• Exit strategies are important to startups right from the get go.

• In +More: the latest funding round news and startup focuses.

• Beyond the sale: Talking to BeyondPlay’s Karolina Pelc.

• Inside the Raise looks at Kutt’s pre-seed funding round. 

’Cause girl, there's a better life for me and you.

How to exit successfully

You were always on my mind: It is one of the great ironies of businesses that entrepreneurs founding a business should always have one eye on an exit, but it certainly should not be all-consuming. “It’s a slippery slope,” says Avenue H principal Benjie Cherniak. “As a founder you are walking a fine line.” 

• “If you bring in outside capital, your investors – particularly venture capitalists – will be looking for a return on their investment and often wish to ensure that you as a founder are thinking about the path to exit. 

• It is very different if you are bootstrapped with your own capital, as then you can focus exclusively on growth if you like.” 

The daily grind: “As a founder,” continues Cherniak, “my view is that in the early stages an exit should be the last thing on your mind. You need to focus on the day-to-day grind and what you need to accomplish on an annual, monthly, daily and hourly basis to maximize growth. 

• “If you do that efficiently, then the exit opportunities are far more likely to come your way, whether you are looking for them or not.”

Questions, questions, questions: This is the ideal scenario, but in reality any founder seeking outside investment must have an exit in mind. As Karolina Pelc – who recently sold BeyondPlay to FanDuel – explains below, any institutional investor will want to know your plans: What do you do? How do you do it? What is the exit strategy?

It takes two, baby: Generally speaking, there are two types of business founders. There is the founder who is an expert at raising money and who is often a serial entrepreneur, and there is the product guy. Sometimes the two types will co-found a business. 

• The serial entrepreneur knows what investors want to hear. They can articulate a problem that needs to be solved and can get the funds needed to solve it. You will find a lot of these in the US.

• Megan Lanham, the founder of women-focused sportsbook Rithmm, has already sold two businesses. Similarly, FanDuel co-founder Nigel Eccles has founded multiple companies since selling FanDuel to Flutter. 

The product guy builds products. They can take a product to a certain point but they’re not a networker or a strategic builder of businesses. They need an exit to take the company to the next level. 

• Evolution Gaming have acquired a couple of these in the shape of Big Time Gaming founder Nik Robinson and Livespins CEO Chris Scicluna. 

Look who’s buying: So, the serial entrepreneur will have had an exit in mind since the beginning and the product guy will find one because the product is demonstrating great commercial success. Both will probably have an idea of who could be potential acquirers. Furthermore, investors may well demand that information during your pitch. 

• “Planning an exit means building a product that people care about. If you are successful, then offers will come,” says a partner at an investment house, who wishes to stay anonymous.

• However, both Cherniak, who co-founded and sold Don Best Sports to Scientific Games, and Pelc are examples of entrepreneurs whose buyers would not have been identified in advance. Both stemmed from business relationships that morphed into acquisitions.

Here’s the nitty gritty: Founders might be very seduced by the money on the table but they need to ask themselves what they are giving up. What is the potential of the business? What does an acquisition mean for them and for their employees? 

• “The price is usually the principal issue,” says Cherniak, “but once you’ve agreed on that piece then you then need to get into the nitty gritty and all the minutia involved in getting a transaction over the finish line.”

Putting in a shift: This is where the real work starts, says Dee Maher, the CEO of La Royale Gaming Investments, which recently acquired B2C online casino operator SlotsMillion and is looking to broaden its portfolio with more acquisitions. It comes down to answering a series of questions.

• Is the sale in the best interests of clients, employees and the acquiring company? 

• Who really runs the company and who are the essential employees? 

• Will the earn-out structure motivate the founders? 

• Are incentives aligned? 

• Will there be redundancies? 

• How do you integrate the technology? Where are the vulnerabilities and risks?

“I have seen companies where they haven’t done their background checks and it can be very difficult afterwards,” says Maher. “You’re really tearing it apart to see if anything is hidden under the rug.”

Should I stay or should I go? Perhaps the trickiest of all these issues is what to do with the founders. Sometimes companies are directly investing in the founder, a person who they would not be able to recruit under normal circumstances. 

