How sports-betting startups have been impacted by economic downturn – Business Insider

The startup scene surrounding sports betting exploded in recent years as new regulation in the US helped turn online gambling into big business.

During 2021, PitchBook tracked in late December 44 venture-capital deals totaling $700 million in US sports betting, up from 32 deals worth less than $200 million the year before.

But the rocky economy is bringing the once-frothy startup landscape back down to earth.

Sports-betting startups aren't immune to the trends that are driving down valuations for late-stage tech startups and leading to layoffs in the creator economy.

Venture capitalists, across the board, are getting more cautious as public-market valuations plummet and inflation rises. As such, sports-betting founders and investors are being forced to recalibrate their valuations when raising money.

"The one thing that is broadly shared is a reality that valuation expectations have to be interrogated," said Chris Grove, cofounder and general partner at Acies Investments.

It's also getting harder for startups, particularly those with unproven founders and high burn rates, to raise capital.

"It's a very had time to raise money as an inexperienced founder without traction and some semblance of product market fit," said Lloyd Danzig of Sharp Alpha Advisors, which invests in sports-betting startups. "But it is a great time if you are a profitable, cash-flow-producing company with great investors on board that are enthusiastic about your management team."

Still, the hottest startups on the scene are seeing outsized demand, as Danzig pointed out.

For instance, Jackpot, a UK-based online lottery ticket company, closed this week a $35 million Series A funding round that will help the company expand into the US.

Some companies are seeing so much demand that their founders are rethinking the size of their funding rounds and the amount of ownership control they're willing to give up even as other startups scramble to raise cash for fear that the well will soon dry up.

One reason many sports-betting startups aren't yet panicking, like some in other sectors are, is that the public online-gambling companies like DraftKings and Penn National Gaming haven't yet been as impacted by inflation as other businesses, like tech and media companies, that rely heavily on advertising. And investors' longterm views on the industry remain largely steady, as sports betting continues to expand into more states and reach new audiences.

"Gambling startups are definitely facing a challenging funding environment," said Grove at Acies Investments, who is also the cofounder and CEO of American Affiliate."The thing that is likely helping to protect online-gambling startups from maximum pain is the fact that the broader industry still has a very clear growth trajectory, and frankly has very clear sets of needs and wants that are unlikely to be fulfilled by the current roster of operators and suppliers."

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How sports-betting startups have been impacted by economic downturn - Business Insider