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Why a titan of venture capital invested in a 3-person esports company

Before Delane Parnell’s PlayVS revolutionized high school esports, it was the pipe dream of a young, ambitious entrepreneur looking for funding.

Why a titan of venture capital invested in a 3-person esports company
[Photo: courtesy of PlayVS]

Amazon sent a jolt through the tech world in 2014 by announcing it was buying Twitch, the 3-year-old streaming platform that was becoming popular with gamers, for nearly $1 billion. At that time, Silicon Valley-based New Enterprise Associates (NEA) had grown to be one of the largest venture capital firms in the world on the back of investments in companies like Uber, BuzzFeed, Groupon, Coursera, 23andMe, and Cloudflare. Looking for the firm’s next big thing, NEA partners Rick Yang and Jon Sakoda set their sights on esports. As recounted in this excerpt from Kevin Ryan’s new book, Ahead of the Game: The Unlikely Rise of a Detroit Kid Who Forever Changed the Esports Industry, the two investors would find an answer in the unlikeliest of entrepreneurs.

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Growing up as a star swimmer in the Dallas suburbs, Rick Yang had a bit of a secret life. Unbeknownst to most of his classmates—and his teammates—he would come home after practice, breeze through his homework, boot up his computer, and play the game World of Warcraft. This activity was not, by any means, considered “cool.” Known for its elves, dragons, and other fantasy imagery, the game once had an entire South Park episode dedicated to mocking the nerdy culture around it. Yang developed a second social circle in addition to his swim circle, one that played games together in each other’s bedrooms or basements. On weekends they’d get together and play WoW, as it was known among gamers, or Ultima Online, another game characterized by healthy doses of magic and dorkiness.

Fellow NEA partner Jon Sakoda wasn’t much of a gamer himself, but he could identify a phenomenon-in-the-making when he saw one. Playing video games was no longer about turning on a Nintendo or PlayStation and competing against the computer. More and more games were being created with team play in mind, offering the option to play online in competitive, team-based matches known as esports. In their early days as NEA partners, Sakoda and Yang spotted a cultural transition playing out across America. For gamers, the dual life was becoming a thing of the past. High school basketball and soccer stars were picking up controllers and playing video games after school, and they weren’t hiding it.

“For the younger demographics,” said Yang, “video games were becoming a part of mainstream culture.”

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Gaming, in other words, wasn’t just for the nerds anymore. For a couple of venture capitalists, this meant there was a lot of money to be made.

“Twitch’s exit led people to believe that there were some more big esports companies to come,” said Sakoda. “We thought it was even bigger than what most people were saying. We had a thesis that esports was going to be explosive.”

This thesis, of course, was correct. Between 2014 and 2017, global esports revenues would grow by more than 250%, reaching $655 million. While the industry expanded, Yang and Sakoda searched for the company that could be the next unicorn. They listened to pitches from a handful of game publishers. The upshot of betting on the right publisher could be huge: Riot Games, for example, grew its game League of Legends from zero to 100 million monthly users in six years; and Epic Games, the company behind Fortnite, gained 200 million registered users in 16 months and would go on to be valued at $17 billion.

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But for every League of Legends or Fortnite there were many, many flops. Predicting what titles would take off was seemingly impossible. Yang and Sakoda wanted to find a company that was less vulnerable to the capricious nature of consumer tastes. A company that could instead capitalize on the industry’s macro trends. A company that could tap into the market in a new and profound way.

In the spring of 2018, they found it.

In the weeks leading up to April 6, 2018, Peter Pham, cofounder of the Santa Monica startup incubator Science, sent dozens of emails to investors across Silicon Valley about a new entrepreneur he was particularly excited about. Science had given the young founder a few hundred thousand dollars in seed money and set up a desk for him in its office. Now it was time for him to try to raise a full-on venture round.

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A few minutes before 2 p.m., Pham confidently strolled into NEA’s Menlo Park headquarters. Walking alongside him was the entrepreneur in question. Delane Parnell was 25 years old. He had no college degree. He wore not a suit or a vest over a button-down, but a hoodie. His startup had just two full-time employees. But Pham had vouched for him, going so far as to compare his entrepreneurial chops to those of Michael Dubin, the Dollar Shave Club founder Science had incubated several years earlier before it eventually sold to Unilever for $1 billion. As such, several firms, NEA included, had agreed to meet with him.

Delane Parnell [Photo: courtesy of PlayVS]
Yang and Sakoda escorted Pham and Parnell to a large-windowed conference room. The two pairs seated themselves on opposite sides of the table. Sakoda thought about his three prerequisites for investing in a startup. The criteria weren’t groundbreaking, but they laid the foundation for a startup to have at least a decent chance of success. They were:

  1. A massive potential market
  2. A competitive advantage within said market
  3. A great founder

There was no denying that Parnell’s startup, PlayVS, existed in a massive market: The company was building software for esports. At that time, a small number of high schools across the country had created esports clubs. Students could show up after school and play against one another or, occasionally, against another school. Most of the clubs were grassroots in nature. What Parnell was creating at PlayVS was a platform that could give high school esports some much-needed infrastructure. The company would help the schools that didn’t yet have clubs—the vast majority of America’s 24,000 high schools—form and launch them. Then it would arrange the teams into leagues, schedule matches, host those matches online, compile the relevant statistics and records, organize and stream the postseason, and, ultimately, help crown state champions.

