CFO Patrick Foster and head of special projects and strategy Chloe Marinier share what the esports firm was seeking on Crowdcube if not cold, hard cash.
In November 2020, UK-based esports brand Fnatic kicked off a crowdfunding campaign, hoping to raise £1 million.
The pitch to fans was, by and large, pretty simple: Fnatic wanted its audience to be part of the company’s story. The pro-gaming organisation has been going for some 16 years and during that time has achieved consistent acclaim, fielding teams for hit games like League of Legends, Counter-Strike: Global Offensive, Dota, Playerunknown’s Battlegrounds Mobile and Apex Legends.
By pretty much any metric, the crowdfunding push was a success. The company secured £1.7 million in funding from around 3,500 investors via the Crowdcube platform. That's slightly lower than the £2 million from over 4,000 backers that Fnatic touted when the firm first finished its campaign – due to some people not being able to actually invest for whatever reason – but was still far above the esports giant’s target.
The timing of the campaign was rather curious, however. When it was announced, the company had just raised $10 million in an internal funding round led by VC firm Beringea; in turn, this followed a Series A that saw Fnatic raise $19 million back in 2019.
When the crowdfunding push was first announced, Fnatic founder and CEO Sam Mathews said that it was something the firm had wanted to do for some time. But turning to its fans for money straight after a massive private investment round seems, well, odd.
"We didn't do this for the money,” Fnatic CFO Patrick Foster explains. The primary goal was to bring the fans in. We’re looking to do a Series B at a significantly higher valuation. We realised that this was probably the last time we could do a crowdfund and have meaningful interest for the people joining. If we wanted to bring our audience in, that really was the right time to make it happen.
“The primary goal was to bring the fans in. We’re looking to do a Series B at a significantly higher valuation. We realised that this was probably the last time we could do a crowdfund and have meaningful interest for the people joining. If we wanted to bring our audience in, that really was the right time to make it happen.”
Part of the reason for the company targeting that “significantly higher valuation” with its upcoming Series B – set to take place towards the end of 2021 – was this crowdfunding push. The campaign attracted a lot of PR coverage too, with investors becoming more interested in Fnatic as a result of seeing how engaged the company’s fans were.
“It's one step that proves – among many others – what the fundamentals of Fnatic are,” Foster says. “From the discussions we’re having with investors and so on now about our Series B, it clearly had an impact, alongside everything else we have achieved.”
Looking at this kind of crowdfunding cynically, one might assume that Fnatic wanted investment without having to lose any control. Unlike VCs or private equity, crowdfunding means the esports firm wouldn’t have to give up board seats or a percentage of the company. This isn’t private investors buying a slice of the company – and control – for a huge sum of money; it’s a bigger number of people buying much smaller slices of Fnatic individually. But Foster says there is value to both crowdfunding and private funding.
“We want some strategic strong investors to back up our growth for the future and we wanted to bring in the fans,” he says. “The overall take into the company means that you give up board seats and so on, but it was really about bringing our audience in and letting them own a piece of the story. We wanted all of these people to be part of our journey.”
He continues: “If you speak to VCs, they might view crowdfunding as something you do if you can’t access to private capital. We've proven that this wasn't the case for us. Every VC we've spoken to since has said that crowdfunding was a good idea as a B2C business. It helped showcase that our fans really value our company and will even invest in us in their thousands. All of the noise that we've managed to create around this with the press has been really good outcomes.”
One perk of crowdfunding – outside of cold, hard cash – is bringing an engaged group of fans into the fold. These are perhaps some of the most passionate members of your audience and can provide valuable insight into your business.
“We were talking [to Crowdcube ] on and off for about a year,” Fnatic’s head of special projects and strategy Chloé Marinier says. “One thing they said to help convince us was that crowdfunding allows for a really engaged pool of contacts that you can rely on for testing new ideas, discussing marketing, new marketing. You have a pool of people who really care about your business.”
While developers and publishers crowdfunding cash via platforms like Kickstarter for individual games projects is commonplace in the games industry, there weren’t any examples of esports firms raising money to invest in their company in the way that Fnatic has. As a result, the firm looked to other success stories from Crowdcube to help guide the way.
“We looked at a few best practices from [fintech company] WireEx or the BrewDog story,” Marinier says. “We looked at how they did it, how they engaged with the fans. It's really about how you engage with the people on the platform as well. You have to keep them updated. That's what we looked at.”
Doing a crowdfunding campaign isn’t for the faint of heart, though. Foster describes the experience as both “short and long” for Fnatic.
“The campaign didn’t last that long in the grand scheme of things, but it's a very intense process,” he explains. “Before it goes live, you have to prepare. Then when the campaign is live, you have to be on the ball at all times to engage with fans and answer any queries they might have. You need to be constantly looking at feedback, which is very time-intensive. If you don't do that, people will think you're just in it for the money. You need to be transparent with people who ask any questions.”
“You need to have a constant dynamic for the duration of the campaign explaining how the business is going. You almost become a listed company for a time, providing your audience with all this information and show what you have achieved. That’s something you have to carry on with after the crowdfunding push; every three months, you have to update everyone on what's happening.”
“You have to be ready to put a lot of effort into the crowdfunding push to convince people to invest and then also be ready to be completely transparent with your audience once it’s over. People have trusted you with their money so you need to be open with them in the years to come.”
On platforms like Kickstarter, the common wisdom is that campaigns need to raise half their goal within the first 48 hours of the campaign, otherwise they won’t have the momentum to go on and hit their goal. For Fnatic, the aim was to score 80% of its £1 million target in its first 24 hours – and the firm hit its full funding goal in just four.
As for what this cash is going towards, Foster says this is being pumped into its line of products. This includes various peripherals, including the Stream65 mechanical keyboard and React+ headset, as well as continued development on its FnaticOP app – described as “the ultimate esports software” – which is out in early access.
“The key investments for us now are maintaining what we're doing already,” Foster says. “We really want to focus on performance and want to drive product sales. We're a product company and want to build the right digital and physical products that enable gamers to become better at gaming.”
“We're not just talking about the core esports fans; we’re looking at how we can reach the billions of gamers in the world. What do they need? So many people watch games on platforms like Twitch. A lot of them want to be better. Our five-year plan is to deliver all the products they need to improve.”
Fnatic isn’t looking to do another crowdfunding campaign any time soon, but the firm is eying up its Series B. That’s not to say that the esports company is ruling out a similar push to engage with fans at some point.
“It might make more sense in the long term to bring more fans into the business at a later stage,” Foster says. “We can start building with the people who have already invested in us. We don't have a need for cash in the short term.”