• Eight funding rounds in the first five weeks of the year have garnered a third of the total raised last year as sector-specific money raises show signs of a rebound.

• The early fundraising data for the year confirms the indications from the funding community that venture capitalists are preparing for a much busier 2024.

• One of this year’s early raisers, European-based bet builder innovator ParlayBay, goes through the ins and outs of its recent €3.5m funding round.

I counted out his money and it made a pretty penny.

Signs of life in startup funding

Green shoots: Startups and scale-ups have announced fund raises totaling $34.5m in the opening weeks of 2024 – more than a third of last year’s total amount raised from investors as tracked by Earnings+More.

• The figure compares with $95.5m in the whole of 2023. 

• The last time startup funding hit these levels was in Q2 last year when $52m was raised, including $35m for Betr and $10m for Prophet Exchange.

Four to the floor: Six deals were announced last week. First, Splash Sports said it had secured $14.1m via a Series A2 funding round, which will in part go towards the launch of a new partner solutions company. The new funding round was led by Boston Seed, Velvet Sea Ventures, K5, Elysian Park, Acies Investments, Accomplice, Counterview and others.

• Plai away: The AI-driven sports-betting supplier start-up GamePLAI secured €1.5m of investment from multiple industry names, including Marco Blume, the former trading director at Pinnacle. In addition, Donal Barron has been appointed chair. Barron was previously head of corporate development at Banach Technology.

• Shots fired: F2P fantasy games provider 20Shots announced that former Inspired Entertainment CCO for virtual sports Steve Rogers has invested an undisclosed amount in the company. He joins a Los Angeles-based VC, Animal Capital, current Playtech BGT chief John Pettit and Alex Donohue from Press Box PR on the cap table.

• Going green: Brazil and Ecuador-facing sports media and sports-betting operator PlayGreen raised $6m from the suggestively named Vice Ventures. It was founded in 2020 and has previously raised $9.9m.

• Alternative tentacles: Data provider ALT Sports Data fanfared late last week it had raised $2.5m in a seed round led by Eberg Capital and Relay Ventures. 

• Just-ified: Finally, games developer Just Slots raised $1.2m from Yolo Investments ahead of the launch of its first game later this year.

Skill or cure: These six deals come on top of two funding rounds from earlier in the month. Skill Money Games rounded up $5m in seed financing from investors including the Eastern Band of Cherokee Indians (ECBI), while European OSB provider ParlayBay raised €3.5m ($3.8m) from unnamed industry figures.

A word of caution: Sources pointed out that announcements of raises can substantially lag the actual negotiations over new funding rounds and that often the PR can mislead because a company just wants some publicity. 

• It is thought, for instance, that Skill Money Games’ deal was closed some time back but only now has it been announced. 

• Angel investor Benjie Cherniak says he would “caution against reading too much” into just one months’ numbers.

• “In some instances the funds are raised in 2023 but only announced in January 2024 so as to create momentum to start the new year,” he adds. 

• “It is unlikely you will see the January deal flow replicated in February or March.”

Notably, of the eight companies to have raised so far this year, six are B2B or, as is the case with Splash Sports, the cash raised will go directly into launching a services offering. Cherniak says this was “interesting but not surprising.”

• “If we have learned anything over the first half decade of legislated wagering across the US, it is that B2C is a tough business,” he adds.

• “The potential pot of gold may be more restrictive for B2B businesses versus their B2C counterparts, but the right company with a clear strategy and competent management team can appeal to investors as a component of their portfolio.”

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Sourcing startup funding

You’ve never had it so good: Yolo Group fired the starting pistol for an optimistic new year when it announced the launch of its new €100m Yolo Fund II a few days before Christmas. Meanwhile, Sharp Alpha Advisors managing partner Lloyd Danzig is confident his firm will deploy more capital in 2024 than it has ever done before. Davis Catlin of Discerning Capital closed one deal last year, but hopes to do three or four this year.

• “Investor-friendliness is tending toward all-time highs and companies are launching with profitability and cost-efficiencies baked into their DNA,” says Danzig.

• Investors are being attracted by lower valuations, more structure, participating liquidation preferences, cumulative dividends, stronger board representation and a high ratio of capital demanded to supplied.

• “According to most metrics, investor-friendliness reached its trough in Q4 2021 and has been steadily increasing since Q1 2022,” says Danzig, “and is now approaching levels not seen since the aftermath of the 2008 financial crisis.”

Where we were: The new optimism comes against a backdrop of general gloom in 2023. Venture dollars invested were down nearly 60% in 2023 compared to 2021 and the number of active VCs declined 42% over that same period, according to financial data and software company PitchBook.

• Danzig points out the figures are a little misleading due to the all-time high comparisons but they still map reality for many startups.

• Chris Grove, co-founding partner at Acies Investments, says: “Our natural reaction [to a less favorable macro environment for fundraising] was to tap the brakes on new investments in favor of keeping our powder dry to support our existing investments.”

