Problems of the esports market: how much does the industry depend on investors?

Artificial intelligence, cryptocurrencies, esports - all of these segments are relatively new, potentially large, and high-risk. And all of them depend on investment to some extent. However, esports is different in that it depends not only on the amount of investment but also on the investor's psychotype. Let's look at the Ukrainian esports market and investor Maksym Krippa as an example.

The image of the investor

When it comes to investing, the vast majority of cases focus on what the investor expects: his or her benefits, risks, expected return on assets, etc. But there are two sides to the coin, so it would be nice to talk about what companies expect from investors. In the most general terms, all the hopes of startups and companies in need of financial support boil down to the fact that they need a partner to help them at the start or in difficult times. In return for this help, the company will share profits in the future - in good times. The scheme is clear, but risky. And the investor risks more, because in case of failure, he loses money, while the company's representatives lose an idea, a hope - something intangible in most cases.

Risks and failures, even intermediate ones, lead to an increased level of investor frustration and withdrawal. Premature conclusions based on bad experiences that lead to a loss of interest in assets on the part of investors have delayed the emergence of AI for no less than 70 years. Esports risks falling into a similar trap.

Problems of esports

Despite the fact that the segment is developing and attracting more and more fans, there are obvious problems affecting the industry. The pandemic has struck and played a cruel joke on esports: a big surge in interest in the first weeks of quarantine and a long downward trend. This can be clearly seen in the drop in interest from Twitch users.

This and other factors have led to a new problem: the complexity of expertise. The new industry, according to some experts, has a market potential of $1 billion, while another group of experts points to the full $25 billion. Who to believe and which figure to start from is a difficult question for investors.

In the end, all the accumulated problems of the esports industry led to a large shortage of the right investors. Those who came in at the time of the surge of interest could not stand the long game and left. Those who remained are experiencing all the delights of the lost opportunity cost syndrome. At the same time, esports is an industry that is more than 50% dependent on investment. And, as it is already clear, the investor's psychotype, experience, and ability to plan and build portfolios also play a major role.

It is also worth adding that experts emphasize the inexperience and unwillingness of many investors to work with esports assets. The new industry requires specific skills that not everyone has, just as not everyone has the willingness to learn.

Ukrainian esports and Maksym Krippa

To the general problems of esports already mentioned, we should add specific problems in the Ukrainian market. There is a full-scale war going on in Ukraine, which is forcing the market to develop not because of, but in spite of it.

Thus, Ukrainian esports lost the vast majority of sponsorship contracts in the first six months of the full-scale war. For objective political reasons, agreements with Russian partners were suspended. Ukrainian sponsors themselves were going through hard times and were forced to cut back on their activities. As a result, the industry survived for a good six months/year on the honest word and the help of those few investors who are willing to work for a long time. Such as Maksym Krippa, whom we will talk about later.

The second major problem facing esports is related to national and language issues. It is known that all esports teams in the world are international. In Ukraine, the team composition could easily mean two Ukrainians, one Belarusian, and one Russian (conditionally). But the full-scale war split the teams, and they had to reformat, look for replacements, and play again. At the same time, the problem of language arose. And while it was still possible to solve it within the team, it became impossible to continue working in Russian at the broadcast level.

Thus, the global downward trend has superimposed itself on the problems in Ukraine. For the Ukrainian esports community, difficult times have turned into very difficult ones. How did some industry representatives manage to survive and even demonstrate growth? The general answer to this question is that it was due to the right investors.

For example, the esports organization NAVI overcame the problems of the covid pandemic relatively easily. It helped that investor Maksym Krippa, who started working with the organization in 2018, closed the issue under a beneficial ownership agreement between 2020 and 2022. The details of the agreement are not publicly available, but NAVI said that Maksym Krippa had to fulfill a number of obligations. And here, with a high degree of probability, we can assume that the agreement provided for financial injections, which were very much needed during the period of covid and post-covid market fever.

Investor Maksym Krippa has extensive experience with esports assets. And here, in the list of requirements for an ideal investor, you can safely put a plus in the professionalism column next to Maksym Krippa name. The fact is that his portfolio includes not only an esports organization, but also a computer game development company, as well as a company that broadcasts esports tournaments.

It is interesting that Maksym Krippa acquired GSC Game World in 2023, during the period of a full-scale war. Experts believe that the change of ownership and large financial injections from Maksym Krippa will help the company to finish the work on S.T.A.L.K.E.R. 2: Heart of Chornobyl. By the way, the development of the S.T.A.L.K.E.R. sequel started back in 2010, but it was constantly stumbling over money problems.

To summarize, it's not just the fact of having an investor that matters, but the quality of the investor, if you will. The right investor in the esports industry should not be hype-driven, should not give up at the slightest market turmoil, but should, like Maksym Krippa, have experience, develop his knowledge of the esports market, and should have a well-balanced portfolio. All of this seems obvious and is suitable for investing in any industry, but where the market is established, you can "sin" and stay afloat. The new industry, on the other hand, does not forgive sins at all.