Dude Perfect Raises $100M + Investor ROI Math

Welcome to RockWater Roundup! Analysis to make you a better investor and operator in all things media, agencies, and creator economy.

Hi readers,

Today we discuss Highmount Capital’s $100M+ investment into Dude Perfect, the company’s growth plans, how to model out their planned LBE business, and how we estimate Highmount’s ROI.

Other quick hits:

• I’ll be in LA next Thursday for Theorist Media’s creator catwalk event. Look forward to seeing some of you there — TBD if we host a small exec meetup that evening!
• We just picked the venue for our second annual “Night Before Vidcon” party with James Creech . Keep June 25th open ;)
• Our team is seeing a large uptick in companies exploring strategic options like M&A and fundraising. Particularly for ad and IM agencies, social channels, and digital publishers. DM me if need help on valuations, diagnostics to assess buyer attractiveness and growth strategy, or sales process planning.

Onward,

Chris, Founder of RockWater

Dude Perfect Raises $100M + Investor ROI Math

Dude Perfect raised $100M for global biz expansion.

The deal is getting lots of buzz, but our team’s math signals challenges ahead.

Let’s break it down…

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??DEAL DETAILS

• $100 - 300M growth capital investment
• Led by Highmount Capital (fund overview below)
• Unclear if 100% invested upfront OR draw down of commitment over time
• No previous capital raised

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??USE OF FUNDS

• “Expand what we can create for families to actually use in their own homes”
• Hire mgmt team to expand biz
• More live experiences incl int’l tour, consumer products
• Grow content formats, frequency, channels, global localization e.g. animation, TV, movies, streaming
• Extend brand beyond 5 founders by building talent network
• New HQ in Frisco, TX as prod facility and “family-friendly entertainment destination”:

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– Retail store, podcasts / gaming / fan UGC spaces, trick shot tower, DP museum, mini golf, restaurants

– Original plans for 3-story, 30 acre facility est to cost $100M+, 2 yrs to build

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??COMPANY OVERVIEW: Dude Perfect

• Digital-native comedy and sports media brand
• Faith-based mission: “We’re about giving back, spreading joy and glorifying Jesus Christ”?
• Other YouTube franchises: “Stereotypes,” “Overtime”, “Bucket List”?
• Media brand also incl books, mobile games, board games and toys, and merch / retail / food and beverage partnerships
• Half of YT audience is int’l
• 25 current team members?

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??PERFORMANCE HIGHLIGHTS

• 60M YouTube Followers, 17B views
• Est 2024 revenue: $50M per DP
• Est 2023 and 2022 revenue: $25M and $20M per WSJ?
• Consumer product partnerships incl Nerf toy line, Columbia Sportswear
• Partnered with A Parent Media co to launch a streaming service
• ESPN “30 for 30” doc premiering at Dallas Int’l film festival
• TV series on CMT in 2016, later aired on Nickelodeon
• Alternate broadcasts for Amazon’s Thursday Night Football
• DP branded smoothie at Smoothie King
• 4 live nationwide tours as of 2023

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??ORIGIN STORY

• Founded 2009 by 5 friends at Texas A&M
• Cofounders = twins Coby and Cory Cotton, Tyler Toney, Cody Jones, Garrett Hilbert
• Started as YouTube channel featuring trick shot videos

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??INVESTOR OVERVIEW: Highmount Capital

• Growth stage and middle mkt PE fund for tech, media, healthcare
• Founded in 2023 by Jason Illian and David Hawkins
• 4 total team members on website + 1 advisor
• 3 team members have faith-based ties per bios
• 2 team members previously worked at Koch Industries
• No other investments listed on website other than DP

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??What else I find interesting…

I really like and support the trend of increased investment into YouTubers and digital-native media brands.?

But as I wrote about in my 2024 State of Creator x Media M&A and fundraising reports (here and here ), investment has to match the market and opportunity size.?

To ensure good ROI, and to set good precedent for future investment into our space.

This Dude Perfect bet is exciting, but seems overly optimistic based on our team’s prelim math…?

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??How we’re modeling potential investor ROI…

The ROI analysis for a $100M investment is important for creator economy investors and operators to understand.

Here's some context...

I've seen ROI analysis for a $100M direct investment into a family-based entertainment destination in Frisco, TX – shout-out to my colleague Michael Booth’s analysis, shared below.

But I'm also curious to Highmount Capital’s angle in being a large minority owner of all of Dude Perfect over a medium-term hold period.

So here's my math to break it down...

Dude Perfect estimates 2024 revenue of $50M.

And Highmount invested $100M.?

Assume Highmount targets a 40% ownership stake (which is high, but I’ll explain why below).

That implies a $250M total valuation, and a forward revenue multiple of 5x.?

(that's a high media multiple, particularly for a forward number. But if I assumed a 30% ownership stake, that implies a $333M valuation and a 6.7x forward multiple! I’m trying to keep this number within the upper bounds of market reality, and it already feels stretched…).

Then assume Highmount targets a 25% IRR over a 5 year hold period, which equates to a 3x gross return on invested capital (IRR targets for growth PE is 20 to 30%+).