• “We would look at recruiting the founders as part of the deal negotiations,” says Maher. “Very few people want to see their baby dropped and if they want to leave you have to ask yourself why.”

• “In an ideal scenario, visions and cultures are as aligned as possible. That said, to the extent that sacrifices need to be made, you and a co-founder have to be prepared to make some compromises,” says Cherniak. 

• “There needs to be a realization when you are selling your company that you and your people are going to have to adapt to the acquiring company’s culture, employment standards and vision as opposed to them adapting to yours.”

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+More startups

Funding rounds

Social-betting startup Kutt raised $1m+ from an institutional fund raise led by Lightning Capital, with the cash going towards growing the Kutt community and expanding its betting markets. Kutt was founded by CEO Sim Harmon and was the subject of a startup focus in April last year. See Inside the Raise below.

Gaming affiliate Skores completed a debt-funded MBO, with VCs Stags and MI3 coming on board as investors. The company said the new money will help fund international expansion.

DeGaming, an online gaming provider that envisions the facilitation of platform community ownership of gambling, has raised €3.5m from a Dubai-based fund called XVC Tech. 

The online gaming provider Softswiss has taken a stake in Germany-based social gaming operator Ously Games, the company behind SpinArena.net.

Growth company news

EQL Games hired a new director of marketing in Taylor Bengtson, who joins from the New Hampshire Lottery where she was an account manager.

Gamification provider Lucra Sports has announced a partnership with entertainment center operator Dave & Buster’s to enable P2B betting via an arcade game app.

The in-game microbetting provider Kero Gaming will supply its sports-betting options to NeoGames Pariplay on its Fusion aggregation platform.

SBC North America Summit First Pitch

Five go to Meadowlands: The companies taking part in the competition are 916 Gaming, EdgeSports, Linemate, StatX Sports and THNDR.

The month in focuses

• Next-generation data analytics platform Bettormetrics.

• Global marketing provider The Tenth Man.

• Lottery content provider EQL Games.

• Predictive analytics provider Caerus Risk Solutions.

• Consumer-facing bet advice provider BettorTakes.

Exit interview – Karolina Pelc

Above and beyond: The sale of BeyondPlay to Flutter Entertainment for a rumored £20m-plus is one of the most successful exits seen in the sector in the last few years. Earnings+More talks to CEO and founder Karolina Pelc about how working on bringing in FanDuel as a client led to deeper discussions and the lessons she learnt along the way.

Exit stage left: Pelc says that when a company decides to go down the external funding route, especially when institutional investors are involved, there must be an exit in mind, a decent ROI and a timeline you strive towards. 

• “It's the number one thing you get asked about when pitching,” says Pelc. 

• “The timeline and the plan I had in mind was longer, but I set up and ran the company in a way that if one day the exit option was on the table, I could consider it. 

• “It was never at the forefront of my agenda, however; the focus over the past three years has been very much on building the foundations of the technology, team, product and organization we wanted to become and securing the partners to help us grow.”

Trade sale secrets: Pelc says the form of exit – in the end a trade sale to Flutter – was not the subject of a great deal of detailed thought but, as a pragmatic person, she also wasn’t necessarily thinking of an IPO. “My ambitions probably didn’t stretch that far,” she says.

• “Having worked in the industry for over 20 years, involved in almost every aspect of it, from operators to supplier businesses, as well as M&A advisory, I'd like to think I have quite an intimate understanding of the forces in play,” she says. 

• In the immediate term, she says she focused on “delivering on our innovation promise and driving the business forward to become revenue-generating and eventually profitable.” 

• That said, she admits she “might have had a couple of big names pinned to my vision board as potential and highly desired target buyers.”

Butterfly effect: “In my experience, nothing in business comes out of the blue,” she says of the emergence of Flutter as a potential buyer. “It’s always an effect or a consequence of something and, in this case, it was a shift in consideration from a company we worked very hard on trying to secure as a client almost from the very beginning. 

• “It was certainly unexpected; it happened fast and earlier than planned, but I never had a single doubt that this was a remarkably exciting next chapter for myself and the team and an excellent outcome for our Investors. 

