Good morning. In edition #9 of the Startup Month:

• The latest round up of quarterly funding round news suggest the market for funding is to some extent drying up; but is this merely a temporary funding drought or are other factors at play?

• Speaking of funding, the collapse at Silicon Valley Bank has placed the spotlight as never before on where companies stash the money given to them by investors and raises questions about the sector’s exposure in the banking realm.

• Plus, the latest roundup of growth company news.

You don’t miss your water.

The funding drought

Betting and gaming-related funding rounds as tracked by E+M hit a low point.

The dirty half-dozen: According to the Earnings+More startup funding tracker, the number of deals announced in the first quarter came in at a mere six, raising a combined total of less than $20m.

• The largest amount raised over the quarter was the $7m raised by online lottery reseller jackpot.com in early January which raised cash from Aurum Partners, the Tisch family, Detroit Venture Partners, and BettorCapital.

• Next up was Betty which raised $5m of Seed money from Karlani Capital, CEAS Investments, Courtside Ventures, Gaingels, OCA Ventures, Subversive Capital, and 305 Ventures.

• Gaming affiliate Betsperts raised $3m from Verance Capital, HBSE Ventures and Parlay Capital as well as previous investors while formative esports betting operator Grilla also raised $3m from Tusk Venture Partners.

• UK F2P games provider Circl and gaming recruitment startup Humbl.ai also raised undisclosed amounts.

🏜️ Funding rounds dry up in Q1

Excluding the undisclosed deal amounts, the $18m figure represents a ~60% drop on the $46m that E+M tracked in Q1 last year. 

• Last year’s total of 14 tracked deals included several double-figure funding rounds including  Draftea ($13m), Wagr ($12m) and Lucra Sports ($10m). 

• The $18m also represents a 50%-plus drop on the $42m raised in Q4, albeit from only eight deals.

** SPONSOR’S MESSAGE ** Founded in 2013, Metric Gaming is based in Las Vegas and London and developed the industry’s first truly multi-tenant sportsbook platform, purpose-built to support operators across multiple territories, regions or States. Metric is proud to be partnered with both Racebook HQ and Lacerta Sports (powered by Starlizard) and will roll out innovative MTS solutions for both racing and sports in 2023, including soccer and four main US sports. To find out more, please visit www.metricgaming.com

River runs dry

A predicted outcome: A slowdown in funding has been anticipated since long before the turn of the year as the economic backdrop worsened and interest rates rose. But it isn’t so simple as to suggest that simply the well has run dry, suggest the market commentators, with a variety of factors playing into the apparent slowdown in activity.

Under the radar: One issue is rounds that go unannounced. This may include bridge rounds, whereby current investors stump up more cash, or new money rounds at higher valuations.

• “Two of our portfolio companies raised substantial up-rounds from noteworthy investors during Q1, yet neither deal has been announced,” says Lloyd Danzig, managing partner at Sharp Alpha.

• Then there is the issue of maybe not wanting to announce a flat or, even worse, a down round. “These deals come to fruition with minimal fanfare or PR coverage,” says Benjie Cherniak, principal at Avenue H Capital. 

• Alternatively, companies raising early in their journey might “deliberately” raise small amounts from private investors in order to get further down the track and have a “more compelling story to tell when approaching VCs for capital injection,” he says. 

• Plus, companies have been mindful for a while that cash might be an issue and so have been “extending their runway for the time being”.

Put that in your pipe: Then there is the issue of timing. As Chris Grove from Acies Investments points out, normally in the first quarter work we would see activity driven by work done at the end of the preceding year. “But there simply wasn't that pipeline coming out of 2022 this year,” he says.

• Added to this, Grove says there has been an “overcorrection” on due diligence. “Everyone's taking a much closer look at companies before writing a check than they were a year ago,” he says.

• Then there is a lack of urgency to do deals. “There's not the same competition for deals, which tends to deaden the pace of deals getting done,” he notes.

Heads turned: Kelly Kehn from Happyhour.io says the sector might also be suffering right now from investors turning their attention to the innovation happening elsewhere, particularly in AI. This could lead to a reduction in the number of funding rounds for iGaming start-ups, as investors seek out companies with more unique and innovative ideas,” she says.

• Meanwhile, within the iGaming space, Investors may be shifting their focus to B2B investments.

• “This could result in fewer funding rounds for start-ups in the iGaming space.”

Heading for the high ground: Peter Heneghan, senior associate at Bettor Capital, says there is a “valuation sensitivity” that also comes into play with a “flight to quality” evident right now.

• “For early-stage companies, this means a higher bar to meet in order to receive additional funding,” he says.

• This may mean that companies who would have raised a Seed or Series A round in 2021 are now “taking longer to meet that milestone” or taking the bridge round route.

• Danzig notes the recent collapse of SVB has resulted in investors “ratcheting up the already-increased focus on existing portfolios and firm balance sheets”.

• “Early-stage investors anticipate that startups will have a harder time accessing loans and that a banking contagion will tighten credit for PE firms and other downstream players that represent paths to liquidity,” he adds.