• Catlin points to a drop in valuations of around 70% since the 2021 heyday. 

• “We have a lot of empathy for management teams, because they raised capital a couple of years ago, revenue has grown 4-500% and they return to the capital markets and valuations have plummeted,” he says. 

On the quiet

Just between you and me: Danzig believes media coverage has portrayed the situation as more dire than it is. Many companies are simply not announcing their funding rounds, but he admits that with the cost of capital up and access to capital down, investment decisions are being made more deliberately and, therefore, more slowly.

• Sharp Alpha made nine investments during 2023 – four into new companies and five into existing portfolio companies. Of those nine investments, only SlamBall chose to announce its $11m deal.

• Bettor Capital was more active than most, with two announced deals. It took part in a €5m funding round of BeyondPlay and a $7m funding of Jackpot.com.

• Discerning Capital led a $10m capital raise for Australian-based Picklebet, which attracted investment from Drive by DraftKings.

• Tekkorp Capital led a $2m private placement for FansUnite and overall made smaller investments than the year previous.

Men at work: Discerning Capital’s investment in Picklebet was one of a number coming out of Australia. Benjie Cherniak points to social sports-betting company Dabble and pricing specialist ZeroFlucs as Australian companies he has invested in.

• “If you want to see what’s coming in the US,” says Cherniak, “look at the innovation coming from Australia.”

• “Australia is a huge market,” agrees Catlin, “it's the third-biggest online market in the world.”

• However, Catlin’s focus remains on North America as are many other venture capitalists. The market is maturing and while the competitive nature of the B2C landscape will likely restrict investment in that space, suppliers are starting to demonstrate track records.

Spoilt for choice? “There are so many VC firms that are dedicated to our space,” says Cherniak. Most of them have been mentioned in this article but you could also point to larger sportstech-focused firms such as Courtside Ventures, which dabble in the gambling space.

• But Catlin points out: “Generalist funds get really excited about our industry until they find out about licensing.”

• “On one hand, gambling makes for challenging terrain for a number of investors due to the licensing requirements and disclosures that can accompany those investments,” agrees Grove.

• “On the other hand, gambling startups are moving into a really interesting phase in terms of their scale, proof of fit and broader M&A momentum within the segment. With arguably more positives than negatives in play, we expect investment in the sector to increase this year.”

Catlin’s partner David Williams concludes: “Strategic M&A will continue but large private equity sponsors are looking for businesses that don’t really exist in the US gambling sector – companies with $25m+ revenues and $20m+ EBITDA.” 

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Inside the raise – ParlayBay

A deeper pool: As mentioned above, ParlayBay raised €3.5m from unnamed industry figures at the start of the year and E+M spoke to Fredrik Elmqvist, executive chair, about how new money also brings with it strategic industry partners.

Network effect: Alongside its previous investors, who have taken up the lion’s share of the new money, Elmqvist says ParlayBay went through its network of contacts and secured “strategic industry partners” as investors who have also become new business partners.

• Despite the economic environment remaining “tough out there,” Elmqvist says working in a “hot space like in-play micro markets” has enabled the company to realize its fund-raising aims.

Pedal to the metal: The new cash will go to accelerating the business with ParlayBay expanding across the board with more formats, more sports, more tools and more digital distribution opportunities.

• “We have achieved strong results in Asia over the past 12 months and we are now looking to target other markets,” says Elmqvist. 

• “We have lots of data and stats at our disposal, and by tapping further into machine learning and AI we have the tools needed to accelerate quickly.”

Generating heat: But Elmqvist says ParlayBay also has wider global ambitions. “We are now also pivoting towards the wider European market as well as LatAm,” he adds. “For the latter we have received a lot of interest without much effort, but that will be something we’ll be focusing on this year.

• “We are rolling out ready-made bet builders under our brand ‘Hot Bets’ where the more chillies you get the higher the odds and bigger win potential for players,” he says.

• “This will also be embedded as a new line within our 360-degree online opportunity and will be completely integrated into the partner’s sportsbook.”

The month in focuses

• LA-based games developer Konquer.

• Crowdtesting service Testa.

• Social gaming operator Lucra Sports.

• Regtech consultancy Game Safety Institute.

• Sports data analytics firm Sporting Risk.

Calendar

• Feb 6-8: ICE, London

• Feb 7: Kindred, Disney, Red Rock, Wynn

• Feb 8: Boyd Gaming

• Feb 13: MGM Resorts International

• Feb 15: Betsson, Penn, DraftKings (earnings)

• Feb 16: DraftKings (call)

Venture capital firm Yolo Investments manages in excess of €500m in capital across 100 exciting fintech, gaming and blockchain companies. The Yolo Investments' Gaming fund, regulated by the Guernsey Financial Services Commission, has taken positions in fast-growth suppliers and operators, including Dabble and Enteractive. Yolo Investments (yolo.io) wants to hear from readers of this newsletter. Get in touch with your pitch, or for a chat about innovative products which can plug into our investment ecosystem.

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