📊 Upside Analysis: What Sports Tech Startups Should Know About The VC/FO World and Do To Successfully Raise Capital
We have been working with VCs and family offices (FO) for over 10 years now. We have brought in deal flow to many Sports tech VCs and FOs. The sports tech investor space is a very close ecosystem and it requires startup CEOs to have a lot of resilience and creativity to be able to raise capital. In this analysis we will go over how the VCs and family offices function and operate, and the challenges that startups founders face when trying to receive investments from VCs and family offices. And more importantly we will discuss what startup CEOs should do to increase their chance of raising capital.
1. The Evolution of the VCs and Family offices world
The investment landscape for startups, particularly in the sports tech sector, has undergone significant evolution over the past decade. Venture Capitalists (VCs) and Family Offices (FOs) play a crucial role in providing funding, strategic guidance, and industry connections to high-growth companies, but their operations, strategies, and approaches differ. In this analysis, we will explore the operational dynamics of VCs and Family Offices, what makes them unique, the challenges faced by founders seeking investment, and how VCs are likely to function in the future to secure deal flow.
2. The Structure and Operations of VCs
Venture Capital Firms (VCs)
Fund Structure: VCs typically manage pooled capital from institutional investors, such as pension funds, endowments, and high-net-worth individuals, into a limited partnership. The general partners (GPs) of the VC firm oversee investment decisions, while the limited partners (LPs) provide the capital but are not involved in day-to-day operations.
Investment Stages: VCs invest in startups across various stages:
Seed/Pre-Series A: Early-stage funding, often at the product-development or go-to-market phase.
Series A/B/C: Later rounds to scale and expand market reach.
Growth and Exit: The focus shifts to scaling rapidly, optimizing operations, and preparing for exit strategies (e.g., IPO or acquisition).
Due Diligence: The process is often rigorous. VCs analyze not only the product or service but also the founding team, market size, competitive landscape, and financial projections. This often includes technical, legal, and market due diligence to mitigate risk.
Decision-Making Process: The decision to fund a startup is not made in isolation. VCs typically work as a team, and multiple partners (often with specialized knowledge in technology, operations, or finance) evaluate each deal. In sports tech, VCs may also bring in industry experts to assess the viability of the technology.
Value Add Beyond Capital: VCs are deeply involved in shaping the future of the companies they invest in. They provide strategic guidance, mentorship, introductions to potential customers and partners, and even recruit key management members to build a strong team.
Unique Characteristics of VCs:
Return Expectations: VCs generally seek high returns (often 10x or more) on their investments to compensate for the high risk involved. This expectation shapes their aggressive investment strategies.
Exit-Focused: VCs usually have a timeline of 7-10 years for an exit, which influences their decision-making and portfolio management. They aim to build companies that can either go public or get acquired by larger players in the industry.
Hands-On Involvement: VCs often prefer to take an active role in company operations, whether through board memberships or advisory positions. Their goal is to accelerate the company’s growth and ensure it meets key milestones.
3. The Structure and Operations of Family Offices (FOs)
Family Offices:
Fund Structure: Unlike VCs, which aggregate capital from multiple institutional investors, Family Offices are privately managed funds, often controlled by a single wealthy family or individual. They invest their own wealth, rather than other people's capital, which gives them more flexibility in terms of investment horizon and risk profile.
Investment Horizon: Family offices are generally less focused on short-term returns and more interested in preserving and growing wealth over the long term. As a result, they may be more patient and willing to support businesses through different phases of growth without the pressure of a forced exit.
Investment Style: FOs may invest in various asset classes, from real estate to private equity to venture capital. Their appetite for risk can vary greatly, with some family offices preferring more conservative investments while others embrace riskier, high-reward ventures. In the sports tech sector, family offices can often be more flexible in their investment approaches, particularly for later-stage companies or those with unique, high-growth potential.
Decision-Making Process: Decision-making in family offices tends to be more centralized compared to VCs. The family office’s principals or the senior family members often make the final investment decisions, although they may consult with external advisors or trusted partners for technical expertise.
Unique Characteristics of Family Offices:
Long-Term Investment Focus: Family offices generally have a long-term perspective and are less likely to pressure portfolio companies into rapid exits. This makes them an attractive partner for entrepreneurs who want a patient and supportive investor.
Customization: Unlike VCs, FOs may tailor their investment strategies based on the family’s preferences or values, such as investing in socially responsible or impact-driven companies.
