Pod Insights Invest Like the Best with Patrick O'Shaughnessy Blake Robbins – Investing in Gaming - [Invest Like the Best, EP.180] About this episode My guest today is Blake Robbins, a partner at Ludlow Ventures. We talk about all things video games, including the major companies in the industry, how games monetize, how in-game economies work, how e-sports has evolved, and much more. This is a fast-growing segment of consumer attention and interest, I believe we are in the very early days of gaming going mainstream.
I also have a favor to ask. My team and I have built a small survey for Invest Like the Best listeners and if you’ve enjoyed the podcast, I’d deeply appreciate it if you took 5 minutes to fill it out at investorfieldguide.com/survey. It will help shape the future direction of the show, which I intend to keep improving in the years to come. Thank you, and now please enjoy my conversation with Blake Robbins.
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club and new email newsletter called “Inside the Episode” at InvestorFieldGuide.com/bookclub.
Follow Patrick on Twitter at @patrick_oshag
Show Notes
(1:35) – (First question) – Overview of the gaming industry and how folks may get involved as an investor
(3:46) – Some of the biggest players in the space
(5:30) – The monetization methods of these gams
(9:22) – How do these games respond to real currencies
(14:49) – The landscape of e-sports/e-gaming as a whole
(19:57) – His involvement with 100 Thieves
(25:52) – The media landscape and the role of influencers
(29:05) – When he invests and what the opportunities are out there
(33:07) – The engines behind a lot of this; Unity and Unreal
(34:58) – Other investors that get this trend
(37:43) – Other interesting areas of investment for him, including the creator economy
(41:25) – Opportunities to build out and invest in the infrastructure of the creator economy
(45:37) – Infrastructure opportunities that need to be built
(48:08) – Advice for younger professionals
(49:04) – Investment allocation he is most proud of
(50:08) – A unique skill he couldn’t teach or train in others
(52:27) – Something in gaming he doesn’t understand or wants to learn more about
(54:08) – The kindest thing anyone has done for Blake
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club and new email newsletter called “Inside the Episode” at InvestorFieldGuide.com/bookclub.
Follow Patrick on Twitter at @patrick_oshag
Transcript 10,842 words · 3 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Patrick O'Shaughnessy? I know firsthand how complex the tech stack is for asset management firms. And seemingly every new tool and data source makes the problem even worse, adding more complexity, more headcount and more risk. RidgeLine offers a better way forward. One unified platform that automates away the complexity across portfolio accounting, reconciliation, reporting, trading, compliance and more, all at scale. RidgeLine is revolutionizing investment management, helping ambitious firms scale faster, operate smarter and stay ahead of the curve. See what RidgeLine can unlock for your firm. Schedule a demo at ridgeline.ai.
0:36 Patrick O'Shaughnessy? Hello and welcome, everyone. I'm Patrick O'Neal and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.
0:57 Speaker 01 Patrick O'Neal is the CEO of O'Neal Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Neal Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Neal Asset Management may maintain positions in the securities discussed in this podcast.
1:22 Patrick O'Shaughnessy? My guest today is Blake Robbins, a partner at Ludlow Ventures. We talk about all things video games, including the major companies in the industry, how games monetize, how in-game economies work, how esports have evolved and much more. This is a fast-growing segment of consumer attention and interest, and I believe we are in the early days of gaming going mainstream. I also have a favor to ask. My team and I have built a small survey for Invest Like the Best listeners, and if you've enjoyed the podcast, I'd deeply appreciate if you took five minutes to fill it out at investorfieldguide.com/survey. It will help shape the future direction of the show, which I intend to keep improving in the years to come. Thank you, and now please enjoy my conversation with Blake Robbins.
2:07 Patrick O'Shaughnessy? Blake, I've been excited to have this conversation with you for a while. You and I have been back and forth on some of the topics we'll cover. But more generally, I would just say my interest in the gaming economy and video gaming in general as a business has been on the rise for a long time. And whenever I ask around who to talk to about this, your name often comes up. So I'd love to begin with just an overview of sorts, if you would be willing to provide it, on gaming as a business. What are sort of the key areas in your mind of this growing interest of people? And how you might get involved in it as an investor?
2:41 Speaker 02 Thank you for having me, first of all. And I would say gaming, obviously, over the past, let's say, a couple of years, five years or so, has really started to explode into the conversation. I think that's in large part to Fortnite and these other games starting to emerge. And I think a lot of that is actually credited to the tailwinds of these games, starting to realize that they should become free to play and become viewed as platforms or actually become platforms rather than just pure $60 one-time fee type games. And so we're starting to see this split between the way that games are developed. And there's sort of this push-pull, depending on how you are as a overall developer.
3:22 Speaker 02 And some are continuing to focus, maybe the old school, we can call Activision Blizzard is sort of the bigger player in the space as more old school or Electronic Arts, where they continue to sell copies of games at $60 a piece. They're maybe sold in store as well. They have some digital sales as well. But most of it is around, let's just sell one copy, we'll make a new game every single year. There's been a big shift, starting with League of Legends and Fortnite and these games really pushing it forward where they're completely free to play. The requirements to play those games are very low. You don't need like a great computer. I mean Fortnite, you can actually play on your phone. You can play on, I think you can even play on like a Chromebook. Like you can play on almost anything.
4:05 Speaker 02 And that's really what's led to this massive growth and especially growth as a conversation around it, where people are realizing that gaming is much more than just a pure hit-driven business.
4:17 Patrick O'Shaughnessy? You've mentioned some of the names already. The absolute biggest and most important business players across this ecosystem? And how relatively entrenched do you think they are? Meaning, like, if you want to play this, you just buy existing big companies? Or do you think there's a lot of upstart potential?
