Sept. 11, 2020

Investing in sports, fitness and gaming industry - what's happening during covid? By Vasu Kulkarni.

Investing in sports, fitness and gaming industry - what's happening during covid? By Vasu Kulkarni.

Vasu Kulkarni, Founder and CEO at Krossover that raised $50 million and got acquired in 2017 and currently a Partner at Courtside Ventures. In this episode he talks about how he personally managed to raise funding for his company and why he didn't go the traditional way with it. We also talked about Courtside Ventures and what's going on in the gaming and fitness industry now.

Courtside Ventures: http://www.courtsidevc.com/

Register to vote in the US: https://www.usa.gov/register-to-vote


Transcript

And today as a guest speaker, we have bus who Cole Carney partner at courtside Ventures and the founder at crossover that raised over fifty million dollars in funding and was acquired in two thousand. And seventeen. 

And this episode we'll talk about sports industry, and how it was affected by the coven and also we'll talk about so's success. 

How he got there, how he managed to raise this money and how he got acquired and what she does now, add courtside Ventures. So, let's kick it off by giving us some bigger on yourself and on court side Ventures. 

Thanks for having me long story short. I guess I was born in born in L. A. 

and moved to India when I was very young, which is very weird, because most most immigrant families around and had enough of the United States and and decided to move back. 

And so I went to India when I was very young, and sort of grew up there. 

A huge basketball fan the biggest I'd say, I'd, I'd argue no one really has been able to combat me on that point thus far. 

And so came back to the US for college thought I was gonna play division one, basketball clearly, five, nine hundred and thirty pounds. 

I was not cut out for for division one, basketball, but ended up at Penn, taking a lot of protein shakes and and playing a lot of pick a basketball. 

And finally, as a senior I walked onto the team played on the J. V. 

team at Penn for a season, and during my time, being part of the team, I realized just how old school and arcane the process of preparing for for game day was in the film room. 

So the coaches would sit there with DVDs and rewind fast forward. Take notes on paper and try to basically print out eventually some sort of a scouting report and hand us pieces of paper to. 

To read, and I'm saying to them guys, it's, you know, two thousand eight, how is this one an Ivy League school is doing for a game day preparation? I think there's gotta be a better software tools that we can. We can build to help. 

You do all this and so I actually started building a product specifically with that in mind to try and help my pen basketball team get better. 

Graduated move to New York set up shop that product turned into a full blown SAS company. 

We had about a hundred employees here in New York, a ten thousand customers and raised money, but couldn't raise money from institutional VCs. Most of them didn't quite get sports. 

They didn't think that the opportunity was big enough and, you know, they all loved my team and my product and everything that we had done, but they couldn't quite get behind the size of the opportunity. 

And so I ended up having to raise a lot of money from non traditional sources of capital. So, a lot of team owners, a lot of Wall Street guys, family offices, just not institutional funds. 

And eventually, we, when we sold that business in twenty seventeen, I went back to to one of my biggest investors in in my company who is Dan Gilbert, who owns the Cleveland Cavaliers and I said, hey, Dan, I had this problem. 
I couldn't raise any institutional money. But clearly, there's, there's a need for it in this market. There's lots of great entrepreneurs who are building. 

Great companies in the verticals of sports, fitness and gaming three places where traditional have sort of shied away from. And I think we can do a great job of being a source of capital for these folks. 

We don't have to compete with the generalist funds.
We'll be able to get in very attractive valuations,
and we can open up our network between my operating experience and all the, the people I know in the sports world and you being an NBA owner,
and all of the doors that you can open. 

I think we can build something pretty special here and so Dan was basically the first person to write a check into our fund and we raised the thirty five million dollar fund and got to work to prove to people that sports, fitness and gaming. 

Three things that were historically not seen as venture investments, 

but actually build ventured returnable businesses with the right capital and the right partners with you and so we've been very lucky we, 

we made some, 

some grid investments early on that that have done better than our wildest dreams could have ever imagined companies like stock X, 

the athletic hundred thieves free. 

So there's a number of companies that have gone on to sort of become household names and and raise lots of money and build grid businesses. And so that's been my path from entrepreneur to to now VC. 

That's an epic Beth absolutely love it. And I actually want to start off by talking about the fundraising process for crossover. This alternative sources of funding are super. Interesting. A lot of people are asking me the same question. 

You know, how do I get in touch with those, you know, well, known people, someone who is a like, and B team owner because for me, it's pretty much impossible and in most cases useless. But in your case, obviously worked, I'm curious. 

