Led by managing partner Lloyd Danzig, the group invests primarily into early-stage gambling technology companies. It has made 11 investments to date, including motorsport fantasy operator GridRival, gambling exchange Prophet and free-to-play platform PickUp.
Sharp Alpha plans to spend half of the $10 million on initial commitments and reserve the rest for follow-on investments into portfolio companies that show the most promise. Its 11 investments to date make up more than half of that initial $5 million allotment, Danzig said.
The fund is deploying money based on a two-pronged thesis, according to Danzig, a former bond trader who launched Sharp Alpha Advisors in early 2019. The first is that even the largest and wealthiest sports betting operators are buying and licensing technology instead of building it themselves. The second is that the total addressable market for sports betting companies will be far larger than just their sports betting businesses.
“Now DraftKings has an NFT marketplace, and Barstool is delivering frozen pizzas, and Fanatics could eventually have one wallet where you can bet on sports, and buy tickets, trading cards and merchandise,” Danzig said in an interview. “That therefore means the total addressable markets for start-ups that are serving a DraftKings, or looking to get acquired by a DraftKings, is also much larger.”
The legal U.S. sports betting industry has exploded in the last few years, as more states legalize wagering, and operators large and small rush to gain market share in each jurisdiction. Sports betting is now legal in 28 states, plus Washington D.C., with nationwide revenue projected to top $5 billion at some point in the next year or two.
Sharp Alpha Advisors is one of a handful of venture firms offering both capital and strategic advice to smaller tech providers and platforms looking to break through. This first fund’s backers include institutional investors Great Elm Group (NASDAQ: GEG) and Dutch Sport Tech Fund, plus a number of VC firms, family offices and individuals that were not publicly disclosed.
Sharp Alpha Advisors also put together an advisory board of industry and financial executives. They include Don Kornstein, vice chairman of Caesars Entertainment; Keith Horn, former COO of Elliott Management Corp. and global head of leveraged finance at Merrill Lynch; Daniel Bernard, a venture partner at Mindspring Capital; and Adam Davis, a former executive at Harris Blitzer Sports & Entertainment who left last month to join Two Circles. All are also investors in this fund, Danzig said.
“We are backed by some of the largest VC funds in the entire world, ones that everyone has heard of, and that’s important because that is what allows us to help guide our portfolio companies,” Danzig said. “Not just in the seed and Series A rounds that we’re participating in, but then hand off those portfolio companies to our backers who are the experts in Series B, Series C, IPO and beyond.”
The group is already in the works on a second investment vehicle, Danzig said, which could be another fund, a holding company, or both. “That’s all in the works,” he said. “My guess is that those will open up early next year, when we’re done making the initial investments out of fund one.”