Pretty much exactly a year ago to the day, we officially launched Courtside Ventures, an early stage venture fund focussed on making investments in passionate entrepreneurs at the intersection of sports, media and technology. A lot of people raised their eyebrow at my decision to take on the responsibility of managing a $35M fund while still running Krossover, which is still very much in growth mode. 12 months and 12 investments later, I can honestly say that deciding to quite literally sit on both sides of the table was the best decision I have ever made. Here are 10 things I learned over the past year:

  1. Everyone wants to meet with the guy that signs the checks: When I started Krossover 6+ years ago, I was a fresh college graduate without a penny in my pocket or a number in my rolodex. I had to grind to get to know the movers and shakers in the sports world. Hundreds of calls and emails went unanswered. The fund launches last year, and all of a sudden I can get a meeting with anyone I want. Shit, people I didn’t even want to meet with, now want to meet with me. Things just come that much more easily when people think you have the ability to write a check. This has turned out to be an absolute boon for me as an entrepreneur, because it now means I can get the meetings I want with my Krossover hat on, just because I’m a partner at Courtside. Slow clap.
  2. Strategic investors can be tricky: Strategic investors, specifically large corporates can be fantastic for entrepreneurs, but come with their own risks. Corporate / Strategic VC funds are usually not structured like typical VC funds. There are no LPs, no 2 and 20 structure, and often times, no dedicated pool of capital. These funds generally invest off the balance sheet of the mothership, which means that they have a lot of capital, but no urgency or mandate to invest / return said money. They also almost always have a strong strategic reason to be investing in a company – perhaps they want to keep your technology out of the hands of a competitor, or they eventually want to buy you if things go well. This is great for the entrepreneur, as it often times means that the investor is willing to overpay and be far less valuation sensitive than a traditional VC. This of course is bad news for the traditional VC. On the same note, they could end up being a fantastic value add to the company – they are able to bring things to the table that no other VC can, and shit, maybe they end up buying the company and giving everyone a return. Strategics aren’t evil – they are almost always more good than bad, but it’s worth thinking twice before signing a deal with one. There are definitely deals we didn’t end up investing in, because a strategic was leading the round at a valuation that made no sense to a traditional venture fund, but probably made complete sense to them.
  3. Picking winners is hard: Yeah, no shit Sherlock. Obviously picking winners is hard, otherwise everyone would be doing it. However, one of the reasons I think picking winners is so hard is because of the amount of work you have to do weeding through the noise at a small fund. While the big boys might have plenty of analysts to do this work, smaller funds tend to rely on B-School interns that are getting course credit. In the past year, we’ve received 429 cold pitches just to our fund email. That doesn’t even include the plethora of warm intros, people that emailed one of the partners directly, and companies that we have met at demo days. You know how many of those 429 cold pitches we ended up funding? Zero. You know how many of those 429 cold emails we responded to? All of them. I’d ballpark that we had at least 1000+ companies come through our desk this past year, and we funded 12 of them. That’s 1.2% of companies for a fund that doesn’t even look at companies that don’t have some kind of a sports angle to them. So right off the bat, we’ve significantly narrowed our pool of companies that we can look at, and still, that’s how much filtering has to take place.
  4. It’s better to be lucky than good: One of our companies, got acquired by Microsoft about 3 months after we put money in. It’s also our only portfolio company so far that has been acquired. It was a great exit for the founder (an 18 year old who is probably one of the smartest humans I have ever met) and a pretty good outcome for our fund, at least from an IRR standpoint. Beam is an interactive live streaming platform for e-sports / gaming. Nobody on our team is a gamer – I don’t even know what Minecraft gameplay looks like. We knew gaming was huge, we knew Matt was brilliant, and we happened upon the company before anyone else did because another VC introduced my partner Deepen who just so happened to be in Seattle at the time, where Beam was based. I think we put a term sheet together in under 24 hours of that meeting happening, and closed a week later. We probably did less diligence on that deal than any other, and it turned out (at least in the short term) to be the best check we ever wrote. Like I said, it’s better to be lucky than good.
  5. Venture capital is a great job, but a shitty business: A wise VC friend once said to me “Investment banking is a shitty job, but a great business. Venture capital on the other hand, is a great job, but a shitty business”. While I’m certainly hopeful (like every investor who ever launched a fund) that we will be one of those top quartile funds that finds the next Uber, it’s pretty easy to understand why early stage venture can be such a crapshoot. Let’s break down the fund economics for a moment: We have a $35M fund. ~2% of that is spent on fund expenses each year, which means that over the course of a 10 year fund (roughly how long you expect it will take to harvest all your deals), $7M is gone in fees. That leaves you with $28M in investable capital. It’s usually good practice to reserve between 40% and 60% for follow on investments in companies that are doing well and continue to raise more rounds of funding, so that you can maintain your ownership percentage and don’t get diluted down to nothing. So let’s go ahead and say $14M of that $28M is now reserved for us to put more money into our top performing companies. That leaves us with $14M to place early bets on companies. At roughly $500K a check, we’re looking at about 28 shots on goal. Of those 28, unless we are the recipients of divine intervention, roughly a third will fail altogether, a third will maybe break even, and the remaining third, if the stars align, will make up for all our losses, and make us some money. So, basically $5M in initial investments (10 companies) are going to need to be responsible for returning $35M to our investors and then hopefully something for us. You can understand then, why we have to be insanely selective about how we deploy our capital. But hey – this is truly one of the best jobs in the world. We get to meet with passionate people who are trying to predict the future, and we get to help them figure that out. We’ll probably be wrong, more than we are right, but sometimes it only takes one winner.