How exactly do you manage to get in touch with those people who are pretty high demand? Yeah,
it's, 

it's a lot of waiting around in in hotel lobbies and trying to get the right guy who knows the owner and try to convince that person that he should bring you into the inner circle and set up a meeting and it's it is very, 
very hard in general to get in front of these guys, 
because,
you know,
they're,
they're billionaires and they have a lot of things going on and taking meetings for, for seed stage or Series A companies for them. 

Oftentimes isn't even worth their while. Usually guys that are coming in and saying, hey, when there's a private equity deal, and you need twenty five, fifty hundred million dollars for me to put the work. 

Cool give me a call, but, you know, it's about finding the right dialogue of these guys are interested in this stuff. They have a passion for sports. 

They have a passion for tech, and they, they tend to be shielded quite a bit by their sort of inner circle of guys who don't want to keep them from having to take meetings. That are pointless. 

But to get to the right person who sees that. Hey, you're not going to embarrass them if they put you in front of their boss. 

Then, 

I think what you find is that oftentimes the owners of these teams tend to be a lot more open minded about making investments behind things that their own team may not necessarily feel like they can, 

but they're just they're passionate about something and they can for them, you know,
it's play money oftentimes,
like, 

for them to write a million two million dollar check into something it's not a lot of money. 

And if they like you, are they really like the concept or they think that they can they can help open some doors. 

They'll oftentimes do it, so a lot of it is, you know, you, you gotta just asked around, you got to figure out, you know, who's the right person you don't wanna waste the time of someone who's not at all gonna be. 

Interested in what you're doing, but if you can find based on historical deals that they've done or their past life, or what their primary business is, if you can find some sort of common ground with them, then I think it makes it easier. 

And, for me, I think basketball was that common ground in many ways where you put me in front of any NBA owner, or any player, you know, within within five minutes. They realized that I just live and breathe basketball. 

And so that conversation just becomes more of a friendly conversation it doesn't even become really a pitch at that point basketball and oftentimes with guys like that, it's about building the relationship for them. 
Like I said, there's no amount of money that I can make a billionaire. That's gonna move the needle, 
so whether I sell a company for a hundred million, two hundred million or a million dollars, and they end up walking away with ten million, twenty million or fifty million in returns. 

Like, it really doesn't move the needle for them. And so often times, I, I feel like what they're investing in is just a person that they believe, in an idea, they believe in, and someone that they can actually just have a cool conversation with. 

And that often times has nothing to do with the company, or actually building it just about who you are. And do they believe in you? So that's really what I found, you know, they don't have the same sort of. 

Parameters that a venture capital firm has, they don't have return thresholds. They don't have a portfolio that they have to look at how they've allocated capital. Like, none of that matters for these alternative sources. They're just they're looking to do cool stuff sometimes. 

And that that can be beneficial to a company that might be having trouble raising, from institutional. Right? And let's talk about this promos of reading from institutional. 

What exactly was the point when you were, like,
okay, 

now it's time for me to go out and raise some money for crossover was it when you've generated enough traction or was it when you tried to scale up your team or when was that point when you realize that, 

you know,
capital is basically essential additional capital. 

I mean, right from the start honestly. I mean, I was coming straight out of school. I didn't have a single dollar to my name, and I knew that I have to raise capital for this business. 

This wasn't a business where you can kind of do some stuff on the side, and sort of build up yeah. A client of rosters or something. There was nothing we could we either had to build a product or there wasn't nothing. 

And in order to build a product and engineering team, and or have an engineering team, you need money. 

And so also this was two thousand eight and you're talking about being able to upload gigabytes of video encoded have it broken down? Like, there are a lot of things today. 

Passing that and collecting twenty fives and fifty is one hundred how you say passing the hat awhile for most. So my least heard is twenty five and fifty. That's their first round. It's cool. Let's go. 

But here, we're moving on to a question that I personally really like asking my speakers. And it's what do you think was the major mistake that you've done while raising money. 

So, if you could go back in time and change something in your fundraising process for crossover, what would it be? 

I don't know. Well, I think one thing is, I would've realized probably sooner that this just wasn't cut out for. Right? 
And there was no point spinning my wheels as much as I did continuously flying to both coast and meeting all the vc's and taking all those taking all the time. 

It's sorta like there's yes. Sometimes there's like, hey, you got to get twenty. No, thirty no. All you need is one, like, on the flip side I think I've learned that there are certain types of businesses that. 

