When venture capital funds began investing in DraftKings shortly after its founding in 2012, it wasn’t clear that founder Jason Robins’ idea was legal, much less lucrative. Back then, governments were inclined to see fantasy sports–especially sliced up into daily and hourly contests like Robins envisioned–as a game of chance, meaning DraftKings’ business model could be considered illegal gambling or due for heavy regulation, depending on the state. But for firms that gambled on Robins’ idea, starting with $1.4 million in seed funding in mid-2012 and through series of venture capital funding in the years that followed, the risk has paid off–tremendously.
One firm, Raine Group, is believed to have made at least $1 billion in profit on the investment, based on a review of filings. The company led a $41 million venture capital round into DraftKings in 2014, later investing more money into the company. In total, Raine invested about $100 million and has made ten times that amount. Raine declined to comment.
Similarly, Ryan Moore and his firm Accomplice, a Boston-based tech seed investor then known as Atlas, gave Robins $1.4 million shortly after he formed the company in 2012. A year later Brian Rubenstein and Counterview Capital and Peter Blacklow at Boston Seed Capital joined Accomplice as investors in the Series A round that valued DraftKings at $16.7 million. The two firms’ shares may have cost as little as 9 cents. That’s based on a disclosure that Robins received options in 2013 with that as the exercise price. DraftKings shares closed at $53.33 Thursday.
“The early investors in Draftkings and FanDuel saw the incredible unit economics of the fantasy business and wanted to get involved,” said David VanEgmond, a former executive at FanDuel (now part of Flutter Entertainment) and Barstool Sports and founder and CEO of Bettor Capital, a consulting and investment firm focused on online sports betting. “You can make 100 sports bets in the time it takes to do one daily fantasy sports lineup, so the churn of money on the platform is so much higher,” he added. “It’s an Uber-like experience in that these companies are transforming how people engage with sports and are extremely compelling opportunities.”
DraftKings shareholders made headlines earlier this week as early venture fund backers, which also include Hany Nada of Acme Capital and Steve Case’s Revolution, sold shares in the first public offering of investor shares since DraftKings went public by SPAC earlier this year. All told, venture capital firms sold $482 million in DraftKings shares this week. The decision to sell now is probably just a standard industry practice of locking in some profit now that the venture funding has paid off in a stock market listing. The fact that the venture capital firms retain almost $2 billion in company shares supports that assertion.
Venture capitalists aren’t the only ones who made a large profit. Patriots owner Robert Kraft invested in DraftKings in a 2015 round that valued the company at $1.5 billion. DraftKings has a $19 billion market capitalization now, and Kraft retains more than $125 million in shares. Shalom Meckenzie, DraftKings’ largest individual shareholder, acquired his stake this spring, when DraftKings acquired his gaming technology firm SBTech in exchange for $194 million in cash and 30.56 million shares. DraftKings’ surging share price has made him a billionaire. Meckenzie, through DraftKings, declined to comment.
As for Robins, the man whose idea started it all: His 16.8 million shares are worth $892 million as of the close of trading today.
(This story has been updated in the third paragraph with details that Counterview Capital joined Accomplice in the Series A round of DraftKings’ funding.)