• “At the end of the day, it is not just some buyer; it's Fanduel – the number one online gaming brand in the US and part of Flutter Entertainment. You don’t just walk past an opportunity like that.”

Let’s get this conversation started: Pelc says that those in a position to be looking at a sale should be prepared to be thrown into the process at, effectively, a moment’s notice. “The advice I would give is to get yourself acquainted with due diligence processes and build your company as if you were going to be thrown into it tomorrow.” 

• “Surround yourself with a strong team, fully aligned on your vision and other people willing to offer their knowledge and strategic advice, whether in a formal or informal capacity. 

• “And use their help. You are the beating heart of the company, but the human body doesn’t function with the heart alone and can’t stop functioning completely without it.”

We go again: While the temptation with entrepreneurs is to think that lightning can strike twice, Pelc says a quote from Nvidia CEO and founder Jensen Huang is currently a favorite. 

• When asked a hypothetical question about starting a new company in a podcast, he responded: "I wouldn't do it. You know the list of all the things that go wrong, I don’t think anybody would start a company. Nobody in their right mind would do it".

• While on a smaller scale, Pelc says starting a company is “most definitely harder than I have ever imagined it would have been.” 

• “Huang references the naivety of first-time founders as their superpower and I have to agree. Yet, I’d do it all over again in a heartbeat, probably choosing a slightly easier route.” 

This is not goodbye: “But most importantly, I don’t see the sale to FanDuel as any sort of end for BeyondPlay or myself as its founder and CEO,” says Pelc. “On the contrary, I am excited about what the future will bring and to see our innovative technology, both jackpot and multiplayer, live on a global scale, on the coolest and most successful iGaming brand out there.”

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Inside the Raise – Kutt

A Kutt above: The social-betting platform recently announced a $1m pre-seed funding round led by Lightning Capital. E+M spoke to Kutt’s founder and CEO Sim Harmon and Lightning Capital’s Jock Percy about why the pair believe social betting has the potential to be three times bigger than sports betting.

Burning a hole in your pocket: Harmon says the new cash will go towards new hires, marketing and product development. “We’ll be growing the team, continue development and rollout of new features, and pursue additional partnerships,” he says.

• The funding round marks a step-change in the company’s journey having previously been involved with angel funding rounds.

Flash of inspiration: The road to getting Lightning on board started last summer, but the first conversations with Percy started several years ago. He was one of the first investors to show interest in our company, and we finally reached a point where both sides thought it made sense to pursue an investment,” Harmon says. 

• “Lightning understands the power of decentralized networks and we are excited to work with them to build the best social-betting network in the world.”

Primary colors: For Lightning's part, Percy says there were three primary reasons for getting involved with Kutt. “The founding team has solved three of the biggest challenges of social betting,” he says. “We call them the trust, technology and treasury problems, i.e. who is managing the bet and how do we settle the bet.”

• “It is our belief that the market opportunity for social betting – personal bets between friends and non-sports markets – is up to three times larger than the sports-betting market,” Percy adds.

• “Kutt is well positioned to capitalize on it, because of their technology and user interface. We love the decentralization of social betting.”

To infinity and beyond: In terms of what comes next, both Harmon and Percy point to a recent survey that suggested 8% of US bettors are interested in betting on non-sports markets. Percy adds: “Kutt’s expansion of social betting, beyond sports, has already begun.” 

Lightning strikes: As for Lightning’s interest in the sector, Kutt is the only betting and gaming interest to date. “We are ‘putting our money where our mouth is’ and are committed to helping Kutt be the destination for social betting,” Percy says. 

• “We have stakes in other non-bet gaming businesses, such as GameOn Entertainment, which recently signed customers LaLiga, PFL and Karate Combat.”

Calendar

• May 7: GeoComply Challenger event NYC, Red Rock

• May 7-9: SBC North America Summit

• May 8: Genius, Super Group, Full House, LNW, Golden, Accel

• May 9: Bragg Gaming, AGS

Will you be at SBC Summit North America (May 7-9)? Visit GeoComply and explore how we help protect the business of leading operators globally, with geolocation, fraud prevention, and streamlined licensing. Find us at booth A120!

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