You will realize pretty quickly, like, if the reason why people aren't coming in is, and it's the same reason over and over and over again that, like, okay, like, maybe this just isn't set up to be really a venture business and that's fine. There's nothing wrong with that. 

I think the greatest businesses in the world. We're not necessarily set up as venture scaled businesses today with the tech world. Yes. 

You see a lot of the guys, like the Facebooks and the amazons who were who were subsidized by venture dollars for so long and in sort of the hopes of building something huge and they've done that. 

But the bulk of businesses out there don't really end up like that. And so to to have somebody, I wish somebody had just sort of sat me down the way. 

I've been able to sit many entrepreneurs these days down sort of explain to them just straight up. Very candidly. Why what they're building probably is not a venture scale business. 

And so, therefore, why, they should just stop wasting their time trying to go to institutional instead focus on, you know, bring in some angel investors go to alternative sources of capital and just build up a profitable business. 

And it's, it's a mindset. Really? You have to change the way you do business if you are building a venture scale business, or whether you're trying to build something sustainable. And but but it's really hard to switch gears. 

Mid way through so, you know, with me, I wish often time with someone and had that conversation with me. What I would have been able to do at some point as hard as it would have been is, I think we could've even switched gears at certain point. 

And said, you know what, let's just, let's trim the staff. Let's change the way we're doing some things and let's just build this to be a sustainable, profitable business. 

And we'll, we'll continue to grow it slowly rather than just just trying to swing for the fences all the time. It's a mistake that I think a lot of companies make and so, for me, I think I spent too much time trying to chase vc's. 

And and and so, and I just shouldn't have done that. I could've just done so many more productive things with my time. In the end it worked out and I got capital from other folks, but I probably could have saved a lot of time. 

And a lot of effort on the institutional side, that's probably the, the, the number one thing that I would have probably changes is gotten some good advice, and taking it to heart and use that to, to just decide which way to go. 

And I think the problem with a lot of vc's is they don't wanna give you that that candid feedback because there's always the well, 

what it Fred, 

what if this does venture scale and six months or twelve months from now I want to be able to come back to the entrepreneur and and and have him take my money, 
but I think what they don't realize and I realize this because I faced that. 
As an entrepreneur, and now I'm on the other side, is that as an entrepreneur, I will greatly greatly appreciate you giving me that candidate advice. And it's fine. 

Like, if I prove you wrong, twelve months from now, and you come back to me, I don't think I'm gonna be the kinda, unless I'm the most vindictive person out there. I don't think I'm gonna turn around and say, I'm not gonna take your money because you gave me this advice twelve months ago and I approved. 

I don't think there's anything,
you know,
I don't think that's necessarily the way the world works,
but I think is just feel like they can't give you candid feedback and so therefore, they come up with all these various excuses,
like,
oh,
I'm not sure about market size. 

Oh, I'm not sure if you can scale. Oh, I don't know if this is the right team to execute. Like, you just make up a bunch of things that they feel like, won't hurt the, the feelings of the entrepreneur as best as possible. 

So that they leave that door, just slightly open in case they want to come back in leaving the door, just slightly open. That's just like the perfect definition of most of the c's. 

I think that's more about the fear of missing out. You know, if you say something definite about the company, like yeah, I know they're not going to scale much and, you know, two years later they're scaling to the rate of Amazon or something like that and everyone's just going to laugh at you. 

So that's I think that's the major reason for why that's happened, but yeah. Perfect advice, you know. 

Really? That's a lot. I've heard that from a lot of my speakers and just take your company very seriously and try to understand what kind of companies that should even raise money. Should you go to BC? Sure. You go to family offices, or should you just stick with revenue? 

So we're moving onto the exciting to the happy aging part, which is the exit of crossover. How did this happen? How do you actual plan for acquisition from early days or two just know. 

You just get an email saying, hey, points require, you know, the group that ended up buying this had approached us about a year a year, a year, a year and a half prior about doing something. 

And we had kind of said, I don't we don't think the timing is right and we also don't think that you're the right buyer right now for, you know, for where we are at. And where you're at. 

We don't think now's the right time and we had just moved on and then they kind of circle back and said, hey, your later, like, hey, think some things have changed on our end. 
And we think that there's a path to which we could make this, make this work. 
And so we got down to it and look,
we had we,
I think we had also sort of started to realize ourselves that,
you know,
this wasn't necessarily going to be a a massive,
massive venture skill business where we wanted to continuously raise money. 

And keep keep moving forward on our own. I think growth rates were certainly starting to slow down. A little bit. Market was getting a little saturated. There are a number of players. There was a huge competitor. 

