Wearable tech's dirty little secret – Micro Private Equity – Business school lessons of the Tour de France – Behavioural science, AI & game mechanics – Giant funding rounds
Day 35
Skin In The Game covers the business of sports investing. You could say we’re fascinated by how sports, technology, and markets intersect to drive value creation. But really, we’re just interested in cool startups doing interesting things in sports.
We also run a regulated angel syndicate connecting investors with visionary SportsTech startups. By providing a platform for investors, founders and execs to collaborate and co-invest, we’re helping to shape the future of sports.
Confessions
Last week our family descended on Devon to partake it its charms, which mainly involved eating (ice cream), drinking (cider) and sleeping (not much due to the presence of two young ‘uns). Encamped on Putsborough Beach for days on end, there was little to do other than guard our Napoleonesque toddler from multiple life-endangering hazards (including sharks, which he claimed to see from the car park), and sweat my way through a series of books and articles. Topics covered included the power of myth, the rise of solo capitalism, what all of us can learn from Gareth Southgate, and the rebranding of shark attacks as “negative encounters”.
I’m obsessed with the life and work of Warren Buffett, which is a bit strange for someone who runs an angel syndicate, as his value-driven investment approach is seemingly antithetical to the natural laws of venture capital.
The Sage of Omaha is famous for his down to earth but meticulous approach. He’s been buying dollars at deep discounts for decades, becoming one of the world’s richest men and a value investing icon in the process, not to mention Coca-Cola’s most famous brand ambassador. He’s made a career out of doing very little (superficially at least), but when he sees an opportunity he makes huge concentrated bets, closing deals in days as opposed to the weeks and months it takes for conventional private equity firms.
This is a very different world to venture capital. VCs prefer to talk about growth, diversification and power laws, placing educated wagers on multiple horses and relying on winners to carry their losses and generate returns for their LPs.
One way of reconciling the two schools is to argue that early-stage startups with ostensibly silly valuations still constitute value, provided they possess the right growth characteristics. It seems obvious that only those with domain expertise can price that value, hence the proliferation of specialist venture firms and angel syndicates populated by ex-operators and ecosystem king-pins. Startups might be expensive, but they’re still cheap.
There is another way of squaring the circle – by backing post-revenue companies that don’t possess the profile of future unicorns, but have solid unit economics, high customer retention rates, and cash flow. These assets offer less return and less risk, but they still compare favourably to benchmarks used by HNWs (government bonds, stock markets, house prices, gold). They can be acquired with leverage (often secured against the target asset) then optimised, scaled and sold at higher valuations. Think of it like Private Equity without the heavy artillery.
This approach has a name – in fact, it has many; Micro Private Equity, Acquisition Entrepreneurship, Buy Then Build. It also has a small group of evangelists including Brent Beshore, Andrew Wilkinson and Walker Deibel. I like these guys and think they talk a lot of sense. I feel like their hand-on, microcosmic approach is well suited to British investors in particular, who seem to be more risk-adverse (i.e. less gung-ho) than Americans. Brits are interested in touching, feeling and smelling the businesses they back (please excuse these generalisations and feel free to prove me wrong).
The beauty of structuring an angel syndicate around a clear vertical – in this case, sports and its adjacent next – is that we can be relaxed about how to play the theme. Rather than nicheing down by investment stage, asset class, geography or other idiosyncratic factors – which many sector-agnostic VC firms feel they have to do in order to differentiate – we can look at all sorts of deals; early stage, growth, pre-IPO, secondaries, equity, convertibles, venture debt, micro PE, distressed, private markets, even public markets. With focus comes flexibility.
Regardless of how you choose to live, make your money, and grow your wealth, there is much to learn from Buffett’s life and career. Emily and I recently re-watched the HBO documentary and the key takeout for us was life (and investing) as a game. Yes he thinks long-term, lives with integrity, and acts with conviction. But to Buffett, it’s all a game played for its own sake – wealth, happiness, and fame are by-products of an innate desire to compete and win. He truly is a man with skin in the game.
