Hello and welcome to edition #4 of the startup month, sent to Earnings+More subscribers every first Tuesday.

In this edition:

• Why now might be the best time to launch a startup.

• The CEO of the blockchain betting exchange BetDEX says it is preparing for launch after receiving a license from the Isle of Man.

• The startup inside out for this issue is Flows.

• Las Vegas Sands’ plans to retreat from its online investments are discussed.

• Plus, the latest funding round news from Low6, Dabble, Betsala, Verse Gaming and ALT Data.

The next time might be your time.

Time is now

Silicon Valley legend Bill Gurley, general partner at Benchmark Capital, said in a recent interview that “if you’re going to build something from scratch, this might be as good a time as you’ve had in a decade”.

Talent is an asset: Gurley’s point is that in a downturn, when big tech is laying people off for the first time in a generation, access to talent is “way better”. “It was so hard to get, but now it’s a lot cheaper than it was,” he told McKinsey Digital.

Baby, it’s cold outside: Lloyd Danzig, founder and managing partner at Sharp Alpha, agrees that there has been a “major shift” in the tech field. “Historically high levels of compensation and employee confidence in job security have been replaced by surges in hiring freezes, layoffs and rescinded job offers,” he adds.

• “Last year, founders frequently faced difficulties competing with Meta and Google for talent,” he adds. “But, startups are largely in a better position to hire today.” 

• Benjie Cherniak, principal at Avenue H Capital, agrees that some of those working in tech might view the current uncertainty surrounding the future for big tech as a reason to seek out opportunities elsewhere.

• “Now that they’ve been laid off, and with fewer prospects of new job opportunities at a similar level to their previous employment, the prospect of taking the plunge into startup land becomes more palatable.” 

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Feel the heat

Magnet: It’s plausible to imagine some of this exodus from big tech might find its way to the betting and gaming sector. Indeed, the evidence from recent high-profile startup funding rounds – betr and Underdog Fantasy, for instance – suggests betting in particular is a hot sector when it comes to attracting entrepreneurs.

• Cherniak suggests the US sector has attracted innovators and entrepreneurs ever since the fall of PASPA.

• Robin Reed, founder at Happyhour.io, says a “community has grown up post-PASPA”. He adds: “It is fresh, it has recruited so many new minds to the industry and they come with a new take on things.” 

• Danzig says the adoption of sports betting by mainstream media and professional sports has “provided further tailwinds”.

Potboiler: Chris Grove, principal at Acies Investments, points out that while interest in the sector has cooled off somewhat in recent months, “there's still a broad appetite for real-money gambling startups among funders and founders”. 

• David Sargeant, founder at iGaming Ideas, says in the past two years or more, operators in the US have “spent their time just going live”. “Now they care about different things,” he adds.

• Specifically, he suggests the potential opportunity is driving innovation. “The product and tech stack is way immature and there are opportunities within that.”

Answering a need

Lagging indicator: Betting and gaming has struggled with tech in the past, says Matt Howard, a partner at industry consultancy Propus, who suggests the complexity of gaming systems is “not intuitive, especially on the sports-betting side”. Meanwhile, the tech is “not thrilling” to developers.

• “We're not using cutting-edge technologies right now, or creating world-changing products,” he says.

• “True innovation is hard to come by and gaming has had few leaps forward,” he adds, saying that products in sports betting such as cashout and bet builders are “two notable product features during 10-15 years of mass adoption”.

“External innovation is needed,” says Sargeant. “You can’t do it all.” He adds that owning the tech “doesn’t necessarily lead to innovation”.

Ripe

Innovation can spring from any direction but the investors spoken to for this article believe certain areas of the sector are more likely to throw up challenging new ideas. For Danzig these include:

AI-powered personalization

Digitization of lottery offerings

Skill-based gaming

Platform automation

Early plays: Grove suggests investors will be looking at “either very early B2B plays or opting for D2C plays”. He also tips up skill-based gaming as an area where investors might look. 

• “I'd expect more funding to head in the direction of reg-lite real money D2C options such as skill-based,” he says.

But, but, but

Not so fast: As discussed in the Startup Month #1, any innovative ideas are set to run right into the funding crunch. As multiple sources framed it, the flip side to the flow of tech talent is that the cost of capital is so high. “Valuations have contracted and VCs are much more focused on solid business ideas,” says Reed. “That is healthy.”

• “Many potential projects crash land before they can get off the ground,” says Cherniak.

• Howard says VCs are likely to be more choosy about how they allocate their cash. “The drop-off in gaming from the overpriced peak is certainly there too,” he adds.

• “But the better news is that if entrepreneurs rely on their network, that route is unchanged.”

October fundraisings

• Just yesterday, Australian bookie BlueBet announced it had invested $500k in the FTP platform Low 6, allowing BlueBet to launch products on Low6’s platform for a five-year period.

