WHY DISCORD WAS ABLE TO RAISE ~$50M AT A $700M+ VALUATION
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.
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.
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.
So why is Discord valued so much and how could they actually make money?
Let's look at a few different possibilities:
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
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
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
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
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.
And the billion dollar question - who would pay a billion dollars for Discord?
My guess: A Publisher, platform or a Media company.