Hidden Investment opportunities during a downturn market

And – 4 Elements why the sports tech market could potentially stand out!

WSC Sports, Fitbit, Uber, and Airbnb. What do these companies all have in common? 

They were all established either during or directly after the 2008 recession.

KEY TAKEAWAYS:

• Investing in startups during these periods of economic downturns could represent a profitable move for angel investors and VCs. 
• Evidence suggests, Sports tech startups provide a “safer” opportunity for Investors during recessions.
• As an investor, it’s critical to find smart ways to validate and analyze a startup’s potential. 
• Airbnb, Uber, DropBox, Instagram, and Slack are just a few examples of companies that were established during previous downturn markets

It was a beautiful rare London sunny day back in August 2007, I remember sitting at one of Starbucks’ outdoor tables outside of Embankment tube station. It was already clear to all the dark suits around me that we were in the midst of what would become known as the Great Recession of 2008. While I was out, I met Aviv, a successful, 3-time VC owner who I knew back from my days as a below-average football player in Tel Aviv. He looked refreshed, cast a smell of expensive cologne, and had a stylish leather bag in his right hand. We sat down and I asked him “Aviv, what’s in the bag?”. 

He stopped, looked me in the eye, and said, “My chequebook. You know me – when a recession comes, I’m out buying equity!” with a grin on his face. 

As we know, many early-stage investors are hesitant in putting their money into startups in downtrend markets due to the high risk and uncertainty that accompanies it. 

However, as we have seen in the past, recessions also offer significant opportunities for those willing to think long-term and act now. 

Below, I have inked some thoughts for any investor to consider if debating an investment during these times and as always, with sports and innovation in mind.

First Rule in General – downturn markets have the following impact:

1. Valuation: During a recession, startup valuations tend to be lower, providing opportunities for venture capital firms and angel investors to buy in at a discounted price and potentially gain larger returns. 

2. Low competition: Downturn markets also offer a great opportunity for startups to fill the gaps created by companies cutting back on R&D spending and bringing new products and services to the market. 

3. High flexibility: Startups are also agile and can quickly adapt to changing market conditions. In a recession, they may be better positioned to implement cost-cutting measures to survive and even thrive. 

4. New market opportunities: Recessions also create new market opportunities as consumer behavior and spending patterns change. Startups that can identify and capitalize on these opportunities can see significant growth. 

5. Potential acquisitions: A recession can also create special opportunities for startups to be acquired by larger companies looking to expand or offer new product offerings at an attractive price point. 

Can a sports startup represent a Premium opportunity for investors?

4 elements that can potentially make a sports tech market stand out:

1. Strong Demand: While other industries may suffer during tough economic times, the demand for sports remains relatively consistent. People always want to stay active and engaged with their favorite teams and athletes. 

According to Statista, the last World Cup tournament had an average of 55% global viewers from 35 different countries, making it one of the most viewed and profitable events in sports history.  For example, The FIFA World Cup, held every four years, is one of the most viewed and profitable sporting events in the world. In 2022, the tournament had an average global viewership by almost 17M viewers.

2. Reduced Risk: Sports tech startups often enjoy a lower barrier to entry than other industries. Many sports technology startups can launch with just a minimal amount of capital alongside a great idea, making them more accessible and less risky. 

One example of a sports tech startup with a lower barrier to entry is Peloton, which provides at-home workout equipment and streaming classes. The company launched in 2012 with a single product, the Peloton Bike, and has since grown to become a publicly traded company with a market capitalization that reached $46 billion at its peak. 

Another example of a sports tech startup with a lower barrier to entry is Strava, a social network for athletes. The company was founded in 2009 and it offers a free mobile application that allows users to track their activities and compete with friends. Strava has grown to become one of the most popular sports-tracking apps in the world, with millions of users.

3. Revenue: sports tech startups are often able to generate revenue fairly quickly, which can be a huge advantage during these periods of slowdown. With the right product or service, these companies can quickly establish themselves as leaders in their field, accelerating customer acquisition as a result. 

DraftKings, a daily fantasy sports platform, has quickly generated revenue since it was founded in 2011, and by 2020, it had grown to become a publicly traded company with a market capitalization that reached $31 billion.

One more example of a sports tech startup that has quickly generated revenue is Zwift, a virtual cycling platform. The company was founded in 2014 and in 2019, it raised a total of $620M in funding. Zwift has become very popular among indoor cyclist and triathletes, and it offers a subscription-based service that allows users to compete with other cyclists from around the world in virtual races and training

Paris Olympics 2024 and the 2026 football World Cup in the USA, Canada & Mexico – Expected to be massive for exponents of the NEW generation of sports experiences.  

The French government has also prepared a projected budget of €4.38 billion to host the Paralympic Games in 2024. The startups behind these technologies can help sports organizations cut costs and reach new audiences, making them more valuable partners in the long run. 

The Opportunities Are There For Those Who Can Think Differently 

Investing in startups during downturn markets could offer a significant upside for those willing to take on the challenge. The opportunities are most certainly there for those who’re able to forego conventional thinking and meet the obvious demand that remains consistent during economic uncertainty. 

Strong Sports tech startups may have unique positioning and can be attractive to investors looking to make smart moves during times like these. Stay tuned for more!

With love for sports and innovation.

Amir Raveh,

Investor

Founder & CEO, HYPE Sports Innovation