Why Smash Ventures bet part of its $75 million fund on Epic Games

Two years after it put some money into Epic Games in 2018, Smash Ventures finally came out of hiding with its $75 million fund for media, entertainment, and games.

Smash Ventures was founded by Eric Garland and Evan Richter. Garland formerly led venture investments for Disney, after he sold his startup BigChampagne to Live Nation in 2011. Richter was a former part of Disney’s corporate strategy and business development team, and he was also an investor at Insight Partners. They were both accustomed to working behind the scenes.

But it was inevitable that they would draw some attention. They were among the investors who backed DraftKings, the fantasy sports betting company that went public last year. And their fund investors include former Disney exec Kevin Mayer, Pixar cofounder Ed Catmull, and Willow Bay, the dean of the USC Annenberg School for Communication and Journalism.

They were able to be a big part of the Epic Games $1.25 billion funding in 2018, since they also talked their limited partners into putting more money into the deal. The same happened with DraftKings and India’s e-learning company Byju’s. It also invested in Nobull and Manscaped. Smash has invested in five companies in the past couple of years in deals where the fund and its partners put more than $500 million into the portfolio companies. Smash plans to invest in only about 10 to 12 companies, as it’s not using a “spray and pray” strategy.

I spoke with Garland and Richter, and they say they want to partner with the world’s best storytellers and creative talent. The aim is to give that talent an unfair advantage in content, distribution, promotion, marketing, and intellectual property licensing. And they tell me that they plan to do more in gaming.

Here’s an edited transcript of our interview.

GamesBeat: You’ve done a lot very quietly. Can you tell me more about the backstory behind your announcement?

Evan Richter: It’s an interesting one. Eric and I came together from two pretty different backgrounds in the venture ecosystem. Eric was a serial entrepreneur. I was, I guess, a serial investor, a late stage investor at different firms. But we came together in the same place and time with the same thesis, which was that consumer software and internet businesses are building these massive user bases that they essentially engage with at unprecedented levels. The way Apple engages with its consumers, or Fortnite, or DraftKings, or anything in between, is incredible. That engagement transforms the user base into a captive audience.

A great way to keep that captive audience more and better engaged is media, defined as broadly as you can imagine. Everything from a Travis Scott experience to a collaboration with the NFL to true IP integration, media distribution, what-have-you. We recognized that the true distributors of media in the future are going to be these technology companies. The challenge is, media is hard to navigate. When we were at Disney, we recognized the disconnect between the two industries, but we felt they were better partners, ultimately.

What we built at Smash, and also what we do now on a much larger scale–we believe that our value prop around providing an unfair advantage to our portfolio companies, exclusively in technology, around that unfair advantage in media, is incredibly valuable across all consumer software and internet. That’s where this came together. Eric and I came to Disney right around the same time, about six or seven years ago.

Eric Garland: Thinking back on that time, we have to give a lot of credit where it’s due, to Ed Catmull. While we were formulating a thesis about the opportunity, Ed was thinking a lot about not only his legacy, but Pixar’s role and Disney Animation’s role going forward. He said, “When we built Renderman, it was in service to a vision of not only 3D photorealistic linear storytelling, but fully immersive worlds, interactive worlds, that would allow you to jump in and participate. We’ve had an enormous run, a great success as filmmakers, but that’s never stopped eating at me.”

The current generation of game engine developers are continuing to build on that original vision that goes back several decades. Ed said, “Have you and Evan spoken to the innovators in that field? Have you talked to the builders of game engines?” It was a matter of hours after that first conversation with Ed–we put out just a handful of cold calls. One of them was a totally cold email. I think we guessed Tim Sweeney’s email address. He responded. It felt like it was immediate. It was certainly the same day. We were on a plane in a matter of hours and sitting in Cary, North Carolina the next day.

It was very few hops from Ed Catmull and the original vision for Renderman and Pixar to us sitting and having a completely unexpected, far-ranging, very high-level strategic conversation with Tim and his management team. Credit due. We got on the redeye, but the thinking was theirs.

Richter: We first had the good fortune of meeting when we were still at Disney, and we invested on Disney’s behalf. After we left Disney, we were putting Smash together, and we had this thesis, that we were going to be late stage technology investors, but bringing some insight, know-how, and unfair advantage around media to bear. We were reaching out to the companies we felt could most benefit from that vision at first. We connected with Tim, caught up, and he said, “I’m putting a round together. Would you like to participate?” It was a privilege to get to do that. That was our first investment, and there have been many since then, but it started all at that time.

GamesBeat: It looks like you can grow with these companies and participate in multiple rounds. Was that always the plan for what you wanted to do?

