Raising money. Just the thought of it sends shivers down many a spine. Flocks of startups look to get out of the starting gate, few of them piece together a “friends and family (f/f)” round of financing, and only a handful are able to make the next jump to the second round of funding, often called a seed round.
And if a successful friends and family raise is akin to hitting a two-team parlay, getting venture capital to invest in your idea-turned-company is at least stringing together a five-teamer. The money raised during a friends and family round typically lasts less than a year — just long enough to energize, test and prove the product with a minimal marketing push.
Whether you are engaging a venture capital fund, family office or a high net worth individual, it’s all about understanding their portfolio and finding the right match for your company.
Making the leap
I had the opportunity to speak with two founders in the sports gaming space who have recently and successfully made that jump from f/f to seed. They are Reid Rooney, CEO Betsperts, a crowd-sourced social platform for the sports betting community. After getting his Master Degree in Entrepreneurship from Central Michigan University, Rooney served as the national account manager at Stanley Black and Decker for five years before founding Betsperts.
And Brian Kipp, a longtime entrepreneur with a background in information technology and fantasy sports. Kipp is the CEO of Ownersbox, a sport-tech developer preparing to launch their flagship product, Weekly Fantasy Sports (WFS) for the 2020 NFL season.
Ownersbox had a dominant early investor who had a sphere of influence that he leveraged to get the seed meetings, while Betsperts took a more grassroots route, predominately using Linkedin DM’s.
Both founders said you can tell in the first two minutes how interested the investor is in your idea by the questions they ask. Without a question, you are off explaining the betting space which eats into valuable pitch time.
Rooney talked about his experience with a group based in London: “We didn’t have to explain gambling and sports betting affiliate business as they understood it, while when we talked to someone in Silicon Valley, we understood there was more of a learning curve.”
“Sports gambling is absolutely something they are interested in, but we felt it was a little too small and early for Silicon Valley as they are looking for the Unicorn exits ($1B+).”
Fast and furious dealmaking
There is just so much deal flow in the sports betting sector right now and valuations are being lifted by the growth of the bellwethers. New states are moving quickly through legislation and operators are flooding to get licensed and live.
Deals and partnerships of all sorts are happening at every level, from leagues and teams to betting operators, from data and content providers to social media influencers and traditional broadcasters.
After spending months in the process of raising money, Kipp and Rooney were able to sum up the experience.
Kipp: “Raising money is a momentum game and if you’ve got people interested it interests other people. The reverse is also true.”
Rooney: “Once you raise money it’s easier to raise more money. People don’t want to miss out.”
The COVID-19 effect
The deep investor freeze caused by the coronavirus pandemic is slowly starting to melt.
“Investors are wanting to make up for the time period they’ve lost,” Kipp said. “They still need to invest in companies, they still need to distribute their capital in order to get their returns. There is definitely a thawing right now and we are taking new calls every week.”
“Before Covid hit our initial plan was to go to Series A Round in March of 2020. Then go to market for the NFL season with a big marketing war chest in the fall. Instead, we are launching behind a seed round while opening our Series A very shortly,” Kipp told me while smiling over Skype last week.
“Our seed round only took three months to close and luckily it was right before the pandemic hit,” said Rooney. “We are now finalizing a sandwich convertible note round, which is in between seed and Series A to help scale marketing during the NFL season.”
Two CEOs running tech based, early stage, pre-revenue start-ups in the sports betting sector, and both are ready to press hard with the the NFL football season beginning next week.
They’ve raised enough capital, and now begins the move to become sustainable. They’ve moved from raising money to operating their business, and shifting the focus from pitch meetings to user acquisition cost. Though if you ask Rooney, he’ll probably tell you that raising money only stops when you sell.