Invest Like the Best with Patrick O'Shaughnessy - Blake Robbins – Investing in Gaming - [Invest Like the Best, EP.180]

Episode Date: June 30, 2020

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  

Hello and welcome, everyone. I'm Patrick O'Shaughnessy, 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 investorfield guide.com. Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaunsi Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy asset management may maintain positions

and the securities discussed in this podcast. 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 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 deeply appreciate if you took five minutes to fill it out at investor field guide.com forward slash 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. 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. 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 the games are developed and there's sort of this push-bowl, depending on how you are as a overall developer. 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. You can play on almost anything. 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.

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, do you just buy existing big companies or do you think there's a lot of upstart potential? Yeah, I would say the real giant in the 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 40% 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 Valerance 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 C Limited that has mobile games 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 VALF. They're the creators of Counterstrike and Dota, Halflight, 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. 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 play it 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? 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. Counterstrike 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 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 the space, because I'm always fascinated by it. I think CounterStrike is one that actually has a more open economy around it,

where people open these actual loop boxes, and you pay, I 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 Counterstrike. 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.

And the rarity is decided by a lot of different factors, but Counterstrike as a game has decided there's a finite amount of these, and they let you know how many are in theory and 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 Conestrike 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 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 character can wear 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 exist. So one of the rarest in the game is a skin called the Skull Trooper, which came out basically as one of the first skins in the game. No one really realized how rare it was. And they've never actually brought it back. 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 Skull Trooper skins that they can create

in game. And so I imagine at some point they will do that. It's likely when maybe the hype around the new skins drops off. So yeah, that's the super high level, but happy to dive into anything else there. 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. You can give me the examples maybe. But talk a bit about those economies.

How do gaming companies think about that, manage the game. those economies, control for inflation, if it's gold-based or something. It seems like an experiment in economics could be run inside of these games. How do items or gold or real currencies have meaning in the digital sense? Each of these games has their own sort of economies around them. In Fortnite, you're just buying V-bux as the actual currency that they use in the game. You're just putting those in, buying these specific items. And those actually 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 fortnight 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 so uh there's certain characters or skins or whatever it might be that you're using that essentially 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 i would say in going more broadly in 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 conestrike 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, which is like one the most popular scans is known as like, this equals $20. And so people were just buying a bunch of these and then putting them on to 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 converted 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 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 was 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 going to have an open API, we're going to let people do whatever they want with these items, had to officially step in and they sent out season desist to every single gambling site. And that actually essentially 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 to actually view these loot boxes like CounterStrike 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. 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 of 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 e-sports 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 the franchises are valuable because the supply is very limited. It seems like we're much earlier than that in e-sports. So one, I'm curious if you agree with that. And two, to have you tell the story of 100 thieves. 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. E-sports 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, 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 Counterstrike, they've actually taken a complete hands-off approach, 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 a set number of teams. They're 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. 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-Trek 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, It's been around for about a decade now. They spearheaded it where for the past, I'll say eight years, they broke up these leagues into specific regions. 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. in 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 e-sports. That changed a little bit as far as the structure go, where the individual regions will 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, it was acting closer to English Premier League where there was a promotion and relegation system. There's 10 teams in North America. There was a challenger seen 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 e-sport. That's when things started to shift in this world and when a lot of the investors that we now see in the space have started to pay attention and start 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 in e-sport. And they were going to start with the, 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. And around that time and that was a long winded answer to tell you the start of 100thiefs and how we got involved with 100thiefs. But

100thief is an e-sports team that played. in Connestrike, playing 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 we, and I'll say we is as Ludo, and a couple 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, or should we be building our own and what would that look like to build our own? Turns out, we decided to get out of like a hybrid where there was essentially a dormant brand called 100 Thiefs, which is tied to a really big influencer in the YouTube space. His name is Natechot. He used to be a former Call of Duty professional and was world champion called 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 100 thieves as an e-sports team. He 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 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. 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. I 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 dance team. I was like, what if we convinced him to bring this back and we build a real business around it? That became a bunch of different conversations. I had reached out to Nadechat 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 Nade shot as a brand and,

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. And I can't stress enough. Like there was so much uncertainty around how, 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. It's been a really amazing partnership so far where the teams are all aligned for the first time,

and that's sort of the big thing for e-sports, 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 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 as a team, but even just League of Legends e-sports or contract e-sports. 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 the 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. And today that's really become even

stronger. And that's because the games just continue to become even bigger. Sounds like this guy, NadeShod 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. Twitch is probably has a power law of distribution of people watching a few players.

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. you're hinting towards something which is just the 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, and 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 Natchat and 100 Thiefs, Nade Chot to his credit very early on, realized a Nade Chot name 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 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 it into whatever they're selling.

And I think that's a really big, we're getting a glimpse into where all 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 that have really quality products and you're like we'll just reskin it or white label it as this is blake's coffee company I think that 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 invests like the 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. 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? We typically invest in the pre-seater 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 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. 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, and it hints towards where things are going. But I really think Roblox is the first one that's unlocked us, 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 within 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 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 just harming the creatives who never really even had a chance to build because 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 knowledge of how to build the game. So I think that's for me, one area that 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 studio per se, it's not just betting on one or two games and that's what we're funding. It's usually like, let's try and produce eight to ten games in a year and realizing that there is some hit-driven nature to this business. But if you do it right and one of these hits, you can build a real platform. around it. And that platform can be, I believe Mitch Lasky 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, vast 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 raise like 200 million from Goldman probably a year ago. and their whole thing is that they just create these really short-burst, hyper-casual games. You've likely played one of their games if you've ever downloaded a game 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 that we can continue to promote and push forward. to say a little bit about the fascinating two engines behind a lot of this in unity and unreal both of those and epic is in an unreal spot and no pun intended with what's unreal like they they actually i don't know if you've seen the way to stemmo but it's starting to look even better than like movies and i think if you just continue to not Pixar movies like actual live action Yeah, yeah, like actual live action movies. I remember sitting there like a couple weeks ago watching it and I was like, oh my gosh, this like looks better than actual like Tomb Raider.

