Raising Money

Private Equity’s Focus on Sports and Gaming: A Startup Playbook

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Navigating the Current Landscape of 2025

While global M&A activity has slowed, private equity investments in the U.S. have risen by 25% year-over-year, reaching $46 billion in April 2025. This surge is fueled by a significant amount of “dry powder,” with PE firms holding $1.2 trillion in unspent cash. Notably, 24% of this capital has been idle for over four years, indicating a readiness to invest in promising ventures.

ChatGPT Image May 12 2025 at 10 22 38 AM

Sports franchises have become attractive targets due to their long-term media rights deals, which provide financial stability. For instance, the NBA’s 11-year, $77 billion deal and the NFL’s 11-year, $111 billion agreement offer predictable revenue streams. This stability has led to significant investments, such as the Boston Celtics’ $6.1 billion sale and stakes in the Buffalo Bills and Miami Dolphins by private equity firms.

The gaming industry is also experiencing a boom, with M&A activity totaling $6.6 billion in Q1 2025. A notable deal includes the $3.5 billion acquisition of Niantic, the developer of Pokémon Go, by Scopely.

Strategic Advice for Startups

  • Align with PE Interests: Startups should position themselves in sectors that are attracting private equity attention, such as sports tech and gaming. Demonstrating potential for stable, long-term revenue can make your company more appealing to investors.
  • Leverage Industry Stability: Highlight how your business can benefit from the financial stability offered by long-term contracts or recurring revenue models. This approach can mitigate perceived risks and attract investment.
  • Embrace Innovation: Stay ahead by integrating emerging technologies and trends into your business model. Innovative solutions in fan engagement, virtual reality, or mobile gaming can set your startup apart.
  • Prepare for Investment: Ensure your business is ready for investment by maintaining transparent financial records, a clear growth strategy, and a strong management team. Being prepared can expedite the investment process when opportunities arise.

Conclusion

Despite a challenging M&A environment, private equity firms are actively investing in sectors that offer stability and growth potential. Startups in sports and gaming can capitalize on this trend by aligning their strategies with investor interests and demonstrating resilience in uncertain times.

 

 

* AI tools were used as a research assistant for this content, but human moderation and writing are also included. The included images are AI-generated.

 

 

Startups Face Uphill Battle Raising Series B in Challenging Funding Environment

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The latest data paints a concerning picture for startups looking to raise Series B rounds. According to Crunchbase, U.S. startups are facing the longest Series B closure times since 2012, with a median of 28 months between Series A and B funding[1]. Out of 4,400 startups that raised a Series A in 2020-2021, only 1,600 (36%) have gone on to secure a Series B[1].

 The Series B Crunch

Raising a Series B has always been a critical and challenging milestone for startups. At the Series B stage, investors expect to see strong business fundamentals, scalable unit economics, and a clear path to profitability[1]. Many startups that looked promising at the Series A stage stumble when it comes time to prove out their business model and show sustainable growth.

In the current environment, with tighter VC budgets and a flight to quality, Series B investors are being even more selective. They are focusing their dollars on startups with exceptional metrics and category-leading potential. Even well-funded Series A startups with strong teams and products are getting caught in the Series B crunch.

 Sector Bright Spots

It’s not all doom and gloom though. Some sectors, particularly artificial intelligence, are still attracting large Series B rounds from investors eager to back the next breakout company.

Elon Musk’s xAI, for example, raised a massive $6 billion Series B just 6 months after its prior round[1]. Other hot AI startups like Anthropic and Adept have also raised supersized growth rounds in short order.

So while the bar for Series B is higher than ever for most startups, there are certainly exceptions for buzzworthy companies in the right sectors catching investors’ attention.

 Advice for Founders

For the majority of startups, the key to navigating the perilous Series B landscape is to plan ahead, be realistic, and explore all options:

– Start early: Given the long Series B closure times, it’s never too early to start building relationships with potential Series B leads. Plant seeds 6-12 months ahead of when you’ll need the capital.

– Shore up insider support: The path of least resistance is often an insider round led by existing investors. Make sure you’re communicating proactively with your Series A investors and getting their buy-in to preempt or at least backstop your Series B.