4:33 Speaker 02 Yeah, I would say the the real giant in this space as far as they just get it is Tencent. Tencent has been incredibly proactive at acquiring studios and buying large stakes in studios. For example, I believe they own close to forty percent in Epic, which is the creators of Unreal, and also Fortnite, and they also bought the majority in full stake of League of Legends or Riot Games, which now has Valorant and these other games. The other sort of big players in this space are obviously Activision Blizzard, which is a public company, and they have a lot of different games underneath it. There's Electronic Arts. There's another big player in the east called Sea Limited that has mobile games
5:18 Speaker 02 that are really starting to become very popular. And then I would say on top of that, there's another big player that a lot of people overlook in this space, and it's a private company called Valve. They're the creators of Counter-Strike and Dota, Half-Life. A lot of those games are from them, but they also actually have their own app store. They own an app store called Steam, which is sort of the first actual app store for games. It's built on top of just like Windows and Mac, and they were sort of the first ones to realize if they build really great games and they make the player, like that's a launchable player for those games, they can also distribute third-party games through there and take a fee or whatever that might be.
6:01 Patrick O'Shaughnessy? Say a bit more about the monetization methods of these games, especially ones that have become more open and what I'll call like the half-life of a game. So it used to be you buy a video game and maybe it's like a movie that you play. You play through it and it comes to an end and maybe you played a few times, but there's some fixed set of hours and then you buy another game. It seems like the trend now has been that people play just Fortnite and they've been doing that for some number of years. So why is that possible? Why does it remain interesting? And since it's free, how do companies like Epic make money?
6:34 Speaker 02 I think this is one of the most fascinating parts about how games have evolved, where there was sort of a period in time where most people viewed free-to-play games as that just means that the game itself is pay-to-win, like you have to pay to unlock certain elements of it, or you need to buy expansion packs to really play the full game. That's not really true of the major games that are popular today. Like Fortnite and League of Legends and Counter-Strike are some of the biggest games in the world, but they're actually completely free-to-play. Counter-Strike recently, I think in the past year, switched to completely free-to-play. And that's because they make a lot of money off of their in-game items and in-game cosmetic items. When I say items, I mean like, these items don't actually impact the game at all
7:18 Speaker 02 in terms of making you better or worse. It's much more you essentially showing your friends that you have, you spent money on a character. And I've done a lot of research in this space because I'm always fascinated by it. I think Counter-Strike is one that actually has a more open economy around it, where people open these actual loot boxes and you pay, I don't know, $2 to open a box and you get a random skin, they call it, which is essentially a different type of color or pattern on top of your weapon in Counter-Strike. These skins are actually, they can be worth anywhere between, let's say, a penny, all the way up to five or 10 grand, depending on how rare they are.
8:02 Speaker 02 And the rarity is decided by a lot of different factors, but Counter-Strike as a game has decided there's a finite amount of these, and they let you know how many are in theory in circulation. And so there's actually secondary markets within the game, where you can actually sell and keep that currency within the entire marketplace. Or there's been third-party sites that have emerged for the actual transactions of these, where they're essentially escrow services. Because Counter-Strike allows you to trade items between people. You can, in theory, just gift them the item, and this escrow service will take the $5,000 that you were supposed to make, hold it while they get the item, and then transfer it to you. And that's-
8:44 Speaker 02 Sort of the extreme of this in Fortnite and League of Legends, the way that they capitalize on it is much more around specific events or a limited time of some of these offered in Fortnite. For example, they rotate the actual available new dances or new skins that your your character can wear in in game. You never know when they're going to come back. And so some of them are very rare and you actually see people selling their accounts on eBay for specific skins that that exist. So one of the rarest in the game is is a skin called the Skulltrooper, which came out basically as as one of the first skins in in the game. Uh, no one really realized how rare it was, uh, and they've never actually brought it back.
9:26 Speaker 02 And that's been just fascinating to see because people really are asking for them to bring it back. And there's actually no reason why Fortnite or Epic shouldn't bring it back because there's infinite supply of this, right? Like there isn't a finite amount of Skulltrooper skins that they can create in game. And so I imagine at some point they will do that. It's likely when maybe the the hype around the the new skins drops off. So, yeah, I I that's the super high level, but happy to to dive into anything else there.
9:56 Patrick O'Shaughnessy? I'm curious how it plays out. So that's sort of fascinating, right? That like a major driver of revenue for the game companies is literally just cosmetic things that allow people to express themselves in a digital sense, but without affecting the actual game. I would imagine that in some games, the things that are valuable, even though they're free to reproduce, so to speak, because they're digital, are important to the game, you know, a weapon for a character or a set of armor. Uh, you can give me the examples maybe, but talk a bit about those economies. How do gaming companies think about that, manage those economies, control for inflation if it's gold based or something? It seems like a like an experiment in economics could be run inside of these games. How do items or gold or or real currencies have meaning in the digital sense?
10:38 Speaker 02 Each of these games has their own sort of economies around them. In Fortnite, you're just buying V-bucks is the actual currency that they use in the game. You're just putting those in, buying these specific items. And those actually just, you just hold them. There's no real secondary market outside of, really, it's the gray market of selling your accounts. And Epic has been pretty strict about catching people who sell accounts. So they've basically just been like, just buy our skins and continue to support us. And I guess the one thing I would touch on with Fortnite specifically is, and maybe just gaming more broadly, is that these people are actually using these skins as an expression. Like you said, like it's their way of self-expression in these games.
11:22 Speaker 02 So there's certain characters or skins or whatever it might be that you're using that essentially like symbolize the type of player you are. For example, in Fortnite, they associate if you don't have a skin and you just rock the really basic free skin in the game, it's really associated with you just being a total newbie to the game. And so people actually like tease you or look down upon you for not having that. And so, and then there's on the flip side, there's skins that people wear that represent they're really good or like they maybe the biggest streamer uses that. And so they want to be a part of their fan group. And so there's a lot of nuances within those actual economies and within the skins itself.
