What Nerd Street’s ‘re-seed’ funding round says about the future of esports

Founded in 2016, Nerd Street is an esports infrastructure business. At the time of its most recent funding round in 2021, which valued the company at $65 million, the company’s focus was building and operating esports arenas, as well as producing live events and operating competitive gaming leagues for publishers such as Riot Games and its titles “Valorant” and “Wild Rift.”

Last year, Nerd Street found itself at the center of a scandal when reports surfaced that the company had failed to pay the participants of some of its “Valorant” esports events — a situation that CEO John Fazio blamed on several of Nerd Street’s commercial deals falling through, including a partnership with the doomed cryptocurrency exchange FTX. 

Despite calls for the company to shut down from some industry observers, Nerd Street resolved the situation by taking a loan from Riot Games to compensate players and talent, which the company now says it has paid in full.

“It was tough; We took a huge reputation hit, on the consumer level. You saw it on Twitter — people accusing me and the company of this and that and profiting, and you just have to kind of take it,” Fazio said. “Now that we’ve gotten people paid back, I hope I’ve earned some faith there, that this was the right move. Nobody should get paid 12 months late, but that’s better than not getting paid at all, which would have happened if we just shut down like the Twitter critics were calling for.”

As of today, Nerd Street has announced a new $6 million funding round led by $5 million from the venture capital firm Konvoy Ventures. The purpose of the funding round, which Nerd Street is calling a “re-seed round,” is to help the company pivot to a business model based on developing and operating esports programs on college campuses, with less of a focus on operating professional esports leagues moving forward, though that remains a core part of Nerd Street’s business.

“I don’t need to raise equity capital to build our venues anymore; by partnering with universities, we can scale and build as many as we want, and I don’t need to keep raising capital to do that,” Fazio said. “What I needed to raise capital to do is build the sales and engineering team that can execute on that and give us the runway to get profitable.”

The path forward

For Nerd Street to find a path forward — and secure another round of funding on the back of it — is undeniably a victory for the beleaguered esports company. But it’s one that comes with some caveats, both for Nerd Street and for the esports industry as a whole. 

The fact that Nerd Street is doubling down on the collegiate side of its business, rather than on professional esports, is one sign of the growing predominance of esports infrastructure companies such as ESL/FACEIT Group and Blast, both of which have expanded in 2024 by deepening their ties with publishers.

“When existing competitors gain more traction, that will diminish a company like Nerd Street’s market position,” said Carleton Curtis, a longtime esports executive who formerly served as a vp of programming at Activision Blizzard. “Specifically, they have had a pretty bad beat when it comes to the rise of EFG and Blast — that is the Coke and Pepsi of the industry, when it comes to media production and broadcast production in esports.”

Nerd Street’s updated business model reflects the company’s strong grasp of the current structure of the professional esports scene. Instead of competing with companies like EFG and Blast to operate esports leagues, it now works in tandem with these companies to act as a venue host and event production partner. One example of this symbiotic relationship is Nerd Street’s partnership with Blast to operate “Rainbow Six” esports in North America over the past year.

As Nerd Street turns its focus to the collegiate esports scene, it’s notable that the move comes along with a more pragmatic approach to the company’s valuation. Fazio declined to disclose Nerd Street’s valuation during its latest funding round, but said that the round included a reset of the company’s cap table, and that “our valuation is 75% lower than our last round’s valuation back in 2021.”

Setting expectations

Nerd Street’s new valuation, its lowest yet, reflects a shift toward realism in the dreams of esports companies across the industry — or, at the very least, those that haven’t yet accepted investment from Saudi Arabia. Moving forward, Nerd Street’s investors are still confident about the long-term value of competitive gaming, but they believe that value will come from the grassroots side of the industry, not necessarily from the flashier professional esports scene.

“The biggest unlock for us was the fact that the university ecosystem is really leaning into gaming heavily, and that market is absolutely enormous,” said Konvoy Ventures managing partner Josh Chapman, who led the firm’s investment in Nerd Street. “The higher education market dwarfs the professional esports scene.”

Industry-wide challenges notwithstanding, Nerd Street remains confident in the future of its esports business, particularly on college campuses. Fazio said that the company’s experience and knowledge in operating esports leagues has already allowed it to save millions of dollars for its university partners, citing the example of one unnamed partner whose initial plan for an esports program ran up a budget of $7 million.

“We went to them and said, ‘I know how to build this thing for a million bucks; I don’t need $3 million. I can build this for a million, because I’ve done this 13 times already,’” he said.

Although Nerd Street’s pivot to collegiate has been a relatively straightforward shift for the company, it is a move made out of esports industry necessity, not foresight. Venture firms Konvoy and Founders Fund, as well as a smattering of angel investors, have bought into the vision for this funding round — but the jury is still out on whether collegiate esports will grow enough to sustain an infrastructure business.

Much like other recent buzzwords such as blockchain, the metaverse and artificial intelligence, esports was buoyed by an initial burst of financial interest, only for the flow of money to slow once investors realized competitive gaming wasn’t about to make them a quick buck. Now, the industry is in its rebuilding stage, and Nerd Street is hoping to lead the charge, backed by a $6 million cash infusion and a fresh approach to esports.

“Down rounds for VC-backed companies across all industries have hit a decade high in the first half of 2024, so basically, the negative stigma that’s been historically associated with down rounds has decreased significantly in recent years,” Curtis said. “So it’s not necessarily an esports problem — it’s a Silicon Valley problem.”