Sharp Alpha Advisor’s Sharp Alpha Fund I announced its final closing on Tuesday. The oversubscribed $10 million venture capital fund investing in early-stage sports betting technology companies has already deployed capital into 11 startups including Players Lounge, GridRival, PickUp and Prophet.
Sharp Alpha plans to spend half of the $10 million on initial commitments and save the rest for follow-on investments into portfolio companies.
The fund targets initial allocations averaging $250,000 in Seed and Series A financings, with plans to provide follow-on support in subsequent rounds. Sharp Alpha also maintains a co-investment vehicle that enables limited partners to invest additional capital in select deals alongside the fund. Through it, the firm has made initial allocations in excess of $1 million.
“Not only is the sports betting industry at an inflection point, but market leaders are choosing to buy rather than build at every turn”, said Lloyd Danzig, the firm’s founder and Managing Partner. “With M&A serving as the primary mechanism through which operators achieve differentiation and vertical integration, it is a great time to underwrite next-gen infrastructure”.
In addition to investing capital, the fund provides portfolio companies with a host of advisory services and strategic resources. Through its extensive limited partner network, Sharp Alpha connects portfolio companies directly to the sources of revenue, brand awareness, and future funding that are critical to a startup's success.
As reported by Sportico, Danzig stated that the fund is deploying money based on a two-pronged thesis. The first is that even the largest sports betting operators buy and license technology instead of building it themselves.
According to Danzig, many of the major players today such as DraftKings and FanDuel are primarily focused on attracting and retaining customers and dealing with regulations in various states, leaving them little time to develop technology on their own, and they acquire startup technology companies or licensing technology from those firms.
The second thesis 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, as reported by Sportico. “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”.
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. According to Danzig, all of them are investors in the fund.
The fund is backed by institutional investors which include Great Elm Group and the Dutch Sport Tech Fund; as well as a number of multi-billion dollar venture capital funds, family offices and private equity groups.