12:03 Speaker 02 I would say in going more broadly and talking about like in Counter-Strike, it's probably one of the more extremes. Dota also has some real nuances, but I'm not as well versed in it. I would say Counter-Strike is the one that I'm super tapped into where when these items started to get a lot of value, it actually emerged from gambling where people realized that these items had fixed values. They show you in the game the market value. So they show how many of them transactions have happened. They show like, okay, it's been stable at $25 for the past, I don't know however long. And that then shows to everyone else like, okay, this AK-47 Red Line,
12:44 Speaker 02 which is like one of the most popular skins is known as like this equals $20. And so people were just buying a bunch of these and then putting them onto gambling sites. And what I mean by that is like, People essentially created poker sites where you would deposit this AK-47, whatever, redline, and that would be the equivalent of $20. So now you convert it into this $20 gambling amount that you can use on this site. It started to really blow up, and it actually really helped the game a lot. If you look at player-based numbers over that time, once gambling started to become a big thing, it really blew up, and it makes sense. Like, the YouTubers and streamers were all showing them,
13:25 Speaker 02 basically, gambling for bigger skins. Like, they basically just would start with an AK-47 redline, and they'd end up with a $5,000 sniper rifle. And people just loved it. And those videos are still all over the internet. But in 2016, that sort of really started to crumble, where there were several lawsuits that emerged in Washington and one other state, where they actually said that this is promoting gambling for kids. And Valve, who traditionally is very hands-off and basically just says, "We're gonna have an open API. We're gonna let people do whatever they want with these items," had to officially step in, and they sent out cease and desist to every single gambling site. And that actually essentially
14:08 Speaker 02 crashed the economy of these skins, where before, they were guaranteed the $5,000 or $10,000, because that was what was driving the value, where they were actually just going and gambling with them. When the gambling sites got removed, I would say almost all of the items halved over the next year or two, in terms of value. And they still continue to decline, because there wasn't any other real value, other than the pure in-game sense. Before, when the gambling got introduced, people were realizing they can actually make money by starting with their in-game items, and then converting in gambling and turning it into real money. So that's when things really started to explode, and... There's a lot of people within the community that actually view these loot boxes like Counter-Strike
14:51 Speaker 02 or even Overwatch where you have to pay to open something and it's random as a form of gambling. And I think there is some nuance around it where it does feel like gambling. You're paying $2 to basically open something up. It looks like a slot machine. It like rotates through and shows you all of the available items that you could have gotten. And then it stops on one and it's like, okay, wow, I should open that again. So there is definitely a case to be made and it was something that I think shocked a lot of people because it was really overlooked by the mainstream.
15:20 Patrick O'Shaughnessy? I want to come back to some of the pure platform. Like I think Valve, Steam is a really interesting, I mean, amazing business by any measure, a private business. So we don't have all the data, but I want to come back to that. But first, explore a little bit the concept of esports more generally. Again, from the business and investing angle and maybe very specifically to have you tell the story of 100 Thieves. And before I have you do that, I would wonder aloud and be curious to hear your response. If we feel like there will be a time when there is scarcity around these franchises, like you might see in Major League Baseball or the NFL where we kind of know that franchises are valuable because the supply is very limited. It seems like we're much earlier than that in esports.
16:03 Patrick O'Shaughnessy? So one, I'm curious if you agree with that and two, to have you tell the story of 100 Thieves.
16:08 Speaker 02 There's a lot to touch on here and I think they're all great questions. I think esports as a whole, and this is where it actually gets confusing for some people. If they're just hearing about esports for the first time, they typically associate it with just one game. Esports is basically the same as saying sports where there's a ton of different games within it. I would say in the context of this conversation, I'll highlight sort of the tier one games, which are Counter-Strike and which is owned by Valve, League of Legends, which is owned by Riot, Overwatch, which is owned by Activision Blizzard. I'd say I'll touch on those three as the core ones to focus on. For Valve and Counter-Strike, they've actually taken a complete hands-off approach.
16:50 Speaker 02 And they actually treat it probably more like golf than any other traditional sport, if we want to use that as an analog, where it's a lot of independent tournament organizers, a lot of amateur teams and amateur players working their way up. There isn't any set like this is set number of teams that are in a professional league. It's always rotating and for a lot of reasons, that's really compelling for fans and viewers, because you have new teams emerging all the time and starting from scratch and then becoming the best teams in the world. They do have several tournaments every year, which are basically majors in the same way like you would have in golf, like the Masters. They essentially have one major where the independent tournament performances allow you to gain entry into it.
17:32 Speaker 02 And that ecosystem as core, there's no revenue share of these tournaments with the actual teams or anything like that. It's much more you figure out how to get sponsors for your players. That's sort of the Wild West esports, which is what's been going on for the past 10 to 20 years with StarCraft. We could say it starts with that, StarCraft and Dota, where it's been much more grassroots, completely open. And Counter-Strike has been played competitively now for close to 20 years. So it's not shocking that that hasn't really changed. And then on the flip side, we see these two other new games. League of Legends has been around for about a decade now. They spearheaded it where for the past, let's say, eight years, they broke up these leagues into specific regions.
18:15 Speaker 02 So you have like North America, Europe, Korea, China, every type of region you can think of. Those regions play their own independent seasons and then they actually funnel into like a world championship. The world championship is what always gets quoted in the massive viewership numbers, where it's like they got more viewers than the Super Bowl or whatever those numbers are. Those are the ones that are always quoted because it's one of the biggest events in all of esports. That changed a little bit as far as the structure go, where the individual, the individual regions, we'll say North America, for example, in 2018, decided to do franchising, which made it look a lot closer to an NBA, where up until that point,
18:59 Speaker 02 it was acting closer to a English Premier League, where there was a promotion and relegation system. There's 10 teams in North America. There was a challenger scene beneath it. One of those teams got promoted, one of them got relegated. For a lot of reasons, that made investors really nervous about actually buying a team. What's in North American LCS is what it's called. That changed in 2018 when they introduced franchising. And franchising was when Riot came out and said, let's actually pick 10 teams that are going to become stable partners. We're going to do a league revenue share. We're going to put real team around this to help grow it and create it as a sustainable esport. That's when things started to shift in this world.
19:43 Speaker 02 And when a lot of the investors that we now see in the space have started to pay attention and started to invest. At the same time as that, Activision Blizzard was coming out with a new game in 2017 or 2018 called Overwatch. They decided that instead of having any grassroots tournaments for their ecosystem, they were going to try and brute force a game to be an esport. And they were going to start with this franchise league right from the start. That's called Overwatch League, where they charge really hefty premiums. I think the rumors are it was between like 20 and 30 million dollars for a spot. You bought, like you were referring to, a specific spot that you had forever. And it hopefully became sort of the rare coin or the rare asset.