• Says Grove: “The collapse of SVB will likely exacerbate some of the macro factors impacting startup funding more broadly, and gambling certainly isn't immune from those factors.”

Hope springs

Keep smiling: Heneghan remains positive, though, that there is “significant funding available” for startups, and more broadly, for the gaming space as a whole.

• It’s just that funding rounds are “taking longer to complete given longer diligence processes negotiations on valuation and other key provisions.”

• Cherniak notes that VCs raised record amounts in 2021 and that much of that capital has yet to be deployed and “presumably remains available”

** SPONSOR’S MESSAGE ** Huddle is a next-generation technology provider for iGaming operators, dedicated to unlocking the full potential of this rapidly growing industry. Huddle’s cutting-edge automated odds feed solution offers fast, accurate pricing and trading services, helping operators increase turnover and drive margin; whilst reducing costs and managing risks. To find out more, please visit: https://huddle.tech/

Gambling’s Most Valuable Bank

The collapse at Silicon Valley Bank left sector startups largely untouched – but highlighted a collective reliance on a West Virginia bank.

Most wanted: In part, the collapse at Silicon Valley Bank was a problem happening elsewhere, only tangentially touching on the betting and gaming space. Few sector companies banked with SVB and any issues were resolved by the US government stepping in to guarantee all deposits.

• But ongoing fears over the US banking system have highlighted gambling’s dependency on one bank – MVB Bank from West Virginia.

• MVB is the bank of choice across the sector and dedicated five slides to the sector in its recent Q4 earnings presentation.

Persona non grata: The dependency isn’t through choice. As Dean Sisun, founder and CEO at Prophet Exchange, says gambling companies “don;t have many options” when it comes to where they bank. “It’s MVB or no one,” he adds.

• “There really aren’t any other options,” he adds. “I can’t tell you the levels of frustration trying to get a bank account, to the point where I considered building a bank myself.”

Stand by me: Recalling his time as a DFS start, Joey Levy, founder and CEO at betr, says that when “everyone was running away from the sector” due to the regulatory uncertainty MVB was the “one bank which stepped up at the time”

• “They were a partner when not a lot of other people in banking were down to do that,” he adds. 

• “That has boded well for them and enabled them to grow and that’s a big reason why they are number one for the industry right now.”

• Indeed, according to the presentation, MVB counts both FanDuel and DraftKings among its clients alongside a growing list of the sector’s headliners.

👀 Hard to avoid: MVB’s clients in betting and gaming

Treasury questions

Follow the money: Both Levy and Sisun confirm that a question that has shot up the priority list for startup management teams across all sectors is the treasury question. That is, where have they stashed their cash?

• The SVB collapse “put a greater level of focus on treasury management than previously,” says Levy.

• “Startups typically didn’t have to think hard or methodically about treasury management practices,” he adds.

• “But the recent news has put an even greater level of focus on that aspect of the business.”

Eggs/basket: This will be the legacy of the SVB near-death experience, suggests Cherniak from Avenue H. “Startups will surely diversify their banking portfolios moving forward so as to be less dependent on any one institution,” he says.

• Danzig from Sharp Alpha agrees: “CEOs at public companies and startups alike are now paying a lot more attention to treasury dynamics than was previously the case, with the emphasis being placed on avoiding exposure to single points of failure.”

💡 Be the bank: Of course, this desire for diversification runs slap bang into the aforementioned problems the sector faces when it comes to banking. 

• “I don’t know how quickly someone can spin this out but it would definitely be a ripe area of opportunity,” says Sisun.

• “MVB is great, but if someone comes in they could have their lunch eaten.”

• Levy suggests that as betting and gaming becomes more mainstream, others might well look into exploiting the apparent gap in the market for sector-amenable banks.

• “As the category becomes even more ubiquitous, there will probably be more prospective banking partners than you have today.”

Further reading: How safe are America’s banks?

** SPONSOR’S MESSAGE** BettingJobs is the global leading recruitment solutions provider to the iGaming, Sports Betting and Lotteries sectors. Boasting a 20-year track record supporting the iGaming industry, and with a team of experts and world class knowledge, it’s no surprise BettingJobs is experiencing rapid growth with outstanding results. Does your company have plans to expand teams to cope with strong growth and demand?

Contact BettingJobs.com today where their dedicated team members will help you find exactly what you are looking for.

Growth company gazette

• Former startup focus BeyondPlay has gained a UK license.

• Esports betting operator Rivalry has debuted its original casino product in Ontario.

• Spiffbet has arranged a SEK39.6m loan from its founders to keep the business afloat.

Recent startup focuses

• Adtech provider 2mee.

• Charitable games provider Golden Hearts Games.

• Esports skill-based gaming operator Grilla.

• Alternative sports data provider and affiliate ALT Sports Data.

Calendar

• Apr 6: Weekend Edition

• Apr 11: Due Diligence

An +More Media publication. 

For sponsorship inquiries email scott@andmore.media.