And so all of those factors combined, I think our board kind of looked at the business that all right listen what if we, if we don't settle now yeah. 

And we end up raising more money, you know, what do we have to achieve in the next two to three years for everyone to still make the same amount of money as they might make now? Right. 

And that was sort of the math that we did in our head was, like, how much how much bigger would we have to get to essentially end up at the same place let alone have to do better than what we're gonna do now. 

And when we started, did that math, we kind of came to the realization, like, wow, like, we're gonna have to grow a lot more to sort of get the same sort of outcome here. 

And that's going to require a H*** of a leap of faith for us to believe that we're gonna do that. 

And we just didn't think with the, with the market that we were in, which was sort of high school and college sports, that there was enough of a market left for us to go after. 

And so now it's like, okay, well, what new markets can we go after what new products can we build and we didn't we didn't have the answers to those questions. 

We haven't really spent the time to to really think about those things because we had been so heads down for seven years just. 

Trying to build the best product we could for our existing customer base. That in the end, it just seemed like alright now, now's the time there's an offer on the table. You know, we, we called a few other folks to see if there was any interest. 

There was there was nobody else. That was stepping up and saying. Hey, yeah, we'll give you a competing offer here. There were some people. That are like. Hey, look, we really like what you have like, we can't move right now, but come back to us in six months. 

And my board was like, look, man, there's something on the table here. Are you really going to risk losing this and then stay or stick around for another six months to a year? Hope someone else comes with a better offer. 

Meanwhile, you have to go raise another ten million bucks to survive. Like, do we really want to do all that in the end? There? There was no clear answer but it was so, sometimes you just gotta you gotta take what's in front of you and and move forward? 
And so we ended up, we ended up selling the business and, you know, it was, it was definitely a 
bittersweet and it was the only job that I've ever had. So for eight years running a company, that was, that was my baby. 

That was a tough one to to have to walk away from, but it was what it was and everything worked out. And and I think that the really good part was that I had. 

Sort of court side immediately for me, to be able to jump into literally the next day, right? It was not that I left the company, but, like, they didn't really have much for me to do. 

So once once we sign the documents, and they took over the business, I was just sort of there as a figurehead every day who would come into the office but I didn't really have much of a role. 

And so, for someone who had literally worked eighteen, twenty hours a day for for eight years to build the next day, and not have any any work to do, it would have been I just don't know what I would have done with myself. 

And so it was really good. That side had already been formed at that point. And so it was sort of an easy transition for me to actually have something to do on a day to day basis. 

And then eventually a, your past and the acquired for just like, hey, we don't we don't really need you around here anymore. Either. You're free. And I said no problem. I will. I've already basically left so nice. 

That's a really great transition. And that's a good transition for us to move on and talk about courtside Ventures. What do you invest in through courtside Ventures and what fields and what station? And so we're very, very. 

Very, very focused as I had said right which is sports fitness gaming that's it. So, on the support side. We generally look at subscription media companies. People creating a new forms of content. 

We've done some stuff in the collectable space technologies. That can help with video capture. 

And and other sorts of stuff like that on the fitness side, we've done fitness apps. We've done connected devices. 

We basically we fit fitness in general, we think is is sort of evolved quite a bit in the last decade from from big box gyms. 

We eventually went to sort of more boutique fitness studios and now from boutique fitness studios, we're starting to see more in home stuff first partially because of covet. No doubt. 

But even prior to covet, there had already be shifted, already begun towards people wanting to be more flexible work out wherever they are, whenever they want to. And Coby just accelerated the H*** out of that. And so now. 

You're just seeing so many interesting things happening in the fitness space and then on the gaming side, you know, we look at gaming studios, we're building new types of of games. We look at core tech and tools. 

So things that, that the game developers can use to make better games and to help with that whole process. And then we look at social things. So, you know, gaming is inherently social. I think there's been a big shift in the way. 

You think about gamers couple of five, ten years ago you may have thought of the gamers sort of the, the slob in his mom's basement who's sitting there until three in the morning playing video games. 
But, like, today, you know, my mom is probably a gamer, because she plays so it's a completely 
different paradigm shift. And that is what has, sort of turn this into a monster industry. 
That that is you're generating a hundred fifty million, two hundred and fifty billion dollars. A year in revenue globally and continuing to grow. So we're, we're, we're very, very excited about gaming. 

We just brought on our third partner about a year ago who was leading gaming and E, sports at Comcast Ventures. He he left and joined us and so guys with us, my partner deep in and I sort of. 