20:24 Speaker 02 And around that time, and that was a long-winded answer to tell you the start of 100 Thieves and how we got involved with 100 Thieves. But 100 Thieves is an esports team that plays in Counter-Strike, play in Fortnite. They play in League of Legends. And they also have a big media side of it. And they also have a really big apparel side. And they got officially started in 2017 or 2018. And that really happens when.
20:53 Speaker 02 We, and I'll say we as Ludo and a couple of other investors, Dan Gilbert and his entire team, started to evaluate esports as an investment opportunity. We started to talk to a bunch of different teams because this is around the time that Riot announced for League of Legends that there would be franchising. We wanted to get ahead of it and we wanted to figure out, how could we get into it? There was a lot of uncertainty around would existing teams be favored over new teams? All of those questions were up in the air. And so we started talking with a lot of different esports teams. We kept coming back to the question of why are we buying into a team when there's uncertainty of whether we'd even get into the League of Legends for North America?
21:35 Speaker 02 Or should we be building our own? And what would that look like to build our own? Turns out, we decided to go the route of like a hybrid where there was essentially a dormant brand called Hundred Thieves, which is tied to a really big influencer in the YouTube space. His name is NadeChat. He used to be a former Call of Duty professional and was world champion in Call of Duty. He had left one of the biggest teams in the world called Optic Gaming and was just going independent as a YouTuber. He had launched in 2015 or 2016 essentially Hundred Thieves as an esports team. Tried to do it in Call of Duty to compete with the other teams at the time. That quickly fizzled out because he had no management team. He was just running that out
22:20 Speaker 02 on his own. And so that ended up really falling apart for him. And he just went back to creating content because it made sense. Like he didn't have a business team around him. So in 2017 or 2018, when we were evaluating opportunities, that brand was still sitting there. It had like 100,000 followers on Twitter, but he was doing nothing with it. And I had known him very barely. I would say the highest level of knowing someone. Like we followed each other on Twitter. We'll say that as a frame of reference of how well we knew each other. And we had never talked officially. But I floated that idea to our team internally and Dan's team. And I was like, what if we convinced him to to bring this back and we build a real business around it?
23:05 Speaker 02 That became a bunch of different conversations. I had reached out to Nate Chat a bunch and we kept going back and forth. Eventually, it finally came to be a real thing or a real conversation when we went to the NBA Finals. And we just started to discuss like, what would this actually look like? At that point, we realized that if we combine the forces of Nate Chat as a brand and a figure as he will be the CEO of this business with Dan Gilbert and his backing and support and us as a team as well, then we should be able to get into this League of Legends franchising spot. And that was like the real impetus for us to start going into that path. And everything that we were doing was built around that.
23:49 Speaker 02 And I can't stress enough, like, there was so much uncertainty around how difficult it was going to be. We ended up having to write like a 90-page essay explaining why we would be the perfect partners. We went through like five or six rounds of interviews with Riot Games. It was a whole ordeal. We basically then were like, okay, we got in, we went through the whole process and we decided we were going to invest, obviously. And then it was like, okay, what do we do now? And so we put together and interviewed a bunch of different coaches. We went through the whole process of it. They did incredibly well in the first season. They finished second and then we've been playing for two seasons now and we're on our third season in League of Legends.
24:29 Speaker 02 That it's been a really amazing partnership so far where the teams are all aligned for the first time. And that's that's sort of the big thing for esports where before this, all the teams were acting as basically independent companies, all looking out for themselves. And the publishers were never really involved. And now with North American franchising, they're all working together. There's league-wide sponsors which contribute to a league revenue pool. There's eventually hopefully going to be media rights, which is the big sort of driver for revenue in in traditional sports. And so there's a lot still to be unpacked, but overall, the engagement within the world has been. Absolutely fascinating to watch and there's real communities and camaraderie around 100 Thieves
25:12 Speaker 02 as a team, but even just League of Legends esports or Counter Strike esports. If you go into any of those ecosystems, you can see how fanatic these fans actually are and how invested they are in actually following these players and these teams. And they follow the offseason just like we follow the NBA offseason and there's crazy threads and Twitter threads around offseason. So it feels to me like real sports. I think that was always the confusing thing for me is like I grew up watching Halo and that always felt like it was a real sport and people followed that just as closely as I would have followed my college basketball.
25:52 Speaker 02 And today, that's really become even stronger and that's because the games just continue to become even bigger.
25:59 Patrick O'Shaughnessy? Sounds like this guy made shot is a good example of my next question, which is sort of your view on the future of the media landscape. So I don't think probably, even though I've done the research, I probably still don't even appreciate how big of a part of culture this is, especially for younger people. People have seen the headlines about like Fortnite as a place as much as a game. There's concerts happening there. There's world premieres of trailers, movie trailers happening there. And it seems like these charismatic, talented individuals are really key parts of what drive businesses in this world. You know, Twitch is probably has a power law of distribution of people watching a few players.
26:40 Patrick O'Shaughnessy? So talk a little bit about your view on the relationship between media businesses, opportunities in to create businesses in media and how people, influencers, influential players or just influential people in general play a role.