This nonagenarian who reads for 6 hours each day is the unlikely flip-side of the athlete-investor we reference so often in this newsletter – an investor-athlete, fuelled by junk food and annual reports, striving every day for a personal best. He makes something that is very hard look almost comically easy.
There’s a specific kind of joy we’ve been missing, and for a few weeks during the Euros, we got it back; that feeling of being around other people, feeding off their energy and enthusiasm. Getting a bit over-excited. England lost to Italy on penalties in the final, and I didn’t feel down about it. I felt energised and hopeful for the future. Proud of the boys. People like to measure outputs but over the long term, it’s inputs that matter.
Finally, this piece from the Irish Daily Star’s Chief Sports Writer, Kieran Cunningham on how it feels to be a bereaved parent is simply beautiful. As a father I found it tough to read, and impossible to forget.
Deal flow
💰 Global Venture Funding Hits All-Time High In First Half Of 2021 – Global venture capital funding in the first half of 2021 shattered records as more than $288bn was invested worldwide. I’m not going to mention the B-word.
🛋 Cadoo gets $1.5M to gamify fitness with betting challenges – The US startup that’s gamifying fitness by turning it into a betting opportunity has collected $1.5m in seed funds from Sam and Max Altman’s Apollo VC and the student-focused Dorm Room Fund. Sam Altman is the ultra-high profile former President of Y Combinator, but his real claim to fame is that he once replied to an email I sent him.
⛳️ Rory McIlroy invests $10m in Drive Shack, a new Topgolf competitor – The golfer and his team are investing at least $10m in Dallas-based Drive Shacks new golf entertainment venue concept, Puttery.
🛩 Life insurance provider YuLife raises $70m – Employing behavioural science, artificial intelligence and game mechanics YuLife gives employers a way to reward healthy living.
🏋️♀️ IFIT to Buy Fitness Platform Sweat for $300m Ahead of IPO – Sweat, an online fitness training platform, was co-founded by Kayla Itsines and CEO Tobi Pearce in 2015. Itsines was one of the original Insta-influencers and this exit highlights the brute power of distribution.
🏎 McLaren raises £550m and adds Saudi Arabian wealth fund as investor – The deal makes Saudi Arabia’s Public Investment Fund a minority shareholder in the supercar and racing group, which has raised more than £1bn in the past two years to help it invest in electric and hybrid cars.
😴 Thrive Global Raises $80m Series C to Accelerate Hypergrowth and Impact – The “behaviour change technology company” founded by Arianna Huffington raised an $80m Series C. Mental wellbeing is big business.
📱 Bookee Raises Pre-Seed Funding From Antler India – Founded in 2020 by Vistar Singh and Rajat Hans, Bookee is developed with the needs of fitness entrepreneurs at its core.
🧃 Brentwood Associates Announces Growth Investment in L-Nutra – The growth-oriented middle market PE firm made a “significant investment” in L-Nutra, leader in nutrition technology.
🏃♂️ Fitness Startup BurnCal Raises Pre-Seed Round – India’s personalised fitness solution provider raised $330k in its pre-seed round funding, led by led by Titan Capital and SenseAI Ventures.
🏟 Sun European invests in Sports & Leisure Group – Sun European has agreed to acquire Sports & Leisure Group, an artificial turf business headquartered in Belgium, with Chequers Capital exiting the business.
⚽️ Manchester City owner raises $650m in one of football’s biggest debt deals – Manchester City’s parent company has raised $650m in one of football’s biggest ever debt deals as it seeks to step up investment in its international network of football clubs. KKR were involved in the syndicate that put this together, another example of their growing footprint in sports (after leading Zwift’s monster £450m Series C in September 2020). Harry Kane will be delighted…
🎰 Flutter sells Oddschecker to Bruin Capital – London-listed Flutter Entertainment has agreed to sell Oddschecker Global Media in a deal which values the sports betting and gaming affiliate business at up to £155m.
⛓ Sorare Sits Atop $532m in Fresh Funding – Paris-based NFT digital collectibles platform Sorare continues to build upon its offering, with the company expected to announce a $532m capital raise.
