Blue Star Capital (BLU), a technology investment company focused on esports, blockchain, and payments, announced a review of its portfolio, following the appointment of Tony Fabrizi as Executive Chairman. The company issued a detailed update on its holdings.
— Esports —
Blue Star initially invested £900K into 6 esports companies in November 2019, with two follow-up investments of £175K combined. Blue Star reported today strong performance of its esports portfolio. Of the 8 investments, the two most significant are Dynasty Gaming & Media and Guild Esports, the latter of which is frequently in the news, most recently after signing a 3-year sponsorship deal with Sky UK.
Dynasty Gaming & Media
Unlike the other 7 esports investments, Dynasty is a pure B2B infrastructure business, having developed a gaming and media platform ecosystem for mass market deployment. The company has secured multiple large contracts to date, including Saudi Telecom, Maxis Bhd (Malaysia leading telecoms operator), New Zealand’s largest telecom, and Let’s Play Live (Australia’s largest tournament organiser), with many more in the pipeline.
While Dynasty’s initial model was based on collecting monthly licence fees, moving forward all agreements will see Dynasty supporting its partners with a managed service solution. Under this new hybrid model, Dynasty will receive a significant portion of all platform revenue generated, in addition to licence fees.
Since initial investment, Blue Star has maintained a 13.7% interest in Dynasty, investing £895K in total. The last external valuation from April 2021 put the value of Dynasty at £4.6m (£6m at current exchange rates). Blue Star believes Dynasty’s value is considerably higher now since signing many new contracts, developing a new business model, and raising more capital.
The second major esports investment for Blue Star is Guild Esports (GILD). Blue Star invested £705K in Guild initially. After strong initial performance, Guild listed on London’s main market in October 2020. Following rocky stock market performance for Guild, Blue Star reduced its interest to 4.3% and is currently even on its investment. However, Blue Star notes the many positive recent announcements from Guild.
Guild has recently signed many large sponsorship contracts with major brands including Samsung, Coca-Cola, PlayStation, Bitstamp, Razer, and most recently Sky UK. The Bitstamp deal was worth £4.5m, and the recent major contract with Sky exceeds that figure. Blue Star believes the recent strengthening in Guild’s share price is promising and remains hopeful for the future of the investment.
Blue Star’s remaining esports investments are carried at cost and, in light of little news, the company said it will be looking into the potential write-off of most of them within the next financial statements to 30 September 2022.
— Blockchain —
Blue Star’s second core investment is in SatoshiPay. Overall, Blue Star invested €1.87m in the company between January 2017 and June 2017 and currently holds a 27.9% interest in SatoshiPay.
In the past two years, SatoshiPay has changed its business model. It changed its focus away from micropayments, deeming the market opportunity not yet developed enough. In 2020, the company announced a refocusing on B2B cross-border transfers through blockchain with the launch of DTransfer. Since then, DTransfer has grown significantly.
To support DTransfer, SatoshiPay launched Pendulum, an open-source blockchain, connecting DeFi with fiat ecosystems through automated market makers (AMMs). This introduced scalable liquidity pools for fiat currencies, creating yield earning opportunities for fiat token holders.
In recent months, the Pendulum team has continued development and achieved all of its internal milestones, Blue Star said. This includes securing a place on the Berkeley University blockchain Xcelerator program and receiving a grant from the Web3 Foundation to build a bridge between Stellar and Substrate-based parachains.
Pendulum has so far raised US$5m for further development by the private presale of future PEN tokens, and intends to carry out a further private presale before the listing of the token.
Blue Star notes that SatoshiPay is fully funded for the next year. It was profitable in FY21, and expected to remain profitable in FY22. It maintains close relationships with large crypto organisations and has a growing reputation in the industry. It has successfully executed the first private presale of Pendulum, securing 5.5% of future PEN tokens for services rendered.
If the Pendulum network delivers on its objectives, then SatoshiPay should be well-placed within the De-Fi space market, currently valued at US$55bn. The company is well-positioned to earn fees and accumulate tokens in existing and new De-Fi projects.
— Biometric business —
Sthaler is a biometric identity and payments technology business. Its proprietary FinGo ID platform uses a highly secure biometric called VeinID. FinGo’s technology is relevant across many sectors and industries, including payments, age verification, identity and access. Blue Star owns 0.8% of Sthaler as of 30 September 2021. The cost of the company’s Sthaler investment is £50K, representing an unrealised gain of £337K.
Financial review and summary
Blue Star’s existing esports portfolio has a combined cost to date of £2.375m. Taking into account all portfolio transactions since first investment, and ignoring the 6 small esports investments, the esports portfolio has a current value of approximately £6.7m, equating to an unrealised gain of £4.35m.
SatoshiPay’s current valuation is based on its last external fundraise, which took place in February 2019. Since then, SatoshiPay’s business has changed considerably. Blue Star believes SatoshiPay’s current carrying valuation of £4.8m significantly understates its market value. However, based on that valuation and the investment to date of £1.8m, SatoshiPay is showing an unrealised gain for Blue Star of c. £3m.
Based on the current carrying valuations of Dynasty, SatoshiPay, Sthaler and the market price of the quoted investments, Blue Star’s portfolio has a current value of c. £11.9m, equivalent to an estimated NAV per share of c. 0.24p.
Blue Star believes there is significant scope for its portfolio value to materially increase over the next 12-18 months. The company intends to focus on supporting its two core investee companies and does not anticipate making new investments in the foreseeable future.
Blue Star also intends to secure additional funding through the sale of its existing non-core investments. Blue Star’s board said it will cut all non-essential costs and propose to put in place a share option scheme on a time and performance basis. Details of the scheme will be announced later this year and will cover a maximum of 5%, with a maximum life of 3 years, and proposed exercise prices of at least 0.35p/share.
Based on information provided in this review, Blue Star believes its two major investments have the potential to provide significant value for shareholders. Blue Star’s focus will remain on achieving a successful exit of these investments within the next two years. When Blue Star considers an exit appropriate, it will consult with shareholders to decide the most appropriate course of action.