Clinton Foy — Crosscut Ventures

Really fun talking with Clinton Foy about the gaming industry, founding Immortals, living in the metaverse, and who his favorite Crosscut partner is.

 

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Today I am with Clinton Foy. Clinton is one of the four managing partners at Crosscut. Crosscut is one of LA’s largest early stage funds and one of the most established.  Before Crosscut Clinton was COO at multi-billion dollars. Square Enix, a Japanese video game publisher known for Final Fantasy and other big name franchises. Clinton, thanks so much for joining me on the L.A. venture today.

Thanks so much for having me.

So I was learning more about your background, and I would say that must’ve been quite a transition going from Square Enix, from a multibillion dollar public company to joining the guys at Crosscut.

It was a shock. I was driving into the office today and, you know, we’re in the midst of Covid right now just as a snapshot. So no one’s in the office. And I’m going from a 300 person office and a 3000 person company at Square Enix, where I had two executive assistants to book everything that I wanted to fund that I think was investing out of a 15 million dollar fund. And I was an unpaid venture partner.

I had zero salary for the first year, year and a half. It was quite a shock. It was a lot of kind of re learning and learning to hustle again and learning to just network my ass off.

No, I mean, I think a lot of people don’t realize how much venture is just like being at a startup. You know, it is especially when you’re at a seed stage v.c like we are. 

But you guys are still a early stage venture fund right now, if you can share. Like what? Right now, what is your typical valuations or valuation ranges that you might be investing into.

Sure. So. I forgot who said it. But somebody said, is smarter than me. Your fun size is your strategy, and I think that makes a lot of sense. So we’re investing out of one hundred twenty five million dollar fund.

So that puts us squarely in the seed, mature seed investment categories that we invest anywhere from one and a half million to two and a half or three and a half million. And we flex down and we flex up. 

We’ll lead or co-lead. and them.

And the valuation that you guys are doing. Has that changed much?

So it’s a great question. We’ve seen it definitely flex up over the last six, seven years since I’ve been at Crosscut. You know, we still see, you know, a decent number of first time founders come in. We call it five million dollar valuations post. It seems like more common. A seed round looks more like a ten million dollar post right now, raising two or two and a half million. And then we have, you know, Silicon Valley style deals where there know, a 15 million dollar post or 20 million dollar post in the first round funding.

And of those, how much are you personally and still focused on gaming and eSports? Because that’s get such a strong background there in L.A. is such a natural fit for that?

Yeah, I would say initially the first company that I invested in it was called Super Evil Megacorp and I love it.

Yeah, it was it was a gaming company and a game platform with its own proprietary game engine and the natural flow was. I started seeing other game companies like glitzy sports or stream labs.

And, you know, those were also game platforms and game companies. And then I co-founded the Immortals game company, the Immortal’s eSports Team. I didn’t want to be pigeonholed and just doing that.

I also wanted to do broadly more consumer stuff broadly, more streaming broadly, more mobile, and also look at new platforms and emerging platforms. And so that’s what I’ve been doing over the last two to three years as well, is continuing to look at games, eSports, but also branching out into other records.

And so I think it’s a really robust, interesting ecosystem, but it’s also in some ways insular. And you kind of have to know who the players are, what you’re doing. And it’s hard to be kind of a tourist investor in that space. How do if I’m if I’m building a game? Do I always do that? Do they all become eSports? Like, do people compete in? I mean, some are obviously like I don’t think there’s like a SIM City free for league or something.

But do they all become leagues? Do they aspire to.

No. I mean that the gaming ecosystem is really call it a hundred fifty to two hundred billion dollar a year business. And that’s, you know, the Microsoft and the Sonys and the Amazons and all the publishers, all the developers that within itself there’s all of these different genres. You know, there are console games, there are p.c games, there are mobile games. And a sub genre within games is eSports. And eSports is one of the fastest growing year over year categories within games.

And it’s you know, it’s grown from zero 10 years ago to call it, you know, two to three billion dollar a year business. But it’s probably, you know, in terms of compound annual growth, the fastest growing category within games, one of those. And it’s one that’s captured the imagination, because I think when people think, what is the future of sports like, what is the future of entertainment look like? What is a post Covid world look like?

People say, oh, well, eSports makes a lot of sense. You know, baseball, football, soccer. Ah, you know, one hundred years old, plus 50 years old or 60. And, you know, those professional leagues are things that have been around for a while. But what is the next iteration of that look like? And a lot of people are saying, well, eSports could be that.

And I actually don’t even have regular sports work. But some some of these, you know, in the NBA or something, there are franchise teams and Immortals is a team that competes in one of these leagues, whereas like tennis, as I understand it, just has like tournaments. And so Immortals. Tell me more about Immortals.

