Orange County entrepreneur Paul Ward has launched a $20 million venture capital fund dedicated solely to esports.
Irvine-based Stage 2 Ventures has six portfolio companies, though he declined to disclose their names as he works to put together a mix of established and early-stage firms while focusing on boosting OC’s developing startups and innovators sector.
“I want them to start and grow in Orange County,” he said. “We’re looking for investments of all kinds.”
That includes a domestic focus on seed and angel funding, and backing companies with proven product prototypes, typically in a three- to five-year vesting period.
The portfolio companies run the gamut of esports operations: From developing games to banking, according to Ward.
Don’t expect Stage 2 to link up with big industry leaders or exclusively target certain segments, like pro gamers, accessories makers, publishers, and other online content creators.
“There’s so many great opportunities,” Ward said. “It is very much a bet on the esports industry, not a particular vertical.”
Earlier Success
He’s already cashed out one lucrative wager in the sizzling sector on undisclosed terms, using the windfall to launch the fund.
He co-founded Santa Ana-based Esports Arena LLC in 2015 with middle-school friend Tyler Endres. The 15,000-square-foot arena at 120 W. Fifth St. in downtown Santa Ana was a novel concept and the first of its kind in the U.S., hosting esports and entertainment events, including daily video game competitions. The concept has expanded to Oakland and Las Vegas.
A multimillion-dollar investment last year by Beijing-based Allied Esports, which took a majority stake, fueled the recent Sin City expansion—a 30,000-square-foot ode to gaming at the former site of the LAX nightclub at Luxor Hotel & Casino.
Ward exited the company in February with a chest full of cash and ideas after years hosting more than 600 gaming events and developing deep industry connections from Southern California to esports’ birthplace in South Korea, where it’s arguably the national pastime.
“Through those experiences, there’s endless amounts of lessons learned. I wanted to apply those in my next venture,” he said. “There was a true disconnect between experienced investors and esports innovators.”
Two Tongues
They don’t speak the same language, one Ward has been versed in from his early days of playing “Halo” with his brother and more recently the app hit “Fortnite”—but with an analyst’s eye on business metrics, growth and sustainability.
“Even gaming industry veterans that I’ve spoken with are completely perplexed by some of the most recent trends,” said Ward, a former military intelligence officer and U.S. Army captain. “Yet they’re the people still driving the industry.”
Cash Flow
Just about every trend in gaming is pointing up, fueling a gold rush of big-money backers from entertainment, media, finance and traditional sports.
U.S. venture funding in the emerging sector exceeded $146 million last year in 34 deals, skyrocketing 1,125% over 2016, according to data compiled by San Francisco-based Crunchbase Inc.
Esports, according to a SuperData Research report, accounted for $756 million, or nearly 7%, of the global gaming industry’s $1.08 billion in revenue last year, and is poised to surpass the $1 billion benchmark. Market tracker Newzoo estimates the segment will top $1.5 billion by 2020 and command more than 600 million fans—many in the coveted millennial demographic who are ditching traditional cable providers and are therefore less influenced by mainstream advertising and marketing campaigns.
The dynamics have led to the burgeoning power of streaming gaming site Twitch.tv and unicorn Discord, a free voice and text chat service for gamers. Both services have more than 100 million monthly users.
Stage 2 is among several venture firms targeting esports, including BITKRAFT Esports Ventures GmbH & Co. KG; Trust Esport; Deep Space Ventures; March Capital Partners; and 500 Startups.
The local fund is at least the second to launch in Orange County in the past year with a pure focus on a new-economy segment.
Newport Beach-based Palmy LLC announced in January that it opened the first cryptocurrency investment fund in OC. The Palmy Crypto Advantage Fund, launched in the fourth quarter, had $3.5 million under investment and is trying to raise up to $25 million, according to Founder Ryan R. Knott.