Richter: I think Eric and I are pretty good listeners. We’ve been fortunate, whether it’s Tim Sweeney at Epic Games, or our LPs themselves–we’ve had the good fortune of being around some incredible minds. When we’re in front of them we listen. We got early advice from a few of our earliest investors. They talked about how the value proposition was incredibly novel and could make big waves in the industry, and how we were thinking about deal sourcing the right way. They said, “See where the market takes you and be flexible. Build this in a spirit of partnership.”

That’s what we did from the get-go. We felt that we could write a check as small as $5 million or as large as several hundred million. We’ve done both. We have a structure whereby we can do either. When we approach a founder, we’re very picky about who we invest with and who we invest in, but we tend to be very flexible about the structure, provided it’s a winning formula for our investors. We can do it from our dedicated fund or we can do it from this unique co-invest pool we’ve built that enables us to flex up into the kinds of deals where we can technically invest alongside a KKR at their scale. We’ve done that multiple times.

Garland: The mechanic of that structure supports the thesis, our framework for thinking about the opportunity and our value proposition in that–we get asked about this all the time. We’ve been in this business in a corporate setting for many years, but as emerging managers, as a firm–people ask, “Why don’t you invest early stage?” In truth it’s because our value proposition really resonates and works at scales with established companies.

When you’re at an early stage, your job is to be entirely focused on getting that core proposition right, finding that product-market fit, and scaling that. Once you’ve established that platform and you’re operating at scale, serving your audience well, you’ve created a massive user base, and you’re growing the business, then we think that what we bring is uniquely valuable. It’s not accidental. Because of that, we’re not afraid to be the last money in, which we will be in some of our portfolio companies. We’ve also been fortunate to find some great, lean, focused, largely self-funded entrepreneurs. It’s not out of the question that we could be both the first money and the last.

Richter: Our focus will always remain–by DNA we’re late-stage investors. Series B and beyond, all the way to pre-IPO. As we grow, our funds will grow. The nature of the amount of the co-invest pool, that will shift. But the focus is the same. We had good advice early on. Stay laser-focused. It took a lot of hustle. Eric and I have been jamming nonstop for the last two years. But we’re just getting started.

Garland: We’ve deployed about $500 million in that. We’ve been busy.

GamesBeat: Can you break that down? Is that all from your own fund, or is that from the group of investors that invest with you as well?

Garland: That’s us and our limited partner network.

GamesBeat: When you make an investment, then, you’re bringing in a whole group that adds their money to allow you to do those large investments.

Richter: From our existing limited partner pool. We have our dedicated fund. We all make them. It’s all one transaction, so to speak. But then we bring in the LPs that have already invested with us. They get access to participate in that same investment. That enables us to be incredibly flexible. Again, we can write that $15 million check, or $150 million.

GamesBeat: And the core fund right now is $75 million. Is that the first fund still, or are you on your second?

Garland: That’s the first fund. We’re still investing out of that one. And obviously we’re investing three or four or five or more dollars from our LPs for every dollar we deploy out of that dedicated vehicle.

GamesBeat: The opportunities you’ve chosen look across multiple industries. Do you focus on entertainment, or would you define it another way?

Richter: We’re not investing in what I would call new media. We won’t make any media bets. Again, that’s to throw shade on anything. There’s a lot of good investments to make there. It just tends to be more hit-driven, more human-intensive, harder to scale. We are focused on what we’d call true technology companies, and certainly gaming is squarely within that. Eric and I share a thesis around gaming, which is that gaming is the next social network. That’s maybe the underpinning of why this metaverse is coming. We believe it’s coming.

Gaming companies have moved from a studio-driven model to a platform model. That shift has occurred over the last several years. A lot of investors may have been slow to that. “Game companies are media businesses. They’re hit-driven. They’re hard to figure out.” All the while people like Tim Sweeney and the guys at Roblox have recognized that these are closer to true platforms. They are platforms, rather than studio models.

But back to your question, we’re a fund that’s pretty focused on doing big things in gaming, but at the same time we’re investing in a male grooming company.

Garland: There are two pillars, really. Like a decoder ring, they help unlock the thematic connection between what might otherwise seem like disparate investments. The first, and you hit on it, is we’re looking for consumer tech platforms that have solved a problem or created a value proposition outside of traditional entertainment. That’s what we bring. If your core proposition is filmed entertainment, for example, that would not be a Smash investment.

