Why Discord Was Able To Raise ~$50M At A $700M+ Valuation

WHY DISCORD WAS ABLE TO RAISE ~$50M AT A $700M+ VALUATION

Discord Raises ~$50M (Photo: Discord)

Discord Raises ~$50M (Photo: Discord)

TNL Take: Last week we began the first part in a series looking at ~$100M of eSports US investment this year, beginning with Super League Gaming, AEG and Matcherino.

Today we'll look at the biggest investment - and valuation - to date, Discord. 

For those more Brooks Brothers than Battlefield, Discord is basically this: Slack for Gaming and eSports.

Discord's Voice and Text Platform (Photo: Discord)

Discord's Voice and Text Platform (Photo: Discord)

Earlier this year, Techcrunch reported that Discord secretly raised ~$50M led by Index Ventures, along with Institutional Venture Partners and previous investors Spark Capital, Benchmark and Greylock Partners and Benchmark.

TNL eSports Startups 012: Discord Raises ~$50M (Photo: Discord)

TNL eSports Startups 012: Discord Raises ~$50M (Photo: Discord)

While that's by far the biggest raise by a US eSports related startup - yes, it's not primarily an eSports only platform but it's integral to the scene - the pre-money valuation is north of a whopping $700M.

 

Here's what's even crazier: by my estimates, Discord probably made less than $1M in revenue last year. No advertising. Some merch. Again, that's less than $1M in revenue and valued at almost a billion dollars.

 

As I speak to both investors and startups, it's befuddling to me how much both sides minimize monetization early in the strategic planning or product roadmap:

 

Me: How are you going to make money?

Startup: We'll figure out once we get scale.

Me: How are they going to make money?

Investor: They'll figure it out once they get to scale.

 

In the casino game - sorry venture capital - that is startup investing, it's the standard playbook of grab market share/eyeballs and then figure out how to monetize later like Facebook did. Further, Discord checks the boxes on key areas that VC's look for: Team (solid), previous experience (CEO sold OpenFeint for $100M+), and huge return (exit opportunity).

How big is Discord? They currently have 45M registered users quadrupling from a year ago.

There's a very simple reason why Discord was able to grow so quickly: the platform simply works, game integration and most importantly, no one liked using either Teamspeak or Skype.

Discord vs. the Competition (Photo: Discord)

Discord vs. the Competition (Photo: Discord)

So why is Discord valued so much and how could they actually make money? 

Let's look at a few different possibilities:

 

01/GAMEBRIDGE

Gamebridge Integration In Lawbreakers (Photo: Discord:)

Gamebridge Integration In Lawbreakers (Photo: Discord:)

Gamebridge is DIscord's 1-stop solution for integrating a multitude of features into a game that developers don't have to worry about: 

  • Voice and text chat for teams/friends
  • Auto generate game replay's, highlights and even GIF's
  • In a brilliant move, this automatically generates an individual discord server as well

The Gamebridge technology will be integrated into Boss Key/Nexon's upcoming title Lawbreakers, led by Gears of Wars creator Cliffy B.

Revenue Potential: SaaS for Developers

 

02/STREAMKIT

Discord's Streamkit Platform (Photo: Discord)

Discord's Streamkit Platform (Photo: Discord)

Streamkit is Discord's next product which again simplifies efforts for developers for multiple API integrations.

The reason I keep enforcing "make it easier for devs" is that unless you've worked at a gaming company, you don't realize the immense pressure game teams are under to deliver a continually changing product, on time, with little resources and time away from your family. #ShoutOutGameDevelopers 🙏🏽

Somewhat similar to Overwolf, this platform could be the outlet for the 3rd party money plug.

Revenue Potential: Revenue sharing/3rd party app integration/Steam competitor

 

 

03/GAME REVENUE SHARING

Twitch's Amazon Game Buying Integration (Photo: Amazon)

Twitch's Amazon Game Buying Integration (Photo: Amazon)

As I mentioned in "eSports Wars: Twitch vs. Everyone Else Part 2", Twitch will allow streamers to get a piece of the pie of any game bought through them via Amazon - personally I'm shocked this wasn't launched sooner.

Discord could easily copy the same model.