We faked it until we made it on the gaming side in our first fund. But now with our second fund, we, we needed to have someone who actually knew this space really well, because we wanted to a lot more. 

So, we, we added a third partner and so there's three partners and three three verticals that we, we focus on. We, we sort of do every deal together. You know, there's a lot of funds where they sort of have one partner Who'll focus on one thing. 

And and they're just in charge of it with us while we do have a little bit of that every single deal. All three of us have to dig in together. We all have to unanimously agree that we're gonna do this deal. 

And so it, you know, it, we, we share, we share the blame for the losses, but we also celebrate everyone together, as opposed to it sort of being, you know, certain partners when. 

Right. That's a nice nice approach to investment, I think, and provide stuff. Definitely provide some coverage becomes a team sport. So let's talk about the Kobe situation specifically. Actually. 

Now, let's keep the covet situation. I think you just covered enough. 

I don't want to be much more into this, because it's just pretty much everywhere here but let's talk about the early stage founders trying to start something in the gaming field because I'm personally, I love the gaming feel. 

I'm personally somewhat a gamer just a little bit. And I'm curious. Exactly. How would you recommend those, you know, gaming, or founders in the gaming field to start their companies? Where should they start? 

Well, it depends on what they're doing. Obviously I think we're seeing a big shift to free to play now right? 

As opposed to what was historically in the video game industry, a sixty dollar license that you bought for a console game or game now increasingly, everything's moving to free to play a lot of in app stuff. 

You're seeing changes in in the forms of distribution as well. And so mobile we think is a huge, huge part of that. 

So we just made the biggest investment we've ever made out of either of our funds in a company in India called window games, which is. 

The Indian market, and for second side, for like, ten, ten seconds. 

Can you so you've made the largest investments in your funds year the largest investment we've ever made out of either of our funds in a company called window games in India. 

Basically, they're a cash gaming platform and so, when you think about India, right? We have six hundred million smartphone users in India today and that's growing very rapidly. One point five billion total people. 
So, like, we're still talking about a third of the market, only that has smartphones, and, you know, the 
Indian consumer has been tough to crack because of purchasing power and societal norms. 
In the way they do things, you know, every gaming company knows that there is a huge opportunity in India, but you need to figure out how to crack the monitors. 

A type of a pool where everyone's throwing in a dollar each, and the winner walks away with five thousand dollars for winning. 

So they've basically been facilitating that sort of, of game play and, you know, they're, they're on track, you know, by next year. 

I think they'll, they'll end up crossing probably a billion dollars that are that has gone through the platform wager another country like India, which is unheard of. Right? 

So, I think there's this sort of, intersection of video, gaming, real money gaming. It's all sort of coming together. 

We've seen sort of now the cross section of fitness in gaming where there's people who are building, sort of the next generation of the, we, if you will, where you can play a game and have a ton of fun. 

But while you're doing it, you're actually getting a H*** of a workout in. So there's, there's sort of blending, I think, of of different worlds here. 

And so for us, as a fund that sits across sports fitness and gaming three verticals, that are kinda converging in some ways, we're just super super excited about everything that's going on there right now. Absolutely. Yeah. 

It's super exciting world right now, especially with a covet. So, good luck with that I'm pretty sure things will go really well so, on this positive note, we're moving onto last question of today's episode, which is a call to action. 

So what's the one thing you want to at least trying to do? As soon as the episode is over. 

Well, first I want them to make sure they're registered to vote in November. If that's the that's the number one. So that's that's more important than anything. 

Anyone can be building right now, but, you know, once you registered to vote, I would say, check check out everything. That's going on in sports, fitness and gaming. 

I think you'll, 

you'll be pleasantly surprised by, 

by the passionate entrepreneurs that are building amazing companies here and and obviously, 

if you, 

if you're a founder and you're building something in the space, 

please reach out to courtside Ventures. 

You can go to our website courtside VC dot com you can find me screaming on Twitter all day long about sports, and all sorts of other things that lawsuits. 

So, you can, you can always Tweet at me there and and I almost always respond and we just love to find other good people to to do deals with all the time. Perfect advice. Absolutely great. 
I'll definitely make sure to leave a link to court said ventures into the stripping of this episodes I might as well leave a link to the registration to vote because I believe this year there. 

Postal voting, so you don't actually have to go into where you just have to do it over email. So that's something you for those of you who don't know how it's done may include by the way, leave a link to some guide or something like that. 

They'll find on the Internet, so we'll wrap it up your registered checkouts courtside Ventures and have a good day.