• Dabble: Previous startup focus subject Dabble announced a A$33m (US$21m) investment from Tabcorp, valuing the company at $165m. According to the Tabcorp ASX statement, Dabble achieved $47m of annualized revenue by June.

• Betsala: The Chilean-facing betting operator, which has been up and running since 2020, has raised an undisclosed amount from Happyhour.io.

• Verse Gaming: The P2P fantasy sports provider completed a $585k pre-seed funding round led by RallyCry Ventures. Brooklyn-based Verse was founded in July 2020 by Syracuse University alums David Rosen and Dan Zimmermann.

• ALT Data: The San Diego-based provider of alternative sports data announced a strategic investment from Roger Ehrenberg, founding partner of Eberg Capital and IA Sports Ventures. The amount raised was not disclosed. 

BetDEX regulation

The blockchain-based betting exchange launched by former FanDuel founder Nigel Eccles has announced it has received an operator license from the Isle of Man.

Crossover: Speaking to E+M, BetDEX CEO Varun Sudhakar said the exchange would be targeting what it believes is a sizable crossover market between crypto users and sports bettors when it launches in the coming months. “We think there is 30/40% overlap of crypto natives and people who bet on sports,” he said. 

• “Our launch demographic is people who are already familiar with crypto because that is the easiest onboarding journey,” he added.

• All transactions on the platform will be smart contracts. Sudhakar noted that BetDEX transactions will be entirely crypto-based using the USDT stablecoin. 

• All transactions would, by necessity, go through the major crypto exchanges such as FTX and Binance.

• In terms of compliance checks, Sudhakar said customers wouldn’t face anything more onerous than with the crypto exchanges just “slightly different”.

• In terms of marketing alongside the usual digital channels, BetDEX would also be using the inherent characteristics of Web 3.

• Due to the public nature of blockchain activity, Sudhakar believes BetDEX will be able to do “even better segmentation and tracking”, identifying individuals it thinks will be “willing to wager on the platform based on their activity on the blockchain”.

Investor note: When talking for the above feature on areas of innovation to watch, Benjie Cherniak said the convergence of blockchain and gaming is “another reality that will merit technical advancements”.

LVS exits online?

Following Earnings+More’s news of the departure of Davis Catlin and David Williams from Las Vegas Sands, the Eilers & Krejcik newsletter said the unit is to fold.

A brief encounter: According to the EKG line, Las Vegas Sands now plans to axe its online investment arm which only launched in July last year. This follows the news that Catlin and Williams have left to form their own venture capital outfit called Discerning Capital.

• EKG suggested current investments are unaffected. In the startup funding review for Q2, E+M detailed LVS’ investments to date, including U.S. Integrity, StreamLayer, Bayes and Huddle Tech.

• However, EKG also suggested that term sheets have been pulled – leaving some companies high and dry, with other investors also going cold in the interim.

Startup inside out – Flows

Flow rider: Innovation is central to Flows, the no-code startup led by James King that launched just last year and which hopes to “liberalize” the process of tech development. King says Flows can connect to any data point or part of an inhouse system and allow “accelerated creation”.

• Immediate funding came from Robin Reed at Happyhouse.io, with Flows being included in its incubator program as of August last year.

• Reed reiterates his point about the constraints of regulation. “Companies are stuck in a quagmire of a roadmap trying to meet all the requirements,” he says.

• Flows, Reed believes, can “deliver features and drive automation with minimal dependency on their tech teams”.

Take me to the river: Flows has a strong start and is racking up client wins. “We’re on a strong path to profitability at the moment with a growing client base and revenue streams,” says King.

• He adds that future investment will look strategically at what a partner can “bring to the table”, including the potential to move into other verticals. 

• “What the current climate certainly highlights is the importance of timing of your raise and the shape at which you need to get your business into in order to warrant the best-value return on your stock.”

• He adds that it would make “perfect sense” for Flows to look at acquisitions quite early in its own story.

Growth company gazette

• Parleh Media has partnered with Canadian network Game+, a subsidiary of Anthem Sports & Entertainment, for a new program called Room 4-4-2.

• U.S. Integrity’s latest partnership deal is with microbetting startup betr in Ohio.

• Staying with betr, according to a LInkedIn posting, it has stormed its way up to third in the list of sports free apps downloads. This was before this, however.

• OddsJam has appointed Benjie Cherniak as a strategic advisor. 

• DFS operator SimWin has appointed ex-DraftKings sportsbook head Jamie Shea as a non-executive director.

• Underdog Fantasy has received a temporary license in Colorado.

• Tallysight has signed Minute Media as its latest publishing customer.

• Oddin.gg will provide exclusive data services for the upcoming Czech CS:GO national championships.

October’s startup focuses

Sustainable acquisition affiliate Fortune Edge Media.

Sports-betting backend supplier OrbitalBet.

Next-gen DFS operator TopProp Fantasy.

Contact us

• Scott Longley scott@clearconcisemedia.com

• Jake Pollard jake@openmediaservices.com