Higgins helped create Sapphire Sport, a fund dedicated solely to backing early-stage companies at “the intersection of sports, media, and entertainment.” The sub-categories include e-sports and gaming, sports betting, data analytics, digital health and fitness, and next-generation media.

In January, Sapphire Sport raised $115 million for its debut investment vehicle from a star-studded roster of limited partners such as City Football Group as well as owners, investors and family offices from the NFL, MLB, NBA, NHL, and MLS. It’s backed companies such as home fitness startup Tonal, digital sports network Overtime, and social commerce platform Fevo.

“We don’t like the term ‘sports tech’ because it connotes this very niche category of wearable technology,” Higgins told Term Sheet. “We like to think about the horizontal trends like artificial intelligence and predictive analytics that are disrupting the sports media and entertainment world today.”

In our wide-ranging conversation, Higgins discussed the rise of e-sports, the future of digital fitness, and what professional athletes want to know about venture investing.

This Q&A has been edited for length and clarity. 

FORTUNE: Competitive video gaming, or e-sports, has become big business. What’s behind the recent explosion in popularity?

HIGGINS: Accessibility. One in four people in the world play mobile games. Kids these days want to be the next Ninja [a professional gamer], not the next Tom Brady. No matter how hard my 15-year-old son practices basketball, he will never be LeBron James. But with e-sports, you can actually see what your favorite player is doing and what tricks they’re using to succeed in a game, and you can then do it yourself. 

You invested in PlayVS, which is a high school e-sports platform. First of all, how do high school e-sports work?

High school e-sports is just starting, but it’s clearly something that kids are doing today. So what PlayVS did is create a platform that enables teams and schools to host e-sports competitions. This is a way for high schools to be inclusive to all students. The great thing about e-sports and games is that it’s not based on your God-given athletic ability. 

E-sports, in general, gives people the ability to compete in a game. There are professional leagues where they play League of Legends and other games where a lot of the focus is on professional teams. People can watch e-sports gaming tournaments in-person or by live-streaming the event. 

Before PlayVS, there wasn’t really an ability for an amateur — especially representing their high school — to participate in e-sports. The company gives high school students the opportunity to sign up for an officially sanctioned club that allows them to participate in e-sports without having to be professional-grade talent.

The at-home digital fitness space has also been heating up in the last several years. Why did you invest in home fitness startup Tonal rather than Peloton, which is the 800-pound gorilla that just went public? 

A product is the soul for any company. You really have to have a product that is truly different and truly innovative from all the copycat competitors. A Tonal is one of those products where unfortunately, in this interview, I won’t be able to do it justice because it’s one of the coolest products I’ve ever used and ever seen. The reason why it’s so compelling is that it’s a piece of equipment with customized digital weights and true artificial intelligence that can personalize the workout experience to me, to you, to anybody. 

Right, but it also costs $2,995 plus a $49 monthly subscription. What happens to a company like Tonal during a market downturn? 

That’s when it comes down to: Is your product that unique? You have to provide extraordinary value to qualify the price. But I will say that if you look at gym memberships and personal trainers, there’s a lot of people who spend money on those services and never use them. Having a sticky customer base is essential to justify the price because once you use it and you realize you don’t want to live without it, the price isn’t as high as you might think.

Peloton’s shares have been trading down since it made its public market debut. Does that scare you in terms of the future for some of these digital fitness companies?

The story of Peloton hasn’t been written yet even though it’s fun to speculate now. We, at Sapphire, have always taken the long-term view. If you truly have a unique company, product, and business model that makes sense, you’ll do really well for investors in spite of the near-term choppiness.

The second point I’d like to make is that it’s really important to separate IPO execution and what certain executives say to sell an IPO and how that performs near-term and long-term. At Sapphire, we always think: How is this company going to be successful in terms of unit economics? In terms of generating cash and achieving profitability? And if you can’t convince the Street that you have a path to that, you’re going to be in trouble no matter what company you are and what products you have.

I’d look at Peloton and separate the IPO execution from the company and the market, and we’re super bullish on this whole digital fitness trend of the gym coming to your home. We’re very bullish on companies like Peloton and Tonal.

Peloton’s CFO recently said that there’s a negative bias toward unprofitable companies that hit the public markets, but she hopes that sentiment changes in the long term. What’s your opinion on growth versus profitability?

I think it comes back to unit economics. Do you have a long-term sustainable business plan? I think you can withstand short-term losses if you can give a path to profitability. I think the question should be: Are you going to be profitable eventually because you have high retention metrics and great payback metrics? That’s more important than asking, at the point of IPO, if you’re profitable or not. 

The more important thing is, “Do you have a business model that works long-term?” It’s a little bit easier to not be as intently focused on the fundamentals of the business in the private markets, but public markets aren’t going to make that mistake, and they’ll make you pay. 

Is Tonal profitable today, and if it’s not, what gives you the peace of mind that they have  a reasonable path to profitability? 

I won’t comment on the specific financial profile for Tonal, but I will say that when you have a product that customers love and can’t live without, your unit economics are going to be good. And that’s what we focus on. 

Given your investment focus, I’m sure you have conversations with many professional athletes who are curious about venture investing. What are they most curious about?

In many ways, tech entrepreneurs are the new superstar athletes. What we tell athletes is that it’s a whole different mentality to be a venture capitalist. You have to have 10-year plus time horizons. You have to be in an illiquid asset class. You will fail as much as you succeed. And professional athletes have a hard time sometimes thinking about that.

The other thing that’s super important is that this is a world where there is no draft. No matter who you are as a professional athlete or sporting entity, you don’t get to pick the company. The company picks you. It’s the entrepreneurs of the hottest companies who have all the leverage. 

At the end of the day, it doesn’t matter how much money you have or who you are, entrepreneurs want to know, “Are these really good people who will be there with me through thick and thin?” Athletes need to understand that the power is with the entrepreneur, and you need to be able to show them why you’re different and whether you have a record of success. When there’s a downturn, we’ll see if all these athletes are still as interested when things go south. 

It’s been a little more than 10 years since you co-founded Sapphire, so you’ve seen what happens in an economic downturn. How important is capital efficiency in a world of seemingly unlimited funding?

When we all got together in 2006 and 2007, we thought back then that venture capital was being commoditized. Fast forward to today, and we laugh. If we thought venture capital was commoditized back then, what do we think it is now? 

The reality is that if you’re an entrepreneur, I’d ask your investor: What have they done during a downturn? Did they still support their companies? Everyone says they’re long-term investors until they’re not. 

Do you see a downturn on the horizon in 2020? 

I won’t speculate that it’s 2020, but I know a downturn is coming at some point. The bigger question isn’t when it happens, it’s “Are you prepared as investors to have the dry powder to support your companies?”

And are you prepared? 

As a disciplined investor, you need to always make sure you have plenty in reserves to support your portfolio companies through thick or thin.