The other part of the thesis is that a lot of consumer companies, or a number of consumer companies, create a massive scale audience. That audience is not always engaged with the product or service in such a way that they’re ripe to be entertained. Without naming specific companies, if you buy a mattress, that may be a platform. That may be an amazing direct to consumer business. But we’d have to contort to convince ourselves that you’re engaged while awake with that mattress in a way that would allow us to bring a lot of value in terms of content strategy, IP, talent, organic marketing.

We look for those companies, and we know them when we see them–late-stage companies where the user base is ready to be an audience. It’s easy to describe in hindsight. Nobody early stage would have said Amazon was a media company. It was a logistics company, a pick-pack-and-ship business. Facebook was connecting college sweethearts. Snap was, I don’t know, a sexting app? But all of those are media incumbents today. Nobody questions that those are massive media companies. It’s because they built a scale audience with a compelling proposition. Once you do that, people want to be entertained. If you want to keep them and engage them efficiently and engender loyalty and create a moat, a superior media strategy, IP, great execution, these things affect the outcome. Founders know that now.

When we think about gaming, among other hypotheses, we believe that whether you call it the metaverse or multiverses or anything else, all of the dynamics — or many, if not all — that we see in the world today are going to exist in a comparable fashion in those worlds. In other words, those audiences are going to want to be entertained. They’ll want great stories, both passive and interactive entertainment experiences, just as human beings do in the meatspace. That’s a big part of the bet for us.

Richter: This wide spectrum we tend to look at–first and foremost we’re investors. Our job is twofold: to generate tremendous value for our investors, and the way we do that is we generate tremendous value for our portfolio companies. We recognize that by having this unique value proposition, Eric and I can win the most destructive competitive opportunities in the world.

Whether it’s an Epic Games or a Manscaped, which is an incredible business led by an incredible founder–when we look at what he built out of thin air, Paul Tran, we recognize that having an unfair advantage around how to think about leveraging all that traditional media has to offer, that can be the difference between being an interesting product and becoming a category-defining business. They’re the Kleenex in their category, the name brand. We see the value and say, “We can bring the same value we would bring to an Epic.” That can be just as relevant to those kinds of businesses.

We’re going to be very focused, though. We’re trying to do fewer, better deals so that we can make a difference.

Garland: To an earlier question, about how we did this very quietly, that wasn’t accidental. That was deliberate in the sense that it’s important to us that you don’t see or feel our fingerprints on the work that we do. We would say, over the past couple of years, that we’ve made a lot of noise, that we’ve drawn a lot of attention to the work we do. We’ve just done it all in the guise of our portfolio companies. We’re going to continue that.

I always like to come to the phone as an analyst. We have a point of view. We have a strong thesis. I like to talk about the industries that we play in. But for the most part, when you read about our work, I want it to be in the context of our portfolio companies’ successes, and not just, “Look at me.”

GamesBeat: This reminds me. I don’t know if you knew Seamus Blackley when he was at Creative Artists Agency. One of his things he said he was proud of by the time he left CAA was that a lot of game studio heads wound up owning their own studios after he was done. He gave them control of their destiny when the relationships they had in the past, they were beholden to a publisher or a platform owner. It does feel that people like Tim Sweeney are bumping up against that kind of thing again, but in a different way. If Tim owned his own platforms, no one could boss him around. But it still feels like that work has to be done, and it has to be done financially, by people who support that idea.

Garland: There’s deep truth in that. I’ll speak just for myself. I started my career and spent a lot of years not just as a serial entrepreneur, but specifically someone building big data analytics businesses, where part of the core proposition for us was building credibility, building a trusted brand in data analytics, and part of that was syndicating a lot of data and providing a lot of data to the press. A big part of my job was being sourced, being reliable, being truthful, being accurate. I spent a good chunk of every week on phone calls like this talking about what we did.

Then I came to Disney, and it was a 180-degree turn. It’s not about you. It’s not about your personal brand. It’s not your job to be out in the market drawing a lot of flies or drawing a lot of attention to the work you do. It’s all done in service of the platform, the brand. Mickey, right? That was humbling for me, and a bit like writing with my other hand for a minute. But then it became a valuable lesson. You can further your agenda as effectively, or even more effectively, if you do it tectonically, if you do it under the waterline. Evan was maybe already that way. He didn’t have to be disabused of his personal vanity the way I did.

Richter: It’s funny. I think by nature, I never had to be–as a CEO you’re going to be front-facing. I’ve always been in the background. I love sourcing investments, that cold call. It’s a thrill, when you reach out to someone like Tim Sweeney, who’s never heard of you–what an honor to get to collaborate and spend time with someone like that. The best thing about what we get to do, for me at least, you get to build that relationship and spend time and understand and see the future. Whether you’re talking to Tim or the CEO of DraftKings or Baiju–these individuals are changing the world. If we get to be a very small piece of that incredible story, what a thrill.

