A Major Gap in Sports: Early-Stage Investors
A Major Gap in Sports: Early-Stage Investors
Sports are an increasingly attractive asset class...but there seems to be a widening gap at the early-stages.
Last week…
LeAD Sports & Health Tech Partners announced that they were rebranding as LEAD.
One of the key data points:
A plan to deploy $100k checks into ten pre-seed sports & health companies/year
When you dive deep into the early-stage sports investing landscape, you find a hole.
Let’s Dive In 👇
Early Stage Investing
Before examining what’s happening in sports, let’s first better understand early-stage investing (and its characteristics).
“Early Stage” is a relative term, but it typically refers to pre-seed and seed in the venture world.
Pre-seed: Often the first capital a startup raises and is primarily used for initial product development, market research, and business establishment.
Seed: Comes after pre-seed and is used to develop the product further, grow the team, and acquire customers.
In the world of startups, the pre-seed and seed stages represent some of the most critical moments in a company’s journey.
This is where ideas are transformed into reality…
Both founders and investors take on substantial risk in pursuit of outsized returns.
What Early Stage Investors Look For
Early-stage investing is not for the faint-hearted. The risks are significant at these stages, but so are the potential rewards.
Investors often bet on unproven ideas in markets that may not yet exist, led by teams still forming.
Here are some of the critical areas: 🔎
Team and Vision: Investors focus heavily on the founding team. Do they have the right mix of skills and experience? Can they adapt to challenges? The team’s ability to execute the vision is often more important than the idea itself.
Market Potential: The size and growth potential of the market are critical factors. Investors look for opportunities in large, growing markets where the startup can capture significant value.
Uniqueness of the Idea: While execution is vital, having a unique or innovative idea can set a startup apart. Investors are drawn to ideas that solve a real problem in a novel way.
Valuation and Equity: Valuation at these stages is more art than science. It’s often based on the founder’s vision, the perceived size of the opportunity, and comparable deals. Investors deal with risk and potential dilution.
Over the last few years, early-stage investing has taken a hit across all industries.
For early-stage investors, Q1 was the slowest quarter in many years, according to recent Carta reports.
Seed deal count fell to 414, down 33% from Q4 2023
These platforms often base their data off of users on their platforms.
So, I also wanted to include Crunchbase — which shows similar data.
What does this look like in sports?
Sports Early-Stage Investing
Despite a growing interest in sports investments, there is an increasing gap at the early stage.
LEAD’s new pre-seed fund will help startups get out the gate, yet they even know a $100k check only goes so far.
And they’re filling an ever-increasing gap: 📊
Comcast SportsTech & Boomtown ran an accelerator for two years at the earlier stages but have since shifted to more established companies at the ~Series A level.
Stadia Ventures had a great run in the early stages of sports, but it looks like they are done with new cohorts.
An early-stage sports VC looks to be done investing in 2025 after multiple funds—it’s been successful, but from what I hear, it’s more of an internal thing.
DivInc, Techstars, Plug & Play, and many team/league accelerators offer founders the opportunity to participate—it just depends on how much equity they’re comfortable giving up.
While new data has not yet been released…
We can see that sports tech saw decreased funding across the board last year, which feels somewhat similar to this year.
I can’t back up this claim with data…
But from many conversations, I can strongly hypothesize that it’s worse at the early stages.
What I’m Seeing in Early-Stage Sports
Founders who have successfully exited companies have an easier time raising early rounds — even if the idea is not that unique.
The Series A level in the sports industry is filled with investors eager to enter — not so much at the pre-seed and seed stages.
Sports can have long sales cycles — many founders underestimate this and end up having to raise bridge rounds sooner than expected.
Areas like youth & adult social sports are about distribution — relationships trump most products time and time again.
I see a lot of the same ideas repeated with the tiniest iterations — more on this in a future post.
Looking Ahead
There is a MASSIVE opportunity at the earlier stages of sports.
I often advise pre-seed and seed-stage founders in the Profluence+ Community to focus heavily on angels and look for institutional investors whose focus is more generalist (and not sports-specific).
There’s no way to sugarcoat it…
Pre-seed and seed rounds are tough right now for all industries (but especially sports).
Resilient founders will have abundant capital available at the Series A level.
Go make it happen!
Podcasts 🎙
Insightful guests this past week:
Justin Driscoll - Principal, LEAD (listen here)
Rebranding to LEAD, Justin Driscoll is the principal overseeing the pre-seed sports & health investment fund out of Lake Nona.
Mike Rolih - CEO, GoRout (listen here)
We explore their rapid growth over the last few years, entering new sports, and how they’re transforming on-field communication between players & coaches.
I appreciate you reading today!
Good opportunities for those with higher-risk appetites to take on the early-stage sports investing landscape.
Peace,
AP 👋