26:54 Speaker 02 You're hinting towards something which is just a broader trend that I think is going to emerge where the biggest Creators and content creators realize that they have distribution, they have an audience, and instead of having all that value extract to their brand partners, let's say they're just doing a sponsored video and they're getting paid a couple hundred thousand dollars for that, that's amazing, but there's also a world where they could be building something bigger for themselves. If a brand partner is willing to pay you a couple hundred thousand, that probably means that there is several hundred thousand dollars worth of value to be unlocked for you. And I think in the case of Nate Chat and Hundred Thieves, Nate Chat, to his credit, very early on, realized a Nate Chat name
27:36 Speaker 02 and logo on a T-shirt. I wanted to create something bigger and a brand that can stand without me. And I think as creators start to get more savvy and realize that they can build real businesses around themselves, they're going to start to scramble and find those opportunities. I think the key is understanding where to build and what is endemic to their audience. So another example is there's a very famous YouTuber named Emma Chamberlain, who built a coffee brand around herself because she drinks a lot of coffee in her videos. And obviously, in the beauty world, we see this a lot where they're sort of, I think of the beauty side of YouTube and Instagram as like a leading indicator of
28:17 Speaker 02 where all this is heading. And for the past couple of years, Kylie Cosmetics is the biggest one that you would know, but there's tons of these smaller brands or micro influencers or even medium sized influencers that create their own makeup and beauty products, and they sell incredibly well, obviously, because they have a really engaged fan base and those people learn to trust and buy into whatever they're selling. And I think that's a really big, we're getting a glimpse into where all of that's heading. So either there's going to be platforms that emerge that allow these people to what I call like the white label of everything, where you partner with these maybe smaller manufacturers or mom and pop type brands that have really quality products. And you're like, we'll just reskin it or
29:02 Speaker 02 white label it as this is Blake's Coffee Company. I think that's a really interesting future that I think we'll head towards. Because right now, what's happening is almost all of these big content creators are just actually saying, hey, buy my merch. And they're just throwing their name on it. And it would be the same thing as Invest Like Best, like creating just a shirt that says that on it, and you're selling that and just continuing to push that out. Whereas obviously, there's a lot of different ways you can go and build around that rather than just continuing to push merch. And I think that's the big thing that's starting to get unlocked.
29:37 Patrick O'Shaughnessy? Talk a little bit about the stage at which you tend to invest and what the opportunity set looks like down there. So everything you've said so far, sounds sort of like the two big areas of opportunities are around individuals and their brands. And those can graduate to higher and higher levels of business sophistication. And then also that there's just an enormous amount of power that sits in the incumbent leaders that you mentioned Tencent and Activision Blizzard. And there's scale economies and scale advantages to those companies that seem really hard to overcome. So you're an investor, you're an early stage investor. How much of that investing is into game related companies? And what sorts of things do you look for?
30:17 Speaker 02 We typically invest in the pre-seed or seed stage of companies. So really at the early stages, I would say for gaming specifically, that's obviously incredibly difficult because that means you're investing before they likely even have a playable demo. It's likely just a team of a couple of people who just started an idea. Maybe they were former engineers or developers at one of these bigger studios that we mentioned. But it's obviously incredibly risky. And so for me, I think a lot of that comes back to how can you actually build platforms here? We've seen a recent shift in sort of the investment dollars here, I think hints towards where things are going. But I really think Roblox is the first one that's unlocked
30:58 Speaker 02 this, which is we haven't really even touched on that world. But they have an incredible economy of basically teenagers creating games, creating their own items, selling them what's in this universe. And I think that is where a lot of this is heading. I'm a big believer in sort of like the creator economy, but not just in the sense of like content creation on YouTube and Twitch. I think We're going to start to see the medium itself change where if you're really creative and you can create games and you're given the tools to create games like what would a web flow for games look like or what would one of those tools where you can just drag and drop and both games look like? I think that gets really interesting really quickly because
31:42 Speaker 02 that's really the only way that I think you can even begin to compete with as a larger incumbents here is you need to just empower, I guess, like to use the Shopify like framing of like arming the rebels, but I think in this case, it's it's just harming the creatives who never really even had a chance to build because I'm I have no doubt there's some really brilliant ideas for games, but they've never been able to build them because they actually just never had the tools or or knowledge of how to build a game. So I think that's for me, one area that I I spend a lot of time thinking about of how do you just continue to either improve the output of games? So if we do invest in a a studio per se, it's not
32:22 Speaker 02 just betting on on one or two games or and and that's what we're funding. It's usually like, let's try and produce eight to 10 games in a year and and realizing that there is some hit driven nature to this business. But if you do it right and and one of these hits, you can build a real platform around it and that platform can be, I believe Mitch Lasky from from Benchmark like calls it like the platform publisher where when you have one game that hits, it actually funnels into other games. And so like if you if you have one big hit, then you can just start to push to your other smaller games and hopefully they all grow. I think as right now, best example of that is actually a mobile game studio out of Paris called Voodoo, which most people aren't aren't familiar with, but they there is like
33:07 Speaker 02 200 million from Goldman probably a year ago and and their whole thing is that they just create these really short bursts, hyper casual games. You've likely played one of their games if you've ever downloaded a game from from your iPhone or Android. At any given time, they have 10 to 20 games in the top 100 on iOS. And that's because they're so good at funneling people into their other games. So like instead of just doing pure advertising, it's actually let's just push people to the other games and that we can continue to promote and push forward.
33:38 Patrick O'Shaughnessy? Say a little bit about the fascinating two engines behind a lot of this in Unity and Unreal.
33:45 Speaker 02 Both of those and Epic is in an Unreal spot and no pun intended with Unreal. Like they, they actually, I don't know if you've seen the latest demo, but it's starting to look even better than like movies. And I think if you just continue to.
34:02 Patrick O'Shaughnessy? Not Pixar movies, like actual live action.
34:04 Speaker 02 Yeah, yeah, like actual live action movies. I remember sitting there like a couple of weeks ago, watching it. And I was like, oh my gosh, this like looks better than actual like Tomb Raider. And, and the actual opportunities that you're able to unlock when you, when you have this now are just limitless. And I think that's what gets me so excited is when the canvas of which these engines help power and create continues to just have the boundaries removed, I think we're in for a really exciting future. I think gaming is still in the first inning overall as an actual like ecosystem and world. I think gaming forever has been mistaken as this hit driven movie type business.
34:47 Speaker 02 And we are, we really are starting to see them emerge as platforms. And obviously Unity and Unreal are in an amazing spot to be powering the backend of a lot of these. But I think the real truth is that these, these games become more of the third place. Like I think if you talk with any kid who plays Fortnite, they likely say they, they spend several hours on there. And that's where they're hanging out with their friends. They're not hanging out on Twitter or Facebook or somewhere with their friends. It's they're going home and after school and talking with their friends for hours. And Fortnite just happens to be the place where they're hanging out. And that's the, the thing that I think has largely been misunderstood by, by a lot of investors.