Being a good investor is about, one, sourcing the opportunity, but once you have it, just being an amazing listener. It doesn’t take much time sitting with Tim to think, “Wow, this man sees the future.” It doesn’t take a genius at that point to know we have to back him, however we can.

Garland: The lesson that you learn the first time at bat, as we did, is that when you get an opportunity to spend that time, you really want to invest as much time as you can. You’re distracted at your peril. One thing we have to concede, and we do, is there’s not going to be a spray and pray aspect to our business. We’re going to make very few bets. By the time we’re done with this vehicle we’ll maybe be in a dozen companies. Even that is daunting at this moment. It seems like quite a lift for us. We spend a lot of time actively working with these companies. We always want to continue to do that.

GamesBeat: How do the advisors factor in? Is it the connections that can get you in front of the right people that you want to invest in?

Richter: Every investment we’ve made–we’re grateful for Ed as far as giving us insights. But every investment we’ve made has been a cold call. There was no connection, no warm intro. But we have some incredible venture partners, these incredible advisors, and partners. Everyone from Kevin Mayer, Willow Bay, Ben Sherwood, Peter Sung, these people have been incredibly helpful to us. As I said, we’re good listeners. We like to surround ourselves with the best.

Everyone has a superpower. Some have multiple superpowers. But it’s everything from–we’re thinking about the impact of user-generated content as it relates to public safety. The journalism angle of that is incredibly relevant. Willow, what do you think about that? Or we’re talking to Kevin. Here’s what we think about how the metaverse that’s going to work, the kinds of IP, and the way it’ll need to be structured in a business development capacity. What do you think about that? Or asking Kevin about M&A as it relates to a given company.

We have the good fortune to have surrounded ourselves with people that can do more in a minute than some other people can do in a day.

Garland: We have an investment in a performance shoe company, an athletic apparel and shoe company. One of our partners is the former CMO of Nike. The bar for us was–actually, this is good advice I got from Chris. I can tie this back in. When we were sketching this out, he said, “You’re in a dangerous opportunity position. You could create quite a face pile for yourself. You have some very good relationships. You have a lot of strong backers coming out of Disney. You could create a great website. But I’d strongly discourage you from asking for affiliations, or affiliating with people who are not meaningful contributors to the business.”

The bar for us–talk to our founders, talk to our portfolio companies, talk to our partners. What they will tell you is, it’s a meaningful contribution and real commitment. They give us their talents, their time, their network. Kevin Mayer used to be our boss. He is now truly a partner to us, and someone who will suit up and spend time-solving the puzzles with our companies, who are all in one way or another aspiring to reach the stage that Kevin’s already led.

Richter: There are times where I’m like, “Eric, you’ll never guess who reached out to us. This major athlete would like to be a venture partner. They’ll put their face on the site.” But it was just going to be that. They weren’t interested in actually leaning in. We weren’t about that. There might be a couple names you may not recognize, but if you were to give me five minutes I could tell you what they do and why they’re important, and why we’re just grateful.

We’re the same way with founders. We try to be “no ego.” We just want to be a trusted partner. We want to be there when you need us, and not be there when you don’t. Tim is the genius. Paul at Manscaped is the genius. Marcus at Nobull is the genius. We believe that. Fundamentally, we’re just trusted partners along for incredible rides. We add value where we can, and we take a back seat when we should while we let them do their great work.

GamesBeat: Would something a Disney rival is doing almost be outside your ecosystem, because of your relationship with Disney?

Richter: We have great friends across all media. We operate neutrally, so to speak, in that the best partner for a portfolio company is the best partner. We have so much respect and love for the Walt Disney company, obviously. But we’ve worked with every major media company at this point, I think. Every agency, all the sports leagues. We’re equal opportunity for sure. We’re big fans across the ecosystem. To your point, when you look at the streaming wars right now and what’s going on, it’s incredible to look at what’s going on and what’s out there for us.

Garland: Disney was so smart. They took such a long view and a thoughtful approach from the beginning. They realized that getting grabby would not be in their interest. The influence is the greatest leverage. By introducing us deeply into the organization and putting us in a position where our first phone call was very likely to be to a Disney legend, or a career Disney operator of the Bob Iger era, they recognized that that’s an incredible incumbent advantage.

Even when we were formally under the roof at Disney, we were never prevented or discouraged from creating collaborations and cross-pollination and making introductions all over the industry. That’s part of the foundation too.

