Term Sheet: Nov. 01, 2019

Our daily brief on deals and dealmakers. Is this email not displaying correctly? View it in your browser. follow Subscribe Send Tip November 1, 2019 It's no secret that professional athletic organizations want in on startup investing. As Sapphire Ventures co-founder Doug Higgins put it: "Tech entrepreneurs are the new superstar athletes." Higgins helped create Sapphire Sport, a fund dedicated solely to backing early-stage companies at "the intersection of sports, media, and entertainment." The sub-categories include e-sports and gaming, sports betting, data analytics, digital health and fitness, and next-generation media. In January, Sapphire Sport raised $115 million for its debut investment vehicle from a star-studded roster of limited partners such as City Football Group as well as owners, investors and family offices from the NFL, MLB, NBA, NHL, and MLS. It's backed companies such as home fitness startup Tonal, digital sports network Overtime, and social commerce platform Fevo. "We don't like the term 'sports tech' because it connotes this very niche category of wearable technology," Higgins told Term Sheet. "We like to think about the horizontal trends like artificial intelligence and predictive analytics that are disrupting the sports media and entertainment world today." In our wide-ranging conversation, Higgins discussed the rise of e-sports, the future of digital fitness, and what professional athletes want to know about venture investing. Below is an excerpt from our conversation. Read the full interview here. FORTUNE: Competitive video gaming, or e-sports, has become big business. What's behind the recent explosion in popularity? HIGGINS: Accessibility. One in four people in the world play mobile games. Kids these days want to be the next Ninja [a professional gamer], not the next Tom Brady. No matter how hard my 15-year-old son practices basketball, he will never be LeBron James. But with e-sports, you can actually see what your favorite player is doing and what tricks they're using to succeed in a game, and you can then do it yourself.  The at-home digital fitness space has also been heating up in the last several years. Why did you invest in home fitness startup Tonal rather than Peloton, which is the 800-pound gorilla that just went public?  A product is the soul for any company. You really have to have a product that is truly different and truly innovative from all the copycat competitors. A Tonal is one of those products where unfortunately, in this interview, I won't be able to do it justice because it's one of the coolest products I've ever used and ever seen. The reason why it's so compelling is that it's a piece of equipment with customized digital weights and true artificial intelligence that can personalize the workout experience to me, to you, to anybody.  Right, but it also costs $2,995 plus a $49 monthly subscription. What happens to a company like Tonal during a market downturn?  That's when it comes down to: Is your product that unique? You have to provide extraordinary value to qualify the price. But I will say that if you look at gym memberships and personal trainers, there's a lot of people who spend money on those services and never use them. Having a sticky customer base is essential to justify the price because once you use it and you realize you don't want to live without it, the price isn't as high as you might think. Peloton's shares have been trading down since it made its public market debut. Does that scare you in terms of the future for some of these digital fitness companies? The story of Peloton hasn't been written yet even though it's fun to speculate now. We, at Sapphire, have always taken the long-term view. If you truly have a unique company, product, and business model that makes sense, you'll do really well for investors in spite of the near-term choppiness. The second point I'd like to make is that it's really important to separate IPO execution and what certain executives say to sell an IPO and how that performs near-term and long-term. At Sapphire, we always think: How is this company going to be successful in terms of unit economics? In terms of generating cash and achieving profitability? And if you can't convince the Street that you have a path to that, you're going to be in trouble no matter what company you are and what products you have. I'd look at Peloton and separate the IPO execution from the company and the market, and we're super bullish on this whole digital fitness trend of the gym coming to your home. We're very bullish on companies like Peloton and Tonal. Given your investment focus, I'm sure you have conversations with many professional athletes who are curious about venture investing. What are they most curious about? In many ways, tech entrepreneurs are the new superstar athletes. What we tell athletes is that it's a whole different mentality to be a venture capitalist. You have to have 10-year plus time horizons. You have to be in an illiquid asset class. You will fail as much as you succeed. And professional athletes have a hard time sometimes thinking about that. The other thing that's super important is that this is a world where there is no draft. No matter who you are as a professional athlete or sporting entity, you don't get to pick the company. The company picks you. It's the entrepreneurs of the hottest companies who have all the leverage.  