35:30 Patrick O'Shaughnessy? Who are the other investors specifically that you think get this trend and have been, have been and will be really good investors in this space?
35:42 Speaker 02 It's interesting because I would say there's, there's a couple of different sides of it. There's been several investors or funds that have emerged here to really focus only on game investing. And I think that's actually really smart. I think if you, if you're doing early stage investing, let's say like our fund and you're doing seed and pre-seed bets. If you're going to raise 40 or 50 million dollars of capital, which some of these funds do, and they try and cherry pick one or two games, the chances of those actually working is statistically very low. And so what, there, there's one fund called Play Ventures out of, out of Europe that's emerged. And they actually only invest in, in the pre-seed or seed of, of game studios.
36:23 Speaker 02 And I think it's just fascinating because it's a, you basically get an index of, let's say the 50 best up and coming studios. They are very, very sharp. They fly very under the radar. Benchmark has been incredible here. Mitch Lasky, to his credit, has just been very good at this. Like he, he was one of the first investors in Riot Games and Riot Games sold, I would say very early relative to where they are now. I mean, they're doing billions of dollars in revenue and I believe when they actually exited Tencent, it was probably four or 500 million. But I would say Benchmark and recent has really started to move into this space. They recently hired someone from Tencent, it's John. He's been very active in trying to deploy capital here.
37:07 Speaker 02 I think the key is if you are going to invest in, in these studios or, and, and hope that you have the next Fortnite or, or one of these types of games, you have to invest really early and you have to basically take on a substantial amount of risk of, before the game launches and index was very active here. They, they're continuing to be pretty active, but they used to be a little bit more active. And they also sort of did this strategy of let's invest and lever up before launch because they realized that's sort of the last real chance for them to, to get money in. These games, you find out really quickly if they're gonna hit. And so the chances of you investing at a, I would say reasonable valuation post-launch are
37:51 Speaker 02 pretty low because they just become cash flow businesses, especially in these free-to-play worlds where there is actually no cost, like, you know, like, there's no marginal cost for creating new skins or new items to sell to consumers. And so they can, in theory, print money and they don't necessarily need capital. And so that's the one thing I would say here is that you have to play early, but it obviously is very risky.
38:15 Patrick O'Shaughnessy? Say a bit more about some of your other areas of investing interest. So we've talked a lot about the ecosystem of gaming and I guess I would call it tools or methods to building businesses for gamers. But I think that you're also more broadly interested in what seems to be the future of work to some extent, which is that people don't have the traditional one job, that's all you do, it's nine to five. It just seems like there's so many more tools that enable people to, whether you call it the gig economy or the creator economy or what have you, that seems like an area of interest for you. So talk to me about that from an investing perspective.
38:51 Speaker 02 The creator economy, I think Andreessen and Legion over there call it like the passion economy. I think that's where a lot of this is heading, where people, I don't think it's a secret that most people probably don't really enjoy their jobs and a lot of them want to do what they love. And I think the beauty of the internet and the real power of the internet is that if you're good at something, then you will likely be able to get rewarded for that. And so these platforms just emerge, whether that's Etsy or Substack or Twitch or YouTube, whatever they might be, to help enable those people to make money doing what they love, I think is where, like, we're only gonna see more of those platforms emerge. For example, like, we'll probably see something really start to grow in the education space
39:35 Speaker 02 where the best teachers are able to just bundle their classes online and sell them and they can make a lot more doing that versus just going and teaching at their local public school or local private school. And I think my general thesis is that they are the new small business and sort of look like they're just these odd jobs or random things that people are making as like side hustles right now. I like to view it as like the modern day lemonade stand of if you're a kid right now, you likely want to be a YouTuber or a Twitch streamer and... They are all trying to get followers or viewers. And I think there's some really interesting lessons of like, why don't your videos get views? Or why are you only getting two viewers on Twitch? And how do you actually grow that?
40:20 Speaker 02 And we're starting to see like the first wave of that right now, where people my age, let's say, grew up on on the internet, watching YouTube and Twitch. And they're finally being like, oh, wow, I could actually do that as a job. And like one example is is there's a big creator. His name's Mr. Beast. He'll tell you that he's just only watched YouTube like his entire life. And when he was like 10 or 12, he realized I need to do this for my living. And that's what he pursued. And and today he has 40 million subscribers or or something close to that. And he he's always just like studied it. And I I think that goes back to just me as a person. Like, I feel like I'm I'm a student of the internet. And I think most those kids today are are students of the internet. And so if they can figure out how to monetize
41:03 Speaker 02 their time, whether that's making memes, right? There's there's people that run pages on Instagram where they're they're just making memes and making lots of money where they're just selling ads based on there. And I think the way like platforms that emerged to help enable that are really going to win over the the next decade. Because I I think there's going to be a very big switch, especially in like today's times where you have people who maybe are out of work. This is sort of that time where they can maybe focus on what they really love to do and what their hobbies are, because they they're like, okay, well, maybe I love baking. Maybe I should start my own bakery. And like, what does that look like? If the local baking side of all this and and I know Etsy has in some crazy world start to transform into like
41:45 Speaker 02 selling baked goods and and that side. So, yeah, I I think there's going to be a lot of new platforms that emerge here to just enable these new this new type of creator, a new type of small business.
41:56 Patrick O'Shaughnessy? You've hit on one of my favorite topics, which is the enablement of other creators or or businesses. So to take it up a level from the individual creator, which I think is kind of what you mean by the modern day lemonade stand, the neat little phrase, is what I would call like heavier duty infrastructure layer companies. There are some very famous big ones, Twilio, Stripe, maybe you could.
42:18 Patrick O'Shaughnessy? Shopify as like a big infrastructure play for merchants. Plaid recently got bought for more than $5 billion by Visa. All of these are kind of developer facing, except for Shopify. Developer facing API first companies that build the guts of an internet business. How much opportunity do you think is left there? You know, that's the easiest thing to say that's smart now that we've got like 10 massive winners. Do you think that that's still an area of opportunity?