  6. Investing in technology around sports isn’t the same thing as investing in “sports tech”: It’s easy to call us a sports tech fund – that’s pretty much what every media outlet that covered our launch called us. This literally could not be further from the truth. Of our 12 investments to date, I would maybe be willing to call 1 of them a sports tech investment (even though it’s probably far more of a sports media play), and perhaps one more could qualify, although it is a straight up VR play, and sports just so happens to be their vertical of focus. Other than that, every other company we have invested in is a technology company first, and sports is just one use case for their tech / product. “Sports tech” is a very hard place to invest. There are a handful of market leaders (thankfully Krossover is one of them), there are very few acquirers, and you are selling to a market that does not have a lot of money and is insanely fragmented (amateur) or to a market that does have money, but cries poor and is tiny (pro). We’ve seen every new way to try and get teams to engage with their fans more. Guess what? They are engaging just fine on Instagram and Twitter. Very few companies will be able to make it as a standalone in the sports tech space, and market consolidation is likely the only outcome for many of the players in this space. As a result, we really spend a lot of time looking for companies that have a core defensible technology that can be applied to multiple verticals, with sports just being one of them.
  7. Saying no just doesn’t get any easier: There are so many great companies that we go down the path with, and eventually have to say no to. It unfortunately just doesn’t get any easier. I try my best to tell it like it is, and not give people the typical VC cop-out of “it’s too early”, but most times saying no sucks. In a handful of cases, it really is just too early, and we sort of like what the company is doing, but need to see it in market to believe it. Most of the time though, we probably don’t really like the market they are going after, or don’t believe in the product or team. It’s tough to give it to an entrepreneur straight, and risk crushing their hopes and dreams, but I often find that a dose of reality is necessary. Nobody will be happier to be proved wrong than me though. A good rule of thumb that I like to tell entrepreneurs is this: If a VC you pitched isn’t hounding you for more info / a follow up meeting, they probably aren’t going to write a check. Now that isn’t always the case, and I can certainly point to a few deals that we did end up doing that dragged on for far too long, but I’d say those were the exceptions, and not the rule. The deals we are really excited about – we drop everything else and focus on those. So if a potential VC isn’t on you like white on rice, then they probably aren’t going to end up closing.
  8. The most important asset of a VC is your network: All 12 of the deals that we have done so far came to us through a warm introduction – most came from other VCs, and a few came from other entrepreneurs that we trust as being good judges of character / market opportunity. If other VCs don’t think of us as the go-to firm for any deals that are remotely sports related, then we haven’t done our job of brand building and networking. Luckily, my partner Deepen likes to hang out with VCs the way I like to hang out with pro basketball players, and he’s done an absolutely incredible job of letting firms in the Valley and in NYC know about us. We are now routinely on the call list of VCs who see something in sports, and that’s a huge part of how we get our deal flow. Without those referrals, I bet we would have maybe ended up doing a third of the deals that we’ve done so far, by sourcing them ourselves. Better to work smart than work hard.
  9. More people should build lifestyle businesses: Maybe we’re over-indexed on coming across these companies because sports is just a tough space to get venture returns, but the reality is that there are a ton of companies out there that have tremendous potential to be lucrative lifestyle businesses, and instead the entrepreneurs come to us after having read the latest Techcrunch article about a Unicorn, and want to raise money. Once again, we try to do our part in helping these fantastic entrepreneurs understand that there is absolutely nothing wrong with running a lifestyle business, and that they are far more likely to get rich bootstrapping and putting money in their own pockets each year, than they are by raising a round of venture funding. The bad news is, almost nobody ever takes our advice, and I certainly blame the tech-culture for this. We celebrate funding rounds like they are exits, while overlooking the stories of people who bootstrap successfully to profitability. I guess there’s nothing sexy about positive EBITDA (seriously, multiple people have asked me what EBITDA is, which should tell you how fucked the industry is), when you’re comparing it to the latest $100M round that was raised at a $1Bn valuation. As I often tell people – raising money is no reason to congratulate someone. It’s essentially the equivalent of taking out a mortgage on your house – when’s the last time you gave your buddy a fist bump for that? On that note, bootstrapping in NYC or SF is nearly impossible. So get the hell out. I love NYC – I’ll never leave. But this just isn’t the place to try and make it without any capital – you’ll almost never be able to attract the type of talent you need if you can’t give people a way to make ends meet, and in NYC making ends meet means a decent chunk of change. I tell entrepreneurs this all the time – unless you’re in fintech / adtech and will be at a serious if you aren’t based in NYC or you’re trying to build the next big consumer play, and you probably have to be in Silicon Valley – move to Austin or Kansas City (they have Google Fiber) or Boulder or just about anywhere that rent doesn’t cost $3500 for a shitty one bedroom. Put yourself in a position to have as long a runway as possible. That simply will not happen in the 2 most expensive places on earth.
  10. While it probably isn’t realistic, I highly recommend every entrepreneur having a VC affiliation: Look, I get it. I got insanely lucky to be able to do this. I know people who have been trying to raise a fund for years, and can’t get it done. But, there are probably ways to volunteer with a venture fund, even while running your company. Founder Collective for example has a fantastic program where they let founders of companies partake in deal flow analysis with them, and give them an opportunity to co-invest in deals that they do. The reality is, the visibility you will get into the future, the competition, the market, and the people, by being part of a venture fund is something that you just won’t get when you are stuck focussing on nothing other than your own business, and the plethora of problems your startup will face on a daily basis. After 6+ years of focussing on just one thing at Krossover, being able to spend some of my time running a fund has not only been a breath of fresh air that kept me from burning out, but it has also given me an absolutely unfair advantage in running my company. I get to see the market changing from a mile away, while my competitors won’t know what’s up until it’s staring them in the face.