Revenue Potential: Game sales revenue sharing/Steam competitor

 

04/NITRO

Nitro, Discord's Subscription Product (Photo: Discord)

Nitro, Discord's Subscription Product (Photo: Discord)

Nitro is Discord's subscription service that allows users to have an animated GIF, custom emoji's, and badges.

Sound familiar? It's not far off from Twitch's streamer subscription benefits for users.

Revenue Potential: Monthly subscription revenue

 

05/ADVERTISING

Last and definitely not least, Advertising and Sponsorship. With the 3 things that Brands look for the most in their investment - scale, engagement, ROI - Discord could easily provide this.

Revenue Potential: Brands

 

Those are 5 different ways that Discord could monetize their platform going forward. They also do a fantastic job maintaining their "cool brand" within the community, via Hypesquad or their Partner program.

It's not like Discord doesn't have obstacles ahead of them: recently Twitch has launched a Voice app, desktop app, Twitch Pulse, and a massive mobile update.

And the billion dollar question - who would pay a billion dollars for Discord?

 

My guess: A Publisher, platform or a Media company.

eSports Crowdfunding Platform Matcherino Raises $1.5M

ESPORTS CROWDFUNDING PLATFORM MATCHERINO RAISES $1.5M

Matcherino Raises $1.5M (Photo: Matcherino)

Matcherino Raises $1.5M (Photo: Matcherino)

TNL Take: California has been the center of innovation in both technology, Silicon Valley, and Gaming/eSports with over half the US industry based in that state.

Recently Seattle has seen it's own emergence of eSports startups: Unikrn - which is doing the first eSports ICO, Hubtag, Innervate and Beam, which was acquired by little local company Microsoft.

TNL eSports Startups 011: Matcherino Raises $1.5M (Graphic: The Next Level)

TNL eSports Startups 011: Matcherino Raises $1.5M (Graphic: The Next Level)

Last week another Seattle based eSports startup Matcherino raised $1.5M from previous investors Madrona Venture Group, Vulcun Capital and other angels.

Want another NBA eSports connection? Vulcun Capital is the investment arm of Vulcun Inc., run by ex-Microsoft co-founder Paul Allen, the owner of the Portland Trailblazers.

Matcherino is very simple way to crowdfund a prize pool between players, teams or events for a multitude of games.

List of Matcherino Supported Games (Photo: Matcherino)

List of Matcherino Supported Games (Photo: Matcherino)

Matcherino users simply login via Twitch, use PayPal as the transaction platform and the money goes directly to the prize pool.

Matcherino's Crowdfunding Platform (Photo: Matcherino)

Matcherino's Crowdfunding Platform (Photo: Matcherino)

Matcherino Crowdfunded Events (Photo: Matcherino)

Matcherino Crowdfunded Events (Photo: Matcherino)

Matcherino provides 2 additional benefits:

  • Users who donate accrue points towards rewards redeemable for goods which are mostly T-shirts currently
  • As Matcherino CEO Grant Farwell said: "Before us, the prize pools were being completely mismanaged by event organizers, who are often young due to the nature of the industry and don’t handle money well" [Note: That was not said by me. Don't @ me]

Matcherino also offers Sponsored rewards like Soylent, who also happen to invest in eSports.

Matcherino Sponsored Soylent Reward (Photo: Matcherino)

Matcherino Sponsored Soylent Reward (Photo: Matcherino)

By essentially just providing a connection layer and taking a % of each transaction and some sponsorship revenue, Matcherino could work.

 

However the biggest challenge is lack of defensibility: Twitch, YouTube, or Facebook could easily replicate this.

 

Let's see which platform copies this the quickest if the monetization opportunity is there.

AEG Makes Second eSports Investment With Immortals

AEG MAKES SECOND ESPORTS INVESTMENT WITH IMMORTALS

AEG Invests In eSports Team Immortals (Graphic: The Next Level)

AEG Invests In eSports Team Immortals (Graphic: The Next Level)

TNL Take: For eSports owners with decent teams, popular fan following but more importantly - being business savvy - it's like mid-1800's California gold rush or mid-1980's Los Angeles crack era: the money is pouring in.

eSports team Immortals raised another round, this time from massive sports and entertainment conglomerate AEG. Immortals were also one of the first teams to receive investment related to the NBA with Memphis Grizzlies co-owner Stephen Kaplan back in November 2015:

TNL Infographic 027: NBA Investment In eSports (Graphic: Jordan Fragen)

TNL Infographic 027: NBA Investment In eSports (Graphic: Jordan Fragen)

This investment makes sense for a number of reasons:

  • AEG is based in Los Angeles just like Immortals
  • Immortals already has an impressive investor list including Lionsgate, Crosscut Ventures, Michael Milken, Machine Shop Ventures, March Capital Partners, Kaplan and others
  • Immortals will play their events at LA Live, an AEG venue
  • The music, entertainment, and content production opportunity

 

This is also the second investment within eSports, having first signed a long-term partnership with ESL to host their events at AEG's locations including Barclay's Center, Oracle Arena and London's O2 Arena; which all have held eSports events previously.

 

While the round was undisclosed, you know I'm going to take a stab anyway: I'd venture that it was at least $10M+ - more on why that amount when we get to the recent Overwatch League "news" Soon™

TNL eSports Startups 010: Super League Gaming Gets $15M From Media, Sports and Entertainment

TNL ESPORTS STARTUPS 010: SUPER LEAGUE GAMING

TNL eSports Startups 010: Super League Gaming (Graphic: The Next Level)

TNL eSports Startups 010: Super League Gaming (Graphic: The Next Level)

TNL Take: I love Super League Gaming. I love their product. I love their people. I love their model.

I've covered SLG a few times but let me give a TL/DR for the adults that have those walking petri dishes called kids:

It is an organized league where kids can play non-violent games, be part of a community that they love and in a safe place - the movie theater.

TNL eSports Startups 010: Super League Gaming (Graphic: The Next Level)

TNL eSports Startups 010: Super League Gaming (Graphic: The Next Level)

Super League Gaming recently announced a $15M Series C funding round from a superstar team including Nickelodeon, Tampa Bay Lightning owner Jeff VinikaXiomatic, "multiple other pro sports team owners" and DMG Entertainment.

The last one is even more interesting because DMG Entertainment - a global media and entertainment production/distribution company - is launching, wait for it, an eSports division.  DMG is more than likely using their extensive knowledge and experience in China to help bring Super League Gaming to that massive market as well.

Back to Super League Gaming -  Why does the combination of eSports and movie theaters make so much sense? 

  • Real estate ROI
  • Multiple locations
  • Community based experience
  • Monetization

To hear more about Super League Gaming, here's TNL eSports Guest Podcast 002 with their SVP, Andy Babb, earlier this year:

Super League Gaming's League of Legends City Based League (Photo: Super League Gaming)

Super League Gaming's League of Legends City Based League (Photo: Super League Gaming)

There hasn't been much news on how the league is performing - and I've heard directly from theater owners of lack of attendance in certain cities . I'd speculate that this roll out and it's potential in Asia is what drove the investment and high valuation and will be interesting to see if a city-based league of this nature is ready; but I'd like to wait for more real data.

I do want to focus on what they started with and what I could be a huge opportunity: Minecraft.

I believe that Microsoft's $2.5B acquisition of Minecraft will go down as one of the best buys ever - along with Google/YoutubeFacebook/Instagram, Disney/Marvel/Lucasfilm and Amazon/Twitch.

The easiest way to understand the phenomenon that is Minecraft is not to spend $2,000 on a research report - go spend an hour at an elementary school.

There are 383 results on Amazon for "minecraft birthday party supplies". I've been to more kid's Minecraft birthday parties than BBQ's in Brooklyn.

Microsoft worked with Code.org to help make a Minecraft version to "train" kids to code using the game - I highly recommend it.

Now combine this with Microsoft's acquisition of streaming platform Beam and you can see it's continued future investment in Minecraft is just beginning.

And how's Minecraft just as a game performing?

Microsoft doesn't break out Minecraft revenues separately but here's how the $7 app has ranked on Paid Apps on iTunes.

Minecraft App Chart Rank (Photo: App Annie)

Minecraft App Chart Rank (Photo: App Annie)

Don't believe me. Get your iPhone right now. Go to the App Store. I 99.9% guarantee you Minecraft is the #1 paid app.

Congrats to the team at Super League Gaming and I'll end with a quote I say in every conversation I have about the company:

 

Where else are you going to find a babysitter for 3 hours for $20?