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This was where Sakoda’s second requirement came into play. Unbeknownst to the public at the time, PlayVS had recently signed a deal with the National Federation of State High School Associations, or NFHS. The NFHS is to high school sports what the NCAA is to college sports: a body that writes the rules for athletics, determines student-athlete eligibility, and offers guidance on issues like coaching and athlete safety. For years, the NFHS had been considering making esports an officially sanctioned high school sport. Its agreement with PlayVS meant that when that happened at some time in the near future, the startup’s software was going to be the platform on which all high school esports would operate. The deal contained something critical for PlayVS: an exclusivity clause. This meant that no other esports company could cut a similar deal with the NFHS for the next five years. PlayVS, despite being a three-person startup no one had heard of, had built a tall and sturdy wall of defense against competitors—exactly the kind of edge Sakoda looked for.

The way the company had managed to do that had a lot to do with Sakoda’s third factor: the entrepreneur. Sakoda knew as much from his conversations with Pham. Now he was getting to see it firsthand. Almost as soon as the kid started talking, Sakoda found he couldn’t look away from his smile. It changed Parnell’s whole face, puffing up his cheeks and narrowing his eyes into squints. Sakoda liked this smile. A few minutes into the meeting, Parnell was off and running, standing near the monitor on the wall and walking the investors through the various features of the software.

Not a single game publisher had agreed to let PlayVS license its games. Many were notoriously stingy about such deals.

“This is where a coach can log in to manage their roster.” A click of a slide. “This is where they can see their team’s stats and upcoming matchups.” A click of a slide. Parnell talked about the fact that high school esports would be a no-cut sport, allowing kids of all skill levels to participate and thereby creating a wider user base. He spoke about teams being coed, with competitions taking place in person under the guidance of an adult—as opposed to online and anonymous—which he theorized would neutralize much of the toxicity that plagued the world of gaming. He discussed the platform’s potential, as an after-school program, to keep kids off the streets.

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Yang and Sakoda listened intently. “You just don’t hear those types of things in a pitch about a gaming company,” Yang said later.

Pham, normally a bundle of energy in these meetings, knew to take a back seat that day. He grabbed some snacks from the spread and brought them back to his seat at the table, munching quietly while the VCs asked questions.

“How do we know PlayVS will actually get schools and students to sign up?”

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“We will,” Parnell reassured them. “We’re talking about video games. And what schools wouldn’t want to give their students the chance to be involved in something after school?”

An even bigger unknown: Not a single game publisher had agreed to let PlayVS license its games. Many were notoriously stingy about such deals.

“What’s the likelihood that PlayVS can sign deals with publishers?”

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Parnell grinned. “Having a contract with the NFHS means we have access to 16 million high school students,” he said. “Why wouldn’t the publishers do it?”

Continually, the investors asked him questions, and continually, he had answers—sometimes in the form of a rhetorical question right back at them.

“He had such a certainty, such a positivity,” Sakoda recalled. “He would just smile and say, ‘Yeah, we’ll get the big publishers to do these deals.’ No matter what he was talking about, even if it seemed risky or seemed like it would be difficult, you just believed he was going to be able to do it.”

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Here was the NEA office nestled in the rolling greenery of Menlo Park, across the street from a country club in the heart of Silicon Valley. You could walk out the door and reach the offices of some of the other most renowned VC firms in the world—Kleiner Perkins, Sequoia, Andreessen Horowitz—in under a minute; the headquarters of Google, Facebook, or Apple in less than 20. And here was Delane Parnell, the 25-year-old Black entrepreneur from the impoverished neighborhood just off Seven Mile Road in Detroit, standing in the center of it all, pitching his heart out for two seasoned investors.

“It was magical to watch,” Sakoda recalled. “We caught the bug.”

Which was why, 20 minutes into the meeting, Sakoda turned to Yang in his chair. “We have to invest in this company,” he blurted out.

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That was just what Pham needed to hear. He stepped back into the conversation, and he and the two investors started discussing potential terms. PlayVS needed a firm to lead this Series A funding round—the firm that would sign the largest check, help set the round’s terms, vet the other potential investors, and take a seat on the startup’s board of directors.

Yang and Sakoda knew one thing with certainty: If PlayVS ever failed, it wouldn’t be because of its founder.

This time, Sakoda turned to Yang before turning back to Pham: “NEA is interested in being that firm.”

When the conversation ended, the four men shook hands, and Parnell and Pham were on their way to their next pitch meeting, the 11th of 13 they’d attend in the span of 30 hours. Even if none of the other firms were interested, they had earned a verbal commitment from a lead investor. There was still a long way to go, but this was a critical first step in acquiring the millions of dollars PlayVS would need to hire a staff and get this thing off the ground.

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For Yang and Sakoda, Parnell represented a potential answer to their four-year search for the right esports entrepreneur. Everything they’d heard that day had convinced them so. It wasn’t just about the positivity and the confidence and the ability to sell an idea, although those factors surely helped. There was more to Parnell. Much, much more. They had learned so in that pitch meeting, before Parnell spoke about PlayVS’s software or the NFHS or potential publisher deals. They learned it when Parnell took them back. Back to the apartment in the crack-infested projects. Back to the gangs. Back to his mother, the shootings, the shed in his backyard.

“Context,” Parnell would say later, “is super important.”

Yang would agree. “If it wasn’t for Delane talking about the mission-driven nature of this company and his own background,” he said, “and why that all led him to be the perfect founder for this type of company, the rest of the pitch wouldn’t have been as powerful as it was. That’s an important part of understanding who Delane is and how it drives him.”

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The reality of investing in early-stage companies is that it’s impossible to know how a product will land once it hits the market. But watching Parnell in front of the room that day, Yang and Sakoda knew one thing with certainty: If PlayVS ever failed, it wouldn’t be because of its founder. Parnell wasn’t going to give anything less than everything he had to offer. He had already come too far.


Adapted from the book Ahead of the Game: The Unlikely Rise of a Detroit Kid Who Forever Changed the Esports Industry, by Kevin J. Ryan, available now and published by Harper­Collins Leadership, an imprint of HarperCollins. Copyright 2022 by Kevin J. Ryan.

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