16-year-old website Chess.com exploded thanks to ‘The Queen’s Gambit’ and the pandemic. We spoke to early backers Flashpoint about investing in a gem.

Michael Szalontay Alexander Konoplyasty chess

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The chess world is among the unexpected beneficiaries of both a yearlong pandemic and the wild popularity of the Netflix show “The Queen’s Gambit.”

As Bloomberg reported in December, the chess world has been impacted holistically with a rise in chess set sales, greater popularity of chess channels on Twitch, and growing usership of advice and games sites such as Chess.com.

Chess.com lets players compete online against other players or a computer opponent for free, and offers learning resources for novices and those who want to improve their game.

Despite the hobby’s dorky reputation, the site boomed through lockdowns in 2020, adding 1 million new users monthly.

Insider previously reported that in November, Chess.com was seeing 100,000 new daily signups, around five times higher than average.

Insider spoke to one of Chess.com’s early backers, European investment firm Flashpoint, about the rise of the business.

Flashpoint first invested in Chess.com in 2012 in a secondary transaction, meaning it bought shares from an existing shareholder or shareholders rather than participating in a funding round for new equity. Flashpoint primarily focuses on eastern Europe, and became interested in Chess.com in part thanks to the fact its R&D operations are located in the region. Even then, the business was popular with investors.

“We tried to get access to the company in primary, which they didn’t need, and the only way to come in was secondary,” recalls Flashpoint managing partner Alexander Konoplyasty.

The business, he added, was profitable from the beginning. The site charges monthly subscriptions, and displays ads on its site.

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After multiple secondary transactions, added Flashpoint partner Michael Szalontay, Flashpoint built up a 15% stake in the business.

As is typical for venture capital companies, which must “exit” their stakes in order to make a return to their investors, or limited partners, Flashpoint then sold up its shares in Chess.com between 2016 and 2018. That has meant Flashpoint hasn’t stuck around to benefit from any subsequent rise in Chess.com’s value in 2020, although Szalontay personally retains a 2% stake in the company.

“It was mostly our first fund — we needed exits and we were under pressure from our LPs to provide liquidity back,” he said. “We felt the company continued to do well, but when you get an opportunity to exit and return money to investors, you need to think carefully about these situations.”

Flashpoint sold the bulk of its stake to the Scheinberg family, a Flashpoint limited partner and the wealthy cofounders of online poker site PokerStars.

Szalontay remains on Chess.com’s board, and witness the site’s boom during the pandemic. “That turned out to be a good decision for me personally,” he said.

Szalontay added that there were two “surges” — one triggered by the pandemic, and a second by “The Queen’s Gambit.”

“What’s been interesting about ‘The Queen’s Gambit’ is that Chess.com’s market share has started expanding more, so if the pandemic affected the whole market, it seems ‘The Queen’s Gambit’ has affected us more positively than other players,” he said. “Our conclusion is that it seems Chess.com … …read more

Source:: Businessinsider – Tech

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