GamesBeat: Was there anything interesting about your timing right now, as far as trying to tell more of your story publicly?

Richter: Eric being a former CEO, being more out there, he says, “There comes a time when you’ve gotta tell your story, when you have to let people know.” And I’m saying, “We’re stealthy and exclusive! They’ll know when they talk to us!” That doesn’t scale as well, though. There comes a point where we do enough of what we’re doing that we wanted to tell that story. Eric converted me. It was the right decision, and I knew it was inevitable. But we’re human. We have predispositions.

Garland: I like to think I played a good long game. There was a bit of inception. I started with a very–when I wasn’t winning the philosophical argument, I started with a very tactical ask. I don’t know if you remember this. I said, “We really should have at least a bare bones website. It’s unprofessional.”

Richter: He’s trying to anchor for reasonable, and I was anchoring–I’m gonna go super unreasonable. I just want a logo on it. That’s our website!

GamesBeat: I heard this once before from a venture investor. He said, “I don’t tell anybody that we’re investing, but people come and find us.” He was always making it hard for people to find him, but people still found him

Richter: One thing I’ll say, I would love it if this changed someday, but it hasn’t happened yet and I don’t think it will. We find every investment. We are cold calling, outbound, pounding the pavement, on planes all the time. And honestly part of that is I think the best deals come from that, but also it’s what we love. I think you’ll see, for me and Eric, we’d love to have more conversations. I don’t know if we became partners and then became friends, or became friends and then became partners. I don’t remember. Looking back to the original Tim call, did he respond in an hour or a minute? It feels like a minute. It was probably an hour. But it’s been an incredible ride. I just feel pretty grateful.

GamesBeat: Are there some things we can expect to happen soon? You have this announcement, but I don’t know how many more announcements you’ll be part of.

Garland: Most of what you can expect, yes, we’re very busy right now. There are certainly announcements coming. But again, I think we’ll be pretty stubborn about wanting them to be primarily announcements belonging to our portfolio companies. Where we can support and be helpful, we’ll be in them and we’ll support and be helpful. But I don’t think we’re the story.

I do think the origin story is interesting. I’m not objective, but it’s at least very unusual. The path that brought us here is unusual in our industry, and the way we have constructed this is a bit naive, deliberately so. I’m a fan of being an unstudied practitioner. The joke I always make is, none of the Beatles really read music. In some ways that helped out. It’s easy to be nonconformist when you don’t know what you’re supposed to conform to. We’ve hacked this together. It’s been difficult. It’s been creative. It’s been a lot of fun. But I hope that a year from now, we’re not the story.

Richter: One thing I’d love to say, something I’ve been reflecting on as we go a little more public for the first time–building this, people tell you going in, “Raising a fund is hard.” No amount of words can really express what it’s like, though. I feel tremendous gratitude toward Eric and all our partners. But our investors–thinking back 18 months ago, or it feels like an eternity ago, but the first people that bet on us–when you come to someone with a company you say, “Here’s what I’m building and why. Do you want to buy five percent of it?” That’s hard to do. But when you say, “I have a thesis, a vision, we’re gonna change the world, back our fund”? We’ve been fortunate enough that we’ve had, I would say, the greatest investors in the world. They’re true partners to us. We talk to our investors and seek their counsel. We love their perspective, because we’ve had the good fortune to have some of the best in the country, if not the world.

This has also been nice for me, taking a moment. When you’re running, you forget to take the moments. I’m not good at that. I’m not good at savoring moments. I’ve been thinking about that a lot.

Garland: Without getting too self-serving or waxing philosophic, I’d say that one quality we share, we’re both lifelong learners. We both feel that, though we might articulate it differently. Once you’re in a room where you feel very comfortable and very confident and you’re doing a lot of the talking, you’re probably in the wrong room. It’s probably time to switch rooms, and maybe get on the elevator up. We’re very young in this practice. We’re very early in this game. We’re learning so much. I feel like I have the flip-top head, because we have so many masters who will take our phone calls. They’re truly domain masters and experts. For us, right now, the job is just to continue to chase that steep learning curve.

GamesBeat: At our most recent event, we had a very interesting and small roundtable, and it was off-the-record.

Garland: That’s the perfect metaphor for the way we think about this stage of our careers. I feel like I have a seat at that 12-top, 10-top, eight-top table almost every day. It’s deeply informative. We’re gleaning so much outside of the headlines, really understanding the trends, the individuals, the personalities, the characters, the missions, the vision, the values, all of that stuff that is subtextual to the stories that we chase and read every day. I feel like that’s the golden ticket we have. We get to sit in those rooms off the record every day.