That means Dude Perfect needs to get to a $750M valuation.

Assuming multiple expansion, a 5x forward revenue multiple implies a future revenue hurdle of $150M (750 / 5 = 150). That's a 3x revenue increase from 2024E...a big jump!

At 40% ownership of $750M, that implies $300M total value of ownership stake, or a tripling of Highmount's investment in 5 years. Of note, a tripling of revenue is aggressive growth across all monetization channels, from ticketed events and advertising to consumer products and licensing.

Lots of work to do for the DP team and their newly hired mgmt!

Further, that IRR target assumes there's some type of liquidity event at the end of 5 years i.e. there's a buyer of the Dude Perfect biz at $750M. Today in 2024, I can't think of a buyer with strong strategic synergy that has the funds to do that type and size of deal.

Maybe possible in the future though....

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??Two other interesting angles on Highmount’s potential LPs…

Dude Perfect has a faith-based mission: “We’re about giving back, spreading joy and glorifying Jesus Christ”.

Three members of Highmount’s leadership, including their two founders, have faith-based affiliations per their website bios.

Makes me wonder who the LPs are in Highmount – could be parties who have faith-based investment mandates, where financial ROI may not be the only metric for success.

Think church pension funds, religious groups, HNIs, and family offices.

Of note, I’m not personally aware of much PR or press coverage of faith-based organizations investing in the creator economy. This could signal a new trend worth paying attention to, or simply that more press coverage is needed.?

I mean, one could say that religion is the OG of the creator-based economy…but that’s for a separate blog post.?

And speaking of LPs, it’s also worth noting that Highmount’s CEO and COO are both former Koch Industries (“KI”) execs. KI is the 2nd largest private company in the US (after Cargill) and is estimated to do over $125B in annual revenue and employ over 120,000 global employees. KI CEO Charles Koch and his political network are also major donors to Republican and libertarian causes.

KI is based in Wichita Kansas, and Highmount’s website lists offices in both Wichita and NYC. Makes me think that KI or affiliated parties could be a meaningful LP in the new Highmount fund, and thus have a meaningful influence on Highmount’s future investments.

Again, I can’t confirm any of this, as I’m just speculating.

Overall, I look forward to tracking the growth of Dude Perfect, the new Highmount fund, and its future creator x media investments.

I'm the founder of RockWater Industries. We do financial and strategy advisory for media, agencies, and creator economy. From M&A and fundraising to consumer research and go-to-market planning.?

DM me on LinkedIn or email me chris @ wearerockwater dot com

ROI Analysis of Dude Perfect’s $100M Raise

By Mike Booth

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Am I getting punked? ??

Dude Perfect raised $100M from PE, which I love -- big investors coming into the Creator Economy is great for business. The kicker - Dude Perfect is spending the $100M to build out their rendition of Disneyworld in metro Dallas. Its essentially an amusement equipped with sports courses, F&B, and some retail concepts all packaged into one. What?!

The economics for this plan are never going to pencil.

1. $100M is way too much to spend for build out and construction.
2. Theme parks aren't high margin businesses. For reference Cedar Fair Entertainment Company (owner of Cedar Point) operates at 6% net income margin and Six Flags operates at 3% net income margin.
3. Dallas isn't the right market. It's not even the top tourism destination within the Texas (shout out San Antonio). To justify a $100M build out Dude Perfect will need a very high amount of traffic (think Las Vegas, Orlando, New York, Atlanta, etc.).

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Say the average Dude Perfect attendee spends $100 and the net margin on each attendee is 5%. Simply put, every attendee = $5 profit. Dude Perfect would need 20M attendees to recoup a $100M initial investment (let alone budget for renovations, new attractions, etc.)

Los Angeles MSA's population + annual tourists combine to 70M per year.

Six Flags Magic Mountain (metro LA) has 3.5M visitors per year. 3.5/70 = 5% capture rates.

Let's stipulate for the sake of argument that Dude Perfect's entertainment venue instantly becomes just as popular as Six Flags (it won't).

Dallas MSA's population + annual tourism combines for 35M. Say Dude Perfect pulls off a 5% capture rate of their addressable market (a major feat). That comes out to 1.75M guests per year.

At a $100M build out cost, $10 profit per guest, no reinvestment into facilities, and 1.75M guests per year --> it will take six years for Dude Perfect to recoup their initial investment.

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That's way too long of a payback for a location based entertainment attraction.

Quick-growing private companies like Topgolf average 2 years for payback

Whereas bigger amusement parks like Six Flags average 3 years for payback.

Net / Net - there are so many exciting things that Dude Perfect could do to grow its brand -- expanding their content suite, launching CPG brands, or creating upstream film / TV properties.

I'm left perplexed by their decision of apeing into theme parks. What am I missing?

Mike is a Director at RockWater Industries. We do financial and strategy advisory for media, agencies, and creator economy. From M&A and fundraising to consumer research and go-to-market planning.?

DM Mike on LinkedIn or email him mike @ wearerockwater dot com