🤖 NFT Startup Venture Notables Draws CAA, UTA, WME as Advisors – Investment firm Forest Road Co. has enlisted Hollywood’s largest talent agencies CAA, UTA and WME to help launch the NFT sales venture Notables. The talent agency connection is designed to facilitate the creation of one-of-a-kind items tied to their high-wattage clients. This is a powerful distribution channel; one we’re exploring with Skin In The Game.
👩⚕️ Europe’s 17 healthtech startups to watch, according to top healthtech founders – The combined value of healthtech startups in Europe is now $41bn, up from $8bn in 2016. Which earlier stage companies are the founders of leading healthtechs watching closely?
👾 Dapper Labs and Boston Seed Capital Invest in NFT Tracking and Engagement Platform MomentRanks – The company raised $1.7m in seed round funding from a group of investors, including Dapper Labs, Boston Seed Capital, and Permit Ventures.
🧘♀️ Rhône to make equity investment in Wahoo Fitness – Private equity firm Rhône has announced that it has agreed to make an equity investment in Wahoo Fitness.
Big picture stuff
🌎 The new world of venture capital – It’s time to stop talking about venture capital, says the FT’s Richard Waters. It’s not that risk capital for new growth companies is on the wane — far from it. Rather, the term, which conjures images of enterprising investors seeking out visionary young founders in their garages, fails to capture a powerful new reality.
🚴♂️ The Business School Lesson at the Tour de France – A professional rider is attempting a do-it-himself race through the mountains and onto Paris. writing in the WSJ, Jason Gay argues that Lachlan Morton’s ride could one day become a business school case study – an example of how a modern sports operation can widen its ambitions and grow its audience.
👕 Smart Thread Is The Future Of Wearable Tech. Here’s One Startup Making It Happen – The dirty little secret of wearable tech is that mostly, it’s not wearable, but strappable, mountable, or insertable. That’s something Nextiles is working to fix.
🚲 SoulCycle Sees People Return to Gyms “In Droves” – Equinox’s SoulCycle is reaping the benefits of renewed interest in in-person fitness experiences. Never tried it, always wanted to.
📛 What I learned the hard way from naming 30+ startups – There’s a lot wrapped up in a name: feelings, emotions, connotation, unconscious bias, personal history. It’s an identity – it gives something meaning and importance. I’ve also named a few startups in my time and it’s really, really difficult.
🤑 A $1.5 billion series A? Here’s what’s behind those giant rounds – No, it's not a sign of an out-of-control funding market. There’s more to these mega-rounds than meets the eye.
💦 Sweating for the fitness consumer – Fitness customers’ habits have evolved during the pandemic and a fragmented market of complementary solutions is filling the white space around new movements, activity measurement, experiences, and more.
⛓ How NFTs are monetising sports teams and athletes’ fanbases – NFTs are a new means of fan engagement, with various high-profile teams and organisations rolling out their own digital collectibles. Insider Sport breaks it down.
🛹 Skateboard phenom Nyjah Huston, a rising Olympic star – Nyjah Huston looks like any other skateboarder, hanging with friends, grinding rails in the park, doing kickflips off the stairs in front of a library. But he’s regarded as the greatest contest street skater of all time.
🏌️♂️ Greg Norman & Mark Broadie: Why Data Beats Everything As a thinly-veiled ploy to improve his own game, Steve Levitt talks to two titans of the sport: Greg “The Shark” Norman, who was the world’s top-ranked golfer for more than six years; and Mark Broadie, a Columbia professor whose data analysis changed how pros play the game.
Some tweets
Not long until the Olympics. It will be fascinating to see how the world’s most iconic sporting event adapts to the new (ab)normal that is 2021. To every athlete, fan and IOC delegate in Tokyo, “Citius, Altius, Fortius!”
Cheers,
Ed
—
Edward Rhys
Founder / Skin In The Game
www.skininthegamegroup.com
🙏 A favour
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Skin In The Game is an angel investing group connecting investors with visionary SportsTech startups. We provide a regulated platform for fans, athletes, entrepreneurs and brands to collaborate and co-invest. By investing in SportsTech we can unleash the full potential of sports, enriching the lives of people everywhere.
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.