by the Financial Conduct Authority (“FCA”) with firm reference number 507537.