Direct Control: Family offices may choose to be less involved in the daily operations of portfolio companies compared to VCs, but they often have a hands-on role in strategic decisions or major financial milestones.
4. Challenges Faced by Startup Founders in Attracting Investment
From VCs:
Competition: The sports tech market, while growing, remains competitive. VCs are inundated with pitch decks from startups across various sectors. Founders often struggle to stand out, especially if they lack a proven track record or an extensive network in the venture space.
Market Fit and Scalability: VCs are particularly sensitive to whether a startup can scale quickly. A founder’s ability to demonstrate product-market fit and a clear path to growth is essential.
Risk Aversion: VCs may shy away from startups with untested business models or those that have limited traction. In sports tech, where the landscape is still evolving, this presents a challenge for many startups to secure funding early on.
From Family Offices:
Misalignment of Investment Thesis: Not all family offices have an appetite for tech-focused startups. Founders need to understand the family’s values and investment preferences. Some family offices may focus more on traditional asset classes, and others may prioritize investments in industries aligned with their personal interests (e.g., wellness, sustainability).
Decision-Making Speed: While family offices can be more flexible than VCs, the decision-making process may still be slow, especially if the office lacks a dedicated investment team and is relying on family members to make the final call.
5. How VCs Are Likely to Function in the Future to Secure Deal Flow
As the sports tech ecosystem continues to mature and diversify, VCs will have to adapt their strategies to maintain a competitive edge and secure high-quality deal flow. Here are some future trends that will likely shape their operations:
Increased Focus on Industry-Specific Funds:
Given the rapid rise of niche industries such as sports tech, VCs may continue to create specialized funds or hire experts within those domains. These specialized funds will provide a more tailored approach to deal sourcing, making it easier for VCs to identify and support the most promising startups in the space.
Partnerships and Collaborations with Corporates:
Strategic partnerships with corporate players in the sports industry (e.g., leagues, broadcasters, equipment manufacturers) will become more common. By aligning with established organizations, VCs can gain access to unique deal flow, identify emerging trends, and secure early investments in high-growth sports tech companies.
Emphasis on Diversity and ESG:
As the demand for investments with a positive social or environmental impact grows, VCs will likely put more emphasis on Environmental, Social, and Governance (ESG) factors in their investment decision-making processes. This will affect deal flow, as startups with clear ESG value propositions will be in higher demand.
Leveraging Data and AI for Deal Sourcing:
The future of deal flow will likely involve AI-powered platforms that scan vast amounts of data to identify promising startups. By leveraging machine learning algorithms, VCs can gain early insights into market trends, assess startups more efficiently, and make quicker, data-driven investment decisions.
Global Sourcing of Deals:
The traditional VC model of focusing predominantly on Silicon Valley or major tech hubs will shift toward global deal sourcing. With the rise of remote work and international startups, VCs will increasingly look for opportunities in emerging markets and untapped regions.
6. Recommendations to Startup CEOs To Successfully Raise Capital
Treat Fundraising as a Full Time Job
We work with sports tech startup founders weekly so we know how challenging it is to run a startup while raising capital. Too many times we have seen startup CEOs trying to do both at the same time and struggle to do so due to the lack of time and connections in the VC/family offices world. On the other end we have seen startup CEOs step down to primarily focus on the fundraise and let a trusted employee runs the company while fundraising. We think this is a good strategy for a short period of time until the round of funding is closed. But it really depends on each startup CEO.
Build Resilience. Raising Capital is a Marathon
Like any fundraise, whether it is in verticals like healthcare, finance, etc..During their fundraise startup CEOs will get a lot of Nos before they get some Yesses. That’s just the nature of the game. So to all the startup CEOs get ready to build resilience during this process. It is typically a long road and the most successful CEOs we have seen raising money are the ones that are very resilient and keep moving forward regardless of how many Nos they get.
Leverage your network or build a solid network to land meetings with VCs
This is probably one of the most critical success factors during a fundraise. The most successful startup CEOs that have managed to raise capital are the ones that already had a good network among VCs or family offices or are the ones that were able to build a strong network of VCs and family offices. For those startup CEOs who do not have a solid network of VCs and family offices we recommend that they leverage their LinkedIn network, or join sports tech accelerator programs where they can leverage the network of mentors to get introduced to VCs and family offices. This will be critical to their success.