Sure. So in 2015, I met a young gentleman named Noah Winston. I say young because he was 19 years old and he was considering dropping out of Northwestern to start a professional eSports team. That’s a fucking crazy idea. I love it. I’ve always wanted to have a sports team since I saw the first one of the first League of Legends championships back in 2000. Ten, 12, 13 and 13, 2013. It was at the Staples Center. And I just thought, that’s an amazing, amazing kind of new industry where you can watch people play games.

You can fill out Staples Center with twenty thousand screaming fans from around the world and it’ll sell out. And then, you know, 20 million, 40 million people will watch it from around the world. And when I met Noah in 2015, young, talented, super smart genius, I thought, but really raw as as an entrepreneur and as a founder. I got to know him and over the course of three or four months said, listen, let’s let’s do this.

Let’s start in a eSports team together. I don’t know if Noah could have raised the money on his own or started it on his own. He might have, but I knew that by helping him out, we have exponentially better chances together doing it. And now it really became the face and the CEO that I was, the executive chairman

And so since then, you know, Sequoyah Founders Fund and Bessemer have all invested in sports teams and there’s been a rising tide of eSports.

And that’s a really good. Wow. I hadn’t really thought about the fact that, like Immortals backed by Crosscut could be competing with whoever else backed by Sequoia.

Well, I don’t want to take responsibility for that. It was more like we spotted a trend early and we jumped on it. 

And how does the money flow in it for, like Immortals or for one of these teams? Like, do you win prize money and do you have to pay? Is it like a franchise team in the league where you have to pay to be in the league?

Yeah. So you do have to pay franchise fees for the established franchises. So League of Legends has a franchise fee. You know, overwatch as a franchise fee. Call of duty as a franchise fee when tolerant, eventually franchises. It’ll likely have a franchise fee. And so there’s there’s a there’s a cost to doing that business. Part of why we raise money back in 2015 was to buy in to buying another team that was already in League of Legends.

And that’s a cost to doing business. But I think the more interesting thing is, are those franchise fees going up? Where where does the value go to and wh I think you said 150 billion. Two billion. Few billion. Here. There. That money. Is that coming from game sales or is that the the skins? I don’t play games. Clinton said I’m just new to the skins.

I just, you know, so virtual items and skins selling of skins is something that’s been around for a while back. Even when I was at Square Enix and COO over there, you know, we had a game called Final Fantasy Eleven and people sold skins or they sold virtual characters or virtual items on third party sites within those games to get up a virtual sword that was worth, you know, ten dollars over one hundred dollars. Or the character could be worth a few thousand dollars.

And she built it up. And so that’s a component of the business that’s not actually really tracked that much within that 150. And I said two hundred billion dollars. There’s a whole gray market area that isn’t, I think, captured.

And what what that that hundred fifty billion dollar market really is his hardware sales, Microsoft X boxes and consoles. It’s it’s mobile app sales. So, you know, on the App Store with Apple, we all have phones and we all have app stores, either Google Play or Apple. The majority of the revenue on those app stores are games and they’re virtual items in those games or they are games themselves or their subscriptions within those games. And I think Apple and Google and I think Amazon are are really realizing that.

And it’s a strategic component of their growth as well. It’s it’s some of their biggest growing areas within their businesses.

Are you following. I have not really been following the BaseCamp, just blew up on, you know, on fighting Apple about their 30 percent fever in app purchases and. Do you think that gaming will go? You know, how do you think the gaming ecosystem will will evolve?

It’s a great question. I mean, for a while, in some ways, Apple really had a monopoly on mobile games. And then Google Play has come along. And, you know, Google Play also also is is pay to play in some ways where if you have something on their platform, you’re paying 30 percent. And I think that, you know, maybe that 30 percent is something that’s a holdover from traditional publishers, traditional developers. And it’s something that Steve Jobs thought up in his had quite a while ago.

And I think that’s changing. I would suspect that that comes down as more competitors come in as platforms within the ecosystem and you see Discord or you see Amazon having its own platform.

It’ll be interesting to see.

And I want to talk about maybe one other startup that I think is really interesting called Play VS, which is a platform founded by DeLay and Parnell, who’s one of our CEOs who we backed early in the first round of financing expense, raised about ninety six million dollars based here in Santa Monica. Domain’s the super dynamic black entrepreneur and sole founder from inner city Detroit.

He really has a mission. Wanted to elevate eSports as well. He played sports and he sports all throughout high school and college. And he said, why isn’t there a high school sports league like the is for football? Why isn’t there you know, you’re able to play for eSports State Championship. And it meant so much to him that he said, I want to do this and I want to create this myself. And, you know, we’re lucky to get in the first round of financing.

