Sports betting venture capital money in three places is flowing

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Venture capital financing tends to go to companies with an expected return 10 times that of the investment. If a venture capitalist invests $ 10 million, it is because that investor expects to recover $ 100 million. To realize these returns, venture capitalists must support some of the more speculative firms.

Many of these businesses fail because they are trying to tap into a market in its infancy. Imagine having the foresight to invest in Facebook in 2003 or Bitcoin in 2010.

Therefore, venture capital investment offers clues to industry trends. In the sports betting industry, here are three areas that venture capital is flocking to:

  • NFT and digital products
  • Public engagement
  • Infrastructure

These may not seem like the most exciting sports betting investments, but they promise unique characteristics for bettors of all skill levels.

Play today spoke with Lloyd Danzig, Managing Partner of Sharp Alpha Advisors, to understand what investing in these areas means for bettors and the sports betting industry.

NFT and digital products

“NFT games, NFT marketplaces, [and] The infrastructure that allows platforms to integrate and process NFTs and digital goods faster is an area of ​​great interest, ”Danzig said.

NFTs – or non-fungible tokens – range from promising to ridiculous. However, the technology that powers NFT transactions will also be be able to buy metaverse. So, bettors who want to place sports bets or buy sports loot in the metaverse will use NFT technology.

Venture capital firm SeventySix Capital recently announced investments in three new companies. One is making NFTs and another is an augmented reality company. The fact that two of a venture capital’s investments include companies with ties to the Metaverse speaks volumes about the interest in this area.

The big sports betting companies are also getting into the metaverse. DraftKings has created its own NFT marketplace. Fanatics helped launch Candy Digital, an NFT collectibles platform.

But for all the promising companies, more companies will fail to try to cash in on the metaverse than they will big.

“Many entrepreneurs, not just in the sports betting arena, are trying to hack this [metaverse hype] by launching buzzwords that are not only topical, but also associated with the largest addressable markets altogether, ”Danzig said. “The metaverse is a trillion dollar market. Blockchain and crypto are a multi-trillion dollar market. “

Bettors should beware of hype in this area of ​​the industry. Many businesses that attempt to reach all NFT or Metaverse potential customers at once will fail. This will result in features that bettors may briefly appreciate disappearing due to a company’s mistakes.

It will be one of the most speculative, exciting and disappointing areas in the industry at the same time.

Public engagement

Sports betting operators can often better target specific customers. Rather than casting a wide net, they could take advantage of very engaged fan bases of certain sports or certain demographics. More precisely designed products will likely increase revenue across entire categories.

“There is a lot of interest in products that appear genuine to the motorsport audience, the esports audience, the mixed martial arts audience, the Spanish speaking audience, the audience who likes to bet on sports in a format. which looks more like financial products, ”Danzig said. “So I think all of these audiences as well as other audiences are of particularly high value. And so, you see investment dollars pouring into products, platforms, and content ecosystems that interest them. “

Targeting sports fans with personalized bets will improve the conversion of bettors. If bettors are given bets that they feel passionate about and knowledgeable about, then they will be more likely to bet. And if a product has the potential to increase grip, it will grab the attention of venture capitalists.

Infrastructure

Companies that have technologies that reduce reliance on third parties have excellent revenue potential.

“Because the [sports betting] the industry has historically been so dependent on a handful of third-party vendors – and because now all the major players are fighting not only to differentiate themselves but also to vertically integrate their tech stacks – I think the most money of all is flows into the infrastructure, ”says Danzig. “Whether it’s odds, risk and trading infrastructure, payments, KYC, AML, geolocation infrastructure or media and content infrastructure, a lot of money. [is] pouring into this space in particular because of the race for vertical integration.

One of the biggest vulnerabilities for any sports betting operator is the dependence on outside companies. For example, different companies are responsible for processing deposits, withdrawals, and movement of money outside of a sports betting site. This makes deposits awkward, long withdrawals and necessary third parties. A company that finds on its own how to solve these payment problems could:

  • Make deposit and withdrawal procedures easier for punters.
  • Save money on sports betting by reducing the number of third-party contracts.
  • Monopolize sports betting payment processing, resulting in massive ROIs.

The same can be said for other challenges that operators rely on third parties to solve. If a company can provide solutions for an operator and its customers, it will be a lucrative investment for venture capitalists.

The innovation trap

Sports betting startups occupy a unique position. The big sports betting operators spend aggressively on marketing and disparate regulatory requirements, leaving few resources for disruptive R&D. The high rates of entrepreneurship in the sports betting industry are helping companies escape this trap.

“I would say if you look into the next five years or so in the industry,” Danzig said, “the biggest problem that startups solve is that many market leaders are unable to deliver the innovation that they have the right to. most needed and that will allow them to expand to adjacent verticals and revenue streams – with Web 3 and crypto leading the way. “

Successful startups will tackle issues that currently require multiple partnerships to be resolved. They will also allow sports betting to exploit revenue in addition to sports betting, such as NFT trading or advertising. So, if bettors want any clues as to what cool new features they’ll have access to, they need to pay attention to startups that get venture capital funding.

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