– Consider alternatives: If traditional Series B funding is proving elusive, look into alternative financing options like debt, revenue-based financing, or even an early exit to a strategic acquirer. The name of the game is extending runway however you can.

– Be scrappy: With funding hard to come by, it’s time to shift into scrappy startup mode. Cut burn, extend cash, and do more with less. Demonstrate to investors that you can execute in a capital-efficient manner.

Raising a Series B in this environment is undoubtedly challenging for most startups. But with foresight, creativity, and grit, savvy founders can still find a way to get it done. After all, constraints breed innovation.

 AI tools were used as a research assistant for this content. Written by Brent Huston with aid from Perplexity.

Citations:

[1] https://www.bizjournals.com/sanfrancisco/inno/stories/inno-insights/2024/07/18/series-b-gap-startups-higher-interest-rates.html
[2] https://houston.innovationmap.com/q4-2023-startup-funding-2666870949.html
[3] https://houston.innovationmap.com/2024-q1-funding-houston-startups-2667750361.html

Reduced Capital Returns to VC and PE Firms in 2024

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The private equity (PE) and venture capital (VC) industry has faced challenges in 2024 with
reduced levels of capital returning to firms. Despite some optimism and resilience, the
slowdown in deal activity and exits has impacted the ability of PE and VC firms to return capital
to their investors.

Venture Capital Slowdown

The slowdown in VC deal activity, which began in Q3 2022, has persisted into Q1 2024. In the
first quarter, $36.6 billion was invested across 3,925 deals, comparable to the levels seen in
2023[4]. Factors contributing to this slowdown include high inflation, uncertainty about future
interest rate cuts, and geopolitical fragility.

Exits have been a significant issue for VC firms. Q1 2024 saw exit values of $18.4 billion, only
slightly better than most quarters in 2023. The lack of exits has particularly affected unicorn
companies and their investors, with an average holding period exceeding eight years,
increasing liquidity risk[4].

Private Equity Challenges

Private equity activity saw its strongest quarter in two years in Q2 2024, with firms announcing
122 deals valued at $196 billion[5]. However, the valuation gap between sellers and buyers has
been a primary impediment to deal-making since interest rates began rising in mid-2022.

The lack of liquidity and distributions back to limited partners (LPs) has made them cautious
when allocating capital to PE funds[4]. This has contributed to a slowdown in fundraising, with
only 100 VC funds raising $9.3 billion in Q1 2024.

Impact on Limited Partners

Limited partners investing in private markets have been affected by the reduced capital returns.
In a survey, 61% of LPs reported that they will increase their asset allocation to private credit in
2024[1], potentially seeking alternative investment opportunities.

The fundraising outlook for PE firms has slightly improved, with only 15% of general partner
respondents expecting deteriorating conditions in 2024, compared to 45% at the start of 2023.
However, VC firms still have concerns about LPs reducing their allocation to venture capital[1].

Looking Ahead

Despite the challenges, there are some positive signs for the PE and VC industry. Corporate
investors have signaled plans to increase investment in corporate venture capital funds in
2024[3], expanding the pool of available capital. Additionally, PE firms have accumulated a
record $317 billion in dry powder as of Q1 2024, resulting from strong fundraising in 2021-2022
and a slowdown in capital deployment[4].

As the industry navigates this challenging period, entrepreneurs and fund managers will need
to focus on building resilient, profitable companies and managing capital carefully. Those who
can adapt and demonstrate clear paths to growth will be best positioned to attract investment
and succeed in the current environment[3].

Citations:
[1] https://press.spglobal.com/2024-04-29-Private-Equity-and-Venture-Capital-Industry-
Shows-Resilience-and-Optimism-in-2024-Amidst-Shifting-Market-Dynamics-according-to-S-
P-Global-Market-Intelligence-survey
[2] https://www.cambridgeassociates.com/insight/2024-outlook-private-equity-venture-capital/
[3] https://www.ey.com/en_us/insights/growth/venture-capital-market-to-seek-new-floor-
in-2024
[4] https://www.eisneramper.com/insights/financial-services/venture-capital-q1-vc-blog-2024/
[5] https://www.ey.com/en_gl/insights/private-equity/pulse

 

* AI tools were used as a research assistant for this content.