42:45 Speaker 02 Yeah, I think we're still in the very early days of that. I think fintech alone, and we're seeing obviously tons of companies emerge within fintech. Whether that's Finix or other ones that are just emerging to focus on one key part. The way I view these, I guess, taking a step back is they're focusing on something that is not the core competency of your business. And they are saying like, basically pay us the tax to do that really well for you. And for Stripe, that's payments for Twilio, that's SMS, whatever that might be as your company. And I think the real key there is that they are enabling new startups to be built because instead of hiring the X number of engineers to build that all out.
43:26 Speaker 02 They're now just paying essentially the tax on a per user basis, or whatever the actual price model might be to just get up and running. And so, for example, like I talked to a ton of companies that use Twilio or Plaid or whatever it might be. And before this, they literally wouldn't have even been able to pitch their company. They would have needed to have like a team of 10 to get to the beta or MVP. And I think that's where that specific side of all this gets really interesting. Because again, it's not the core competency of your business. And at what point do you maybe switch off, right? Like, that's the ultimate question, I think. WhatsApp, I think it came out that they paid like $100 million last year for Twilio and the last earnings report for Twilio. And so at what point does Facebook just switch off and build their own?
44:11 Speaker 02 But I think it's more of just a tax. They built the platform itself. It's not a core competency. Are you going to just build all that in-house? Are you going to continue to worry about updating it or are you not?
44:22 Speaker 02 As a result, if you are this this enablement layer, you get to grow with the companies themselves. And so if you view a company that's built on top of Plaid, let's say a personal finance app. The personal finance app is going and spending to acquire all these users. And for each user that they they spend to acquire, they're actually paying Plaid. And so Plaid basically gets to grow at the expense of this personal finance app X continuing to invest and grow. Obviously, personal finance app X has to figure out their own economics. But it's interesting to think about how they just are getting like Plaid is getting a tax for that.
44:58 Speaker 02 And in some ways, like Unreal and Unity, which we touched on earlier, are also this like enablement layer where people before, if they were building games, likely had to have a much bigger team. Or maybe they didn't even know how to build certain aspects of it in the game. So I view it as like the startups that that enable other startups or like the startups of startups. And eventually that graduates as the companies grow using that. Like a recent one that that's starting to get a lot of conversation is one called daily.co. They're the enablement layer for video and like web RTC. So if you want to put video conferencing within your app, you basically just use daily.
45:34 Speaker 02 And like, for example, Tandem uses daily and Tandem has to go out and and probably as a sales team or or whatever to actually grow their side of their business. And as they continue to grow, then daily also reaps the benefit of that. So I just think it's one of the most interesting layers to be investing in or one of the most interesting spaces to be investing in. Because of how much value you unlock, like you you obviously help a bunch of new businesses emerge. But you also get to see the upside in the companies that you're helping to enable, which is sort of the ultimate win win.
46:08 Patrick O'Shaughnessy? Are there other examples that you've seen of, you know, so really easy analogy would be Stripe is this for payments? Twilio is this for communications? Sounds like daily.co is this for video chat? Are there other areas that you have not yet seen a company get built that you think are big infrastructure pieces?
46:27 Speaker 02 The way I would view it is. There's going to be a lot more of like this this plaid layer where you're going and filling out paperwork and or when you're trying to transfer places like you have to go and like manually get all of your information and and transfer it. What behaviors can you unlock outside of just fintech where you're logging with your bank? And I know there's some that have like in health insurance, for example, or whatever it might be, there there's they're starting to emerge. I think that's a really interesting layer. But I think it's where you start to discover this is if you just strip back a business. I don't know, you could take even just like a General Motors or whatever. And you're like, what is actually the core competency? And if you look at General Motors, it's actually not that different
47:11 Speaker 02 than the way that these new software companies are emerging where they're paying a tax or paying these suppliers, right? And and this is sort of this new form of supplier where GM isn't going to build their, let's say, some casting or or body of their in their thing. They're going to trust someone who it is their core competency of. And they're going to say, okay, well, we'll pay you basically on a per volume basis. And and that just is starting to get converted onto the Internet now. And we're we're now seeing like, what is this new form of Internet supplier for these software businesses? And I think that's, if you take any software business, you can strip away what is actually the core competency and what isn't. And whatever is not a core competency or their secret sauce. And then
47:55 Speaker 02 some of these, it literally might just be marketing. For example, there's a company that's, I think, really interesting called Truepill, which basically powers the backend of, I believe it's Hams or Roman, one of those telemedicine companies. They do a couple other telemedicine companies, but they're just a fulfillment pharmacy. And they also do the telemedicine angle of it. And so if you're Hams or Roman, you're literally just like the marketing layer. And I think that's where a lot of this is heading as consumer facing businesses go, where you're the marketing layer, you're trying to focus on what is your core difference. Maybe that's customer support. Maybe that's actually a differentiated product. It really depends on on what you're building. But that is like, there's going to be a bunch of these plugins or a bunch of these APIs that are helping you build this.
48:40 Patrick O'Shaughnessy? Would it be fair to sum up our whole conversation for your advice for young people as either build an audience or build some infrastructure?
48:46 Speaker 02 Absolutely. I think touching on the build an audience side, I think building an audience is invaluable. And if you are trying to compete in anything, like whether you're building a business, or you're trying to create your own bakery, or whatever it might be, having an audience is invaluable. And then if not, then I think building the infrastructure and being the platform itself to enable new things to emerge, those are the two best spots to be in. Ideally, you're both. Like if you're a Twilio or Stripe, where you're the household name associated with those things, people will literally probably look at you weird if you're building your own SMS product internally right now, where they're like, why aren't you just paying Twilio? And if you're Twilio, you have so many great tailwinds where you now have, in theory, all of the best engineers in that
49:31 Speaker 02 space working at your company, rather than going to X, Y, and Z company as well.