And it’s you can play now for state championship alongside and get that glory for your school and for yourself, and then put your self or set yourself up for scholarships for college, which is also what Play versus is getting into now.

Yeah, I saw him speak and he is so powerful. Yeah, I think I saw some statistic.

There’s like two and a half billion people in the world are playing mobile games is something mind blowing to me. So it’s it’s certainly an interesting area. OK. So you and I, we both just briefly talking about Brian Garrett’s episode on L.A. Venture, and he talks about how he shared the Enneagrams for all of you, including one of you memory. He called you an investigator. Yeah. And he said that that means that you have all these deep thoughts, but you don’t always share them with him or something like that.

I think I think Brian was also the challenger, which isn’t surprising if you know Brian. He is very competitive.

And the investigator Enneagram is it it it’s it’s one where it shares the same personality types and probably saved too much with Einstein.

That’s good. That’s good. That’s right.

Right. I forgot what Brian shares this thing with, but it’s it’s someone who thinks deeply and looks at looks at trends, reads a lot, internalizes a lot and thinks about, you know, the future or thinks about the past or thinks about what could be.

But is also another one who shares that space. That’s great. Like it makes a Budda Einstein. Yeah. So I don’t think it was that bad. And according to our coaches who helped us out with this evolution, they also said the prototypical D.C. is actually an investigator. So what one who would fit that Enneagram type is also Peter to respond. Great, great.

Keep going.

But you also have a tendency to internalize too much and not to communicate with your co-workers or with your colleagues. And in your very best, you could be an Einstein or you could be a food at your very worst. You could be a raving psychopath who is very paranoid and doesn’t want to share any of those things. So, you know, you have positives and you have negatives. And I think the key is to understand your own personality, to understand your communication style, your investigative style, your investing style, and then figure out what your teammates are and then be able to work together and be able to work together as a team to get the best results you want.

And I’m grateful that. We’re all very different at Crosscut. Brian Garrett is really the heart and soul of Crosscut, super empathetic, you know, went through some childhood trauma and is very vocal about that and understands, you know, it really pushes us to communicate better as a team. You know, Rick Smith is he’s an achiever type and also, I think is really considered in some ways the godfather of L.A. VC. I mean, he was investing in L.A., ABC as one of the first investors and back some of the original voices in L.A. and Silicon Valley as well.

And Brett Brewer is in many ways an iconic entrepreneur and founder. Within L.A. and in, you know, founded Intermix MySpace and sold it to Fox for 750 million dollars. And and in probably one of the most enthusiastic spokespeople for Crosscut and very gregarious and, you know, is always out there in the community talking. And he should be on your podcast. He does a great job of telling the Crosscut story. 

Well, you know, I was going to ask you who your favorite is.

You know, it it varies. It honestly varies week to week and day by day.but Rick made time to meet with me and was the first person who brought me in and kind of mentored me and said, hey, Clinton, if you want to get into VC and you’re interested in going from Square Enix to D.C., you know, we need a games person who understands interactive and mobile and streaming.

Once you just come to our partners meetings and just start looking at pitches and bring some deal flow and we’ll send you some deal flow and we’ll see what happens. And that’s always been super, I think, impactful to me. And, you know, models for me, the kind of behavior that I want as well in all VCs, which is the open to it, you know, be welcoming, you know, think about, you know, giving those people a chance who, you know, are knocking on the door and let them up.

And in many ways, I have to say that, you know, Brian and Brett are like brothers and Rick is kind of like that father figure of Crosscut in some ways. He doesn’t want to be seen as like that older guy, at Crosscut.

But in some ways, he is. And he helps to hold it together. So it’s it’s hard to say where that is. By the way, we’re actively recruiting for a sister figure as well.

I would love to bring on a great female partner.

I mean, the women, we have a little secret network. So you kind of need you need some more women in your partnership for sure. So you tap into our secret networks.

But let’s talk about we’re still, you know, really, I think all of L.A., all of the world right now, it’s talking about Black Lives Matter.

You know, do you have any thoughts on how else L.A. and L.A. venture can build a more equitable ecosystem here the three guys who founded Crosscut Brian, Brett and Rick thought about as well as, hey, we are three white guys and, you know, let’s bring some diversity, this partnership. Let’s bring some some different thought leadership to this partnership. And I was grateful. It was it was me. Yeah.