At the end of the day, it doesn't matter how much money you have or who you are, entrepreneurs want to know, "Are these really good people who will be there with me through thick and thin?" Athletes need to understand that the power is with the entrepreneur, and you need to be able to show them why you're different and whether you have a record of success. When there's a downturn, we'll see if all these athletes are still as interested when things go south.  Read the full Q&A here. . . VENTURE DEALS - Paidy Inc., a Japan-based payment provider offering instantly-issued credit, raised $143 million in Series C funding, including $60 million in debt financing. Investors include PayPal Ventures, Soros Capital Management, JS Capital Management and Tybourne Capital Management. The debt financing is from Goldman Sachs Japan, Mizuho Bank, Sumitomo Mitsui Banking Corporation and Sumitomo Mitsui Trust Bank. - Namogoo, a Boston-based cybersecurity firm, raised $40 million in Series C funding. Oak HC/FT led the round.  - Brut, a New York and Paris-based digital media brand, raised approximately $40 million in Series B funding. Red River West and blisce led the round. - OZY, a Mountain View, Calif.-based digital media startup, raised $35 million in Series C funding. Marc Lasry led the round, and was joined by investors including Interlock Partners, LionTree, Atinum Investment, GSV Capital, Axel Springer, Emerson Collective, and three partners from Clayton, Dubilier & Rice. - Inne, a Berlin-based femtech startup, raised 8 million euros ($9 million) in funding. Blossom Capital led the round, and was joined by investors including Monkfish Equity. - Mainline, a Houston-based esports tournament software and management company, raised $6.8 million in Series A funding. Work America Capital led the round. - Capital, a New York-based provider of non-dilutive growth capital to companies, raised $5 million in funding. Investors include Greycroft, Future Ventures, Wavemaker and Disruptive. HEALTH & LIFE SCIENCES DEALS - Kira Biotech, an Australia-based immunology company, raised A$20 million ($13.8 million) in Series A funding. Investors include OneVentures, IP Group and the Advance Queensland Business Development Fund.  . Content From REFINITIV Preserving Capital with ESG Investors increasingly look for ESG data to mitigate risk and preserve capital. At Refinitiv, we have analyzed our ESG database to understand how companies are positioning themselves for success in the transition to low-carbon economies. Download the report . PRIVATE EQUITY DEALS - Capital Partners made an investment in Allentown Inc, an Allentown, N.J.-based supplier of animal housing to preclinical in vivo research labs. Financial terms weren't disclosed.  - CI Capital acquired WTS International, a Rockville, Md.-based spa, wellness, and lifestyle consultancy and management firm. Financial terms weren't disclosed.  - Eversana, a portfolio company of Water Street Healthcare Partners and JLL Partners, agreed to acquire Cornerstone Research Group Inc, a Canada-based provider of health economics and outcomes research services. Financial terms weren't disclosed.  - Tritium Partners made an investment in AutoVitals, a provider of SaaS solutions to automotive repair and maintenance shops. Financial terms weren't disclosed.  - Sherpa Capital made an investment in Ferreira de Sá, a Portugal-based maker of luxury carpets. Financial terms weren't disclosed.  - Source Code, which is backed by JMC Capital Partners, acquired Broadberry Data Systems, a London-based IT hardware supplier/integrator. Financial terms weren't disclosed.  OTHER DEALS - Fitbit (NYSE: FIT) agreed to be acquired by Alphabet for $2.1 billion. IPOs - ESR Cayman, the logistics and warehouse operator, raised $1.6 billion in a Hong Kong IPO. Warburg Pincus backs the firm. Read more. - Tavan Tolgoi, a Mongolian state-owned coal miner, has picked banks to lead an IPO that could raise over $1 billion, Bloomberg reports, citing sources. Read more. - EHang Holdings, a Guangzhou, China-based maker of drones, filed to raise $100 million in an IPO. It posted $9.7 million in revenue for 2018 and a loss of $11.7 million. GGV backs the firm. It plans to list on the Nasdaq as "EH." Read more. - Fangdd Network Group, a Shenzhen-based Chinese online real estate trading platform, raised $78 million in an IPO of 6 million ADSs priced at $13, the low end of its range. It posted revenue of $69.4 million in 2018 and loss of $2.3 million in 2018. It plans to list on the Nasdaq as "DUO." Read more. . IF YOU LIKE THIS EMAIL... Share today's Term Sheet with a friend. Did someone share this with you? Sign up here. For previous editions, click here. For even more, check out Data Sheet, Fortune's daily newsletter on the latest in tech news. Sign up here.  . Email Us Subscribe share: . This message has been sent to you because you are currently subscribed to Term Sheet. 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