But to all the startup CEOs out there do not expect 20 solid introductions to VCs and family offices from a single mentor. This is just not realistic. Those mentors might be able to make a number of introductions to VCs. Why? Those mentors have the ability to access partners of VCs but they cannot guarantee that any of those investors will agree to take a meeting with a startup CEO let alone to invest in their startup. If the VC is not interested in taking the meeting startup CEOs have to respect their choice.
Focus on Sales Forecasts, GMs, and Less on Social Media Outreach When Pitching to VCs or FOs.
In their VC deck one of the most important metrics that VCs or FOs look at are the startups’ long term sales forecast, GM (Gross Margins) and how they can get their ROIs. So let’s say if a startup CEO is raising $1M and is willing to give away 10% of its company at a $10M valuation, then a 10X return may be delivered at a $100M outcome (depending on dilution). What that means is that the startup CEO needs to show a sales forecast showing a VC or FO how they are going to reach $100M in sales over a 7 or 10 years period. GMs (Gross Margins) is the other key element of the VC deck. Why? Because if the startup is not profitable due to high costs, then that means that the startup is not making much money. That’s a red flag for any potential investors.
Typically software startups tend to have significantly higher gross margins compared to hardware startups, with software companies often achieving gross margins between 70-80%, while hardware startups typically see margins around 20-40% due to higher manufacturing costs associated with physical products. Lastly, many times we see startups highlighting in their VC deck their social media outreach. But let’s face it! Social media outreach (Meta, Twitter..) does not always translate into sales and investors care a lot more about sales forecast, GMs and their ROIs.
Think Outside of the Box to Stand Out from the Crowd
One of the new things we have seen startup CEOs do is create some quick videos explaining why any investors should invest in their startup. It is a very innovative and interactive way for startup CEOs to get their message across as opposed to send a typical VC deck. Creating a newsletter send to investors (VCs, FOs.) to give them an update on their fundraise, their traction, is another great way for startups to keep investors in the loop during the process. So as a startup CEO you have to think outside of the box and this is one of the new technics we have seen startup CEOs use.
Do your Homework before Approaching VCs or Family Offices
This is another very important element of a successful fundraise. Too many times we have seen startup CEOs reach out to sports tech VCs and family offices without doing any research about their investment philosophy, existing startup portfolio, the stage of investment (seed, Series A..), and the typical size of their checks. This will go a long way to successful land an investment from a VC or family office. Why? Because it shows to potential investors that startup CEOs have done their homework, are fully prepared and can explain to a VC or family office why they are the right fit for them and how it can help those VCs and family offices enhance their portfolio of startups.
Do Not be Overconfident and Aggressive. Stay Humble
One of the things we have seen some startup CEOs do is be overconfident during their fundraise and say things like “We will close our round of funding in the next 30 days”. They have to remember one thing: It usually takes longer than it should to raise money. It is a long process as investors have to do some due diligence to make sure this is the right investment for them. So to all the startup CEOs out there trying to raise money: Stay grounded. Stay humble. Be patient. This will go a long way while trying to close your round of funding. And the other thing we have seen startup CEOs do is sometimes be a bit too aggressive while trying to get introductions to VCs or family offices. Now we know how stressful it might be to try to keep the light one but being too aggressive while asking other people for help or introductions is not the way to go. The last thing you want to do as a startup CEO is be too aggressive and those mentors who have the relationships with VCs or family offices will just walk away.
Conclusion:
VCs and Family Offices have distinct operational models, but both play a crucial role in the sports tech ecosystem. While VCs tend to be more aggressive in terms of return expectations and involvement in day-to-day operations, family offices offer a more flexible, long-term approach. Startups must navigate challenges related to competition, market fit, and investor expectations to secure funding, but the future of deal flow is likely to be shaped by specialized funds, strategic partnerships, data-driven decision-making, and global sourcing strategies. Understanding these dynamics and adapting to the evolving investment landscape is crucial for both investors and founders in order to foster sustainable growth and success in the sports tech space.
As far as sports tech startup CEOs they have to consider the fundraise as a full time job. They have to be very focused, do their homework while approaching new VCs and family offices, and more importantly they have to be able to successfully leverage their network to get to the investors they want to talk to. And they have to be innovative (e.g. using recorded videos) in terms of how they want to present their startup as a great investment opportunity to VCs and family offices. And they have to stay humble during the process. Raising capital is a very humbling experience and it takes a lot of resilience and determination.
If you are a startups looking to get traction with pro teams, raise money, or get guidance on your product, feel free to contact me at julien@upsideglobal.co
Best,
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