I mean, and also we’re only audio, but you are not white. Right. I think you’re right. I am Chinese American. And my kids are growing up speaking Chinese. Thanks to my wife, I don’t really speak Chinese that much, but I spend a lot of time in Asia as well. And I, I also really, I think, have thought hard about who to invest in. You know, we see 4000 deals a year and opportunities to invest in amazing entrepreneurs here.

And I’ve maybe led 12 investments or so over the last six years or so. And I just went through the stats earlier this morning. And 10 of those twelve teams have had people of color or black founders or members. And of those 10, you know, three have had African-American black founders. And I can do better than that. I know I could do better than that. And I want to do better than that. I mean, but those have been great teams and they’ve, I think, been financially successful and good investments for Crosscut.

And it was just the lands that I was looking at was we these are the best teams that we can find. I feel comfortable with these teams. I want to invest into these people because I believe in them. And it’s going to create a great outcome.

I also think I mean, I wonder if games is a field that has more diversity. I tried to hire women into my used car startup and it was pretty tough, actually.

But I think some of these investors and founders, I also think industry, some industries letting them selves to more diversity. In many ways, I think games and eSports are an ultimate meritocracy. And I think. You can have an online persona or you can have eSports persona that you developed yourself and you can choose, you know, in many ways to show as much or as little as you want of yourself. I mean, there are people who play online who are, you know, might self identify as a male, but play as a female with a female avatar or on on twitch.

They might cross dress as as a male or a female. And in many ways, I think the online community, while it does have its bullying, it does have its kind of white male, you know, perhaps racist, small minority.

The color of their skin doesn’t matter of language. It matters. You know how well they play matters how well they play with others. It matters the persona that they have. And I think that’s pretty inspiring. I think that’s what we want.

Absolutely. I hadn’t really thought a lot about it.

I really hadn’t thought about how race changes online, especially in games.

I didn’t mean to totally pigeon hole you, though, only talking about games and ease for it’s when I started this question about any grammes.

I’ll tell you what I was really going to ask you was if you’re the thinker and spent a lifetime reading and generating theses, I was going to ask if there’s other areas that you’re really diving into. Have you been looking at VR? Have you been looking at the future of advertising? You know, what’s what’s on your mind lately? What have you been reading?

I do think a lot about the future. And I read a decent amount of sci fi. I’ve read some sites I had recently that I think is really interesting. And I’m just rereading Snow Crash by Neal Stephenson, which is an epic sci fi kind of canik canonical novel about a future dystopian world that has a metaverse in it. And I’ve been thinking, what is the future? What is the metaverse look like? You know, what do virtual beings look like in that metaverse?

You know, what are the startups that are going to be, you know, the core technology, the powers that metaverse? I think that’s interesting. And in many ways, games is a part of that. EA Sports is a part of that. Your virtual persona, your virtual character and avatar. So part of that. So that’s something that’s a thesis that that I’ve been looking at and diving into. Personally, I love to run and I love health and I love yoga.

And so I’ve been looking at also, you know, health tech startups or startups that help people get addicted to exercising in the same way that you can be addicted to games. And so we invested in the first round in a company called FitOn its Fit on app. And it’s the fastest growing mobile fitness app on the App Store. And it’s just surpassed peloton, just surpassed Nike. And the founder is amazing.

It seems like a lot of these different pieces of our regular universe are colliding online. I think that’s right. And I think. You know that. Who knows what the future is going to look like 20 to 40 years from now? I mean, things have changed so massively in the last 20 years. I feel like in another 40 years, you know, we we could be living in a world where, you know, we do work and live and, you know, go to school all online, all through some kind of virtual interface.

And we have these virtual personas. We have a true metaverse. But, you know, with different platforms. We have one for education. We have one for entertainment. We have one for social. And we’re starting to see that now. We’re starting to see that in what we’re doing right now through Zoom or through Google Hangouts or in an Epic’s case to a fortnight. And those are all in their own ways. Little better verses of this is how people interact with each other through this business environment, how people play and see concerts through their play environment.

But will that all join together? Will that be stitched together? You know, I’m interested in that startup that stitches all those together and makes it seamless in some way, and that allows you to have a persona in all of those. That’s super interesting to me. I don’t know when that world is going to exist, but in some ways I think to myself, well, maybe it’s time to make that startup again or to do that stuff, to make that future that I want to see.

I pulled a quote from from the Web site that you read and write it down on the Crosscut Web site. It said, if you don’t prioritize your life, then someone else will. Clinton.

So if you’re gonna build this startup, I’m all for it. We’ll fund you. We’ll give you some money. Clinton, thank you.

I appreciate that. I think Crosscut might have first dibs, but we would love to co-invest with you on that Minnie. Well, thanks so much for coming on the show.

It’s been great to chat with you today. Thank you.