Since the turn of the year an interesting development has been circulating through the funding sector and that is… a lack of funding.
Whilst there is funding, it has taken a hard decline from last year’s rounds and for some of the most recognisable fintechs a multitude of factors have played into this.
Tom Waterhouse Chief Investment Officer of Waterhouse VC and Managing Partner of Bettor Capital David Van Egmond, both venture capitalists, were on hand to explain how this funding decline has occurred in 2022 in both the fintech and igaming sectors during a SBC Summit Barcelona panel.
Waterhouse and Van Egmond discussed at length the key challenges that pose igaming startups in the current economic climate, offering advice and insight into how they would approach building a startup when funding is so few and far between today.
“The world’s changed. Businesses were getting ten times revenue when money was free about a year ago,” expressed Waterhouse, who founded Waterhouse VC, helping run William Hill Australia as its CEO in 2014, turning over a revenue of AUS $2bn.
“Now, they are lucky to get deals one or two times revenue, so they have to be revenue-generating with a clear path to profitability. The businesses we are currently looking at are ones that look to address customer pain points, whether increasing margin, increasing value per playter, user journey, those are some of the variables we’re focusing on.
“I’d focus on the growth areas: the US, crypto, then I would speak to the head of product of different companies in that space to build relationships and get your product with one operator to begin with.”
Van Egmond further expanded on the points raised by Waterhouse, focusing on how to manage profitability and raising as much capital as possible during a time of macroeconomic pressure.
Van Egmond’s experience within the VC sector is vast, having worked with FanDuel and Barstool Sports before founding B2B venture firm Bettor Capital, where they seek to add value to their betting/igaming partners.
He said: “We are entering a new fundraising environment for start-ups. It’s a challenging macroeconomic backdrop that’s having some level of investor enthusiasm. Others who may be funding these companies in the online gambling/betting space, will be hesitant just because of the environment that we are in. It’s operating on a lean basis.”
“As it relates to our firms, we are advising them to raise more capital as much as they can. Default alive – having another cash to get yourself profitability and if the world craters, you’re okay and that is a setting you want to have early on that provides the most flexibility.
The conversation then delved into the rapidly evolving regulatory landscape and how it may be too stringent on igaming/betting operators, to a point where it can potentially hold back operators from innovating even further.
Van Egmond explored the changes KYC and AML are going through and how this may hinder the user experience, offering thoughts of investing more into product resources to make the user journey as frictionless as possible.
“The regulations are not going to get easier, they’re only going to get more stringent. Maybe you need to invest more product resources into making that KYC/AML process more frictionless, smoother and less intrusive to the customer.
We can’t wish away regulation in this industry, igaming regulation is only going to get more stricter.”
Winding the panel down, Waterhouse discussed the importance of firms localising themselves to the varying markets it may venture into.
Waterhouse offered the sentiment that it’s “more than localisation, it’s personalisation”, as he laid out reasons why the betting and gaming firms he invests in have familiarised themselves with different markets, all whilst tailoring the customisation process for the users of that market to suit their needs.
He explained: “Make it very unique to the customer, wherever they are, you see the same sportsbook layout across multiple jurisdictions. You’ll need to have the local products that’s popular but it’s also the customisation from a personal view of what they like.
“Being more intuitive into the way the player bets, is more important than ‘a betting website needs to look like this in the US, compared to look like this in Australia.”
If and when this state of economic downturn will subside is another question entirely by itself, and whether or not it will still plague the minds of investors during the rest of the year remains to be seen.
But investors can make a change when it comes to branching into new markets and having a say of how far the scope will be for operators to continue building innovation, moves that they hope can help make them become more comfortable investing into betting/igaming firms heading into 2023.