49:35 Patrick O'Shaughnessy? What investment or allocation of capital, I should point out for the audience, I think you're 26 years old, which is absurd. But so there's not a long history here. But what investment or allocation of capital are you most proud of in your career so far?
49:48 Speaker 02 I think the one that is just most public is 100 Thieves. And so like, for me, it's been a really incredible journey, just because it's also one of the ones where I've been most involved. And I think 100 Thieves as a brand has really evolved into being like almost a streetwear or luxury brand within the gaming space, which is something we didn't even really touch on. But the apparel itself, for example, sells out within 10 to 15 minutes, almost every drop to treat it like they are supreme, in the sense that everyone is really hyped about when they create new clothes. They've created this, like, if you told me 10 years ago, and this is maybe why I'm just proud of it, like, if you told me 10 years
50:29 Speaker 02 ago, when I was 16, that I would be involved with one of the biggest gaming teams in the world, like, I just wouldn't believe you. And then on top of that, like, the fact that it has become a pretty big part of pop culture, and like Drake and Scooter Braun are both involved. And they also, their apparel is very popular, their media is really popular. I just, I don't think I'd believe myself. And I think that's been a really fun one to watch. And obviously, it's still in the early days, but it's been a really fun one to watch so far.
50:59 Patrick O'Shaughnessy? So I know you're a small team, you know, maybe you'll get much bigger one day, but you work with a lot of people, right? I think the nature of the firm is changing. There's grayer lines between companies, more cooperation and collaboration than ever before, even in the investing world, especially in early-stage venture. But even still, I'm curious to ask this question, which is, what skill or mindset of yours do you think would be the most difficult to transfer to even the most talented other person? Meaning like, what is the most, what do you think is the most unique thing of yours that you couldn't teach somebody else?
51:31 Speaker 02 I actually think about this a lot because I just try and like, understand how to actually differentiate myself. I guess I think the biggest thing is that I'm sort of endlessly curious and it's why I love ventures so much. Like, I love figuring out about new spaces or new areas and maybe they're niche businesses or niche areas. But I think that the truth is, the definition of like niche has evolved over time and they've become really big businesses and they can become really big businesses. So like, a perfect example of that is the PC building community, right? Like, I don't know how many people were building PCs over the past decade, but over this, the past couple of years, that's really emerged as a, as a popular spot.
52:15 Speaker 02 And there's a company within it and that's like a bootstrap business that I just think is one of the most interesting businesses that I've like ever seen. It's called PC Part Picker and all they are is like, they're, they walk you through like, what parts are compatible with each other? And I guess for me, like, I'm just a total nerd in the sense I love hanging out on the fringes of the internet and I love finding these random subcultures and sub-communities that like, people would overlook and I think those often hint towards where things are heading. And so, in short, it's just, I'm really curious and like genuinely curious about the way that the world looks and how it's going to evolve. And I think the niche communities are a good hint towards that.
52:58 Patrick O'Shaughnessy? In the area of gaming specifically, what's something that you don't yet understand well that you wish you did?
53:06 Speaker 02 It's a tough question. I think the thing that is going to be interesting to play out is just whether the open versus closed ecosystem for esports, like how that evolves. And do the esports teams themselves need to like figure out a way to fix that? Or will the publishers, I guess, taking a step back on that is for the past decade, publishers themselves and the game developers, so let's say Tencent and Activision, whoever else, all viewed esports or the competitive side of this as just pure marketing. And we started to obviously see some hints in the past couple of years that they do realize there's more here and it's not just a marketing and retention tool.
53:50 Speaker 02 I think the open question is how does that just continue to evolve? And how do we make sure that especially the publishers or game developers like in Activision, where they are still selling a $60 copy of a game every year? And their incentives as a public company are obviously to sell as many copies as possible. Those are conflicting incentives with esports teams where you're actually cannibalizing the game every year. So if you're Call of Duty, you're releasing a new Call of Duty every year. I guess to sum it up, it's like, how do you actually make sure that the game developers and esports teams and the players are all aligned moving forward? And I think we're still in the first inning of figuring that out because each game itself is taking different strategies.
54:34 Speaker 02 Some are much more aligned and some are like completely hands off. And that will be really, really interesting to see how it plays out.
54:39 Patrick O'Shaughnessy? So Blake, my closing question for everybody is to ask for the kindest thing that anyone's ever done for you.
54:44 Speaker 02 Oh, oh, wow. I think the kindest thing that someone's ever done for me, I guess there's two. I don't know if you know Eric Jorgensen?
54:53 Patrick O'Shaughnessy? I do, yeah.
54:53 Speaker 02 Yeah, he has always just been a mentor for me. And he was basically the first person I ever reached out to in the startup and venture community. And he took a total bet on me when I was a freshman in college and helped sort of guide me through what this world even meant. So like for him, I'll be like eternally grateful and like he's the best. And then the other is just my two partners I love though, where they took a huge bet on me as basically a 21-year-old out of college. And basically were like, Yeah, like, we'd love to have you join. I think those two within my partners and Eric within the context of my professional life have been so invaluable and were willing to
55:34 Speaker 02 bet on me before anyone else. And I think that's just rare. I think it's very easy to be skeptical and not want to bet on a young kid. And so definitely feel very thankful for both of them.
55:46 Patrick O'Shaughnessy? I've started to collect these as sort of categories and bet on someone as yet proven is a common answer. And so I love that there's there's three of them in your case. I really appreciate the time today. I've learned a lot. I've loved following your stuff on on this topic. And the whole point of investing is to try to find something early in this space. And I think you've made it clear that there's going to be opportunities to do just that in the coming years, in and around the gaming and infrastructure space. And so I appreciate the insight and the time. Thanks, Blake.
56:14 Speaker 02 Yeah, thank you.
56:16 Patrick O'Shaughnessy? If you enjoyed this episode, you can sign up for a new email newsletter sent out each week called Inside the Episode. Each week, I condense that week's episode to my favorite big ideas, quotations, and more. I've been recommending books to members of this email list for years, and will keep doing so in this weekly email. You can sign up at investorfieldguide.com/bookclub.
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