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 ecosystem and world. I think gaming forever has been mistaken

as this hit-driven movie-type business, and we really are starting to see them emerge as platforms. And obviously, Unity and Unreal are in an amazing spot to be powering the back end of a lot of these. But I think the real truth is that these games become, more of the third place. Like I think if you talk with any kid who plays Fortnite, they likely say 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 thing that I think has largely been misunderstood by a lot of investors. 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? It's interesting because I would say there's a couple 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 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 there's one fund called Play Ventures out of Europe that's merged and they actually only invest in the pre-seater seed of game studios. 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. Mitchell asked you, to his credit, has just been very good at this. Like 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 exit, to Tencent, it was probably four or five hundred million. But I would say benchmark, Andresen has really started to move into the space that recently hired someone from Tencent, his name's John. He's been very active in trying to deploy capital here. I think the key is if you are going to invest in these studios and hope that you have the next fortnight 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'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 realize that's sort of a last real chance for them to get money in. These games, you find out really quickly if they're going to hit. And so the chances of you investing at a, I'd say reasonable valuation post launch are pretty low because they just become cash flow businesses, especially in these free to play world where there is actually no cost. 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. 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. The creator economy, I think, and Driesen 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 going to see more of those platforms emerge.

For example, like we'll probably see something really start to grow in the education space 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? And we're starting to see like the first wave of that right now where people my age, let's say, grew up 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 there's a big creator.

His name's Mr. Beast. I'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 today he has 40 million subscribers or something close to that. and he's always just like studied it. And I think that goes back to just me as a person. Like I feel like I'm a student of the internet.

And I think most kids today are students of the internet. And so if they can figure out how to monetize their time, whether that's making memes, right, there's people that run pages on Instagram where they're just making memes and making lots of money where they're just selling ads based on there. And I think with the way like platforms that emerge to help enable that are really going to win over the next decade because 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're like, okay, well, maybe I love baking. Maybe I should start my own bakery. And like, what does that look like of the local baking side of all this? And I know Etsy has in some crazy world started to transform into like selling baked goods and that side. So yeah, I think there's going to be a lot of new platforms that emerge here to just enable these new type of creator, a new type of small business. You've hit on one of my favorite topics, which is the enablement of other creators 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. It's a 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 consider 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, you know, API first companies that build the guts of an internet business. How much opportunity do you think is left there? you know, that's easy to sing 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? 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 Phoenix 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, and 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, they're now just paying essentially the tax on a per user basis or whatever the actual price and 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 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 what's up? I think it came out that they paid like a hundred million dollars last year for for Twilio and the less earnings report for Twilio. And so at what point does Facebook just switch off and build their own?

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? And as a result, if you are 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,

personal finance app. The personal finance app is going and spending to acquire all these users. And for each user that 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 as like Plaid is getting a tax for that. And in some ways like Unreal and 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 enable other startups

or like the startups of startups and eventually that graduates as the companies grow using that like a recent one 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. And like, for example, tandem uses daily. And tandem has to go out and probably as a sales team 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 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. 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.com 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. 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 or when you're trying to transfer places, like you have to go and like manually get all of your information 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 in health insurance, for example, or whatever it might be, 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 than the way that these new software companies

are emerging where they're paying attacks or paying these suppliers, right? And this is sort of this new form of supplier where GM isn't going to build their let's say some casting or body of 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 that just is starting to get converted onto the internet now. And 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 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 back end of, I believe it's Hams or Roman, one of those telemedicine companies. They do a couple other telemedicine companies, but they're just the 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 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 those. 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? 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,

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. And ideally, you're both. Like if you're a toy or a 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 space working at your company rather than going to X, Y, and Z company as well. What investment or allocation of capital, I should point out for the audience, I think you're 26 years old, which is absurd. So there's not a lot long history here, but what investment or allocation of capital are you most proud of in your career so far? 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 like 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 it 10 years ago, and this is maybe why I'm just proud of it, like, if you told me 10 years 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 Drake and Scooter Braun are both involved. And they also, their apparel is very popular.

or 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. 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 an 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? I actually think about this a lot because I just try and, like, understand how do I 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 that 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 and there's a company within it that's like a bootstrap business that I just think is one of the most interesting businesses that I've ever seen. It's called PC Part Picker. And all they are is like 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 then these

communities are a good hint towards that. In the area of gaming specifically, what's something that you don't yet understand well that you wish you did? That'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,

wherever else, all viewed esports or the competitive side of this as just peer 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. 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 an 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 e-sports 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 the sports 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 has taken different strategies. Some are much more aligned than some are like completely ends off. And that will be really, really interesting to see how it plays out. So, Blake, my closing question for everybody is to ask for the kindest thing that anyone's ever done for you. 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. I do, yeah. 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, 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, what's in the context of my professional life have been so invaluable and we're willing to 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. I've started to collect these as sort of categories. And the 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 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. Yeah, thank you. 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 condensed 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 we'll keep doing so in this weekly email. You can sign up at investorfieldguide.com forward slash book club.