Underdog Fantasy raises Series C at $1.225B valuation as it challenges legacy sportsbooks with consumer-first product

Underdog coming in. We got Jeremy from underdog fantasy. com. He's got a beautiful background. How you doing? What's up? How you doing, dude? You were you were ready for the uh for the full for TV. Love the uh love the setup. Looking great. We got the background. I love it. There you go.

Uh can you give us uh just a quick intro? uh who you are, what your company is, uh what's new. Yeah, for sure. For sure. Company is Underdog. Um we just turned 5 years old. We focus on building games for sports fans in America. Um I've been doing something much the same my whole adult life for 15 years now.

Um started a business called Star Street in 2009. Um actually started as a sports stock market, but was very early uh real money fantasy sports days. And I've been trying to make sports more fun for 15 years now. That's awesome. Uh talk about the news today.

You got a new Yeah, we we just uh we just announced our this the first close in our series C. Um Spark Capital's leading 1. 225 pre- money um valuation. There we go. Excited about that there to have and uh some nice validation and acceleration for what we're doing. Size gone. Size gone. Sorry. I got this new sound.

We got a sound board today. I don't know if you can actually hear it, but uh there's some great great sound effects. I don't hear it. I want to get it. No.

So, so my my first thought goes one uh you know, super validating to get this round done, but I remember around the time when you started this company, it was every round. I don't know about every, but at least the first one or two rounds that you were raising were like very hot. Like people were, you know, chasing it.

They got priced almost to perfection, right? I I I don't even remember. I remember it was like my recollection it was like a almost like a seed preede getting priced like well well above 50.

I don't know exactly the price but a lot of people when they see rounds getting done like that that are just like super early and like expensive end up saying like well this company has to execute perfectly and you know clearly you know it's hard to execute perfectly but you executed very well.

Um, how do you, uh, you know, talk about kind of that journey in terms of like making sure that if you want to go from whatever, you know, wherever is initially priced to 1. 2 in five years, you kind of have to like hit these sort of perfect milestones all along the way. Yeah, definitely.

It's definitely not been perfect. It it never is, of course. Um, but but it's gone fast. Um, look, I think we had the luxury of the the founding team at Underdog was seven. We all worked together um at a prior company draft and we built products that people really loved.

So we kind of had in a way the customer base the fan base when we started the business um and we we built games that ultimately through some M&A got taken away from them. Um so that was the kind of start and that that allowed us to move fast. Um I spent my whole adult life in in this community.

So, we we had the community and the support of the community early and that's something that's been really important to us is the people we build for, the customers we build for, making sure that they love our products, they love our games. Um, and and they've they've been they've supported us the whole way through.

So, that really helped. Um, those seed rounds, the first ones weren't as glamorous. I think our first valuation, the first money we raised, was at a six million valuation. Oh, wow. So, not that glamorous, but it went further. So, I was not early.

We did uh we did we did the first then a second one at a higher valuation then a third and then a year later I think was our series A. Um the partner who led our series A was my very first investor in my first company 15 years ago. He then was a partner at SB Angel. Kevin Carter's name. He runs N Capital now.

He's was the first person I called when it was time to raise a big round. He had been in every seed round obviously and he stretched kind of well outside his fund to lead our round because that's not what his his fund was meant to do. Um, but he's kind of seen this for 15 years and knew the journey. Yeah.

Um, so he's been a great backer and a great asset to the company. Can you tell me more about the I mean, you mentioned it's like very community-led. What's the marketing mix right now? I see a lot of the the the big sports companies partnering with Pat McAfee or ESPN and there's the Dave Porto universe.

Uh, where have you found success? Yeah, it's it it's a real mix. Look, the the top acquisition source for us always has been our existing customers. Um almost a third of our customers come from directly attributed referrals from other customers. Sure. Um it's always going to be the best source, right?

That's a sign of us building products that people love and that's our whole opportunity. Yep. Um WAP, who was just on, we we have partners on WAP, so that they're a big partner of ours. Um and and partners in general, we we do a lot of our own content as well. Yep.

Two years ago, we um we made the decision to start a show and we built a set in Gilbert Arena's basement. That show is now Gills Arena. Um, and that show is we think by by kind of any forms of measurement the fifth largest daily sport show in America right now. Wow. Wow. Massive success for us and that crew.

Gil Gil and the whole crew have been amazing to work with and amazing partners to the business. We have a couple other shows as well and just continue to invest in trying to meet sports fans where they are and add value to their lives. That's awesome. Uh, talk about building in a hyper competitive space.

I think you don't even have to be aware. You don't have to know anything about, you know, sort of like anything sports gaming related to know that you're competing with some heavily heavily funded, you know, sort of public companies that can outspend you on kind of every dimension.

Uh but but clearly you guys have been able to like break through and become a real player despite, you know, being able to invest uh far less. How have you guys is it like raw execution and just building the product that you know you guys want?

So, you know, your customers are going to want or what do you think has been your guys's kind of winning formula to date? Yeah, look, we we started underdog with kind of a really simple thesis.

Um, it was there's so much more to be built for sports fans in America and if we can be the best at building product, we'll build the biggest company in this space, right? That that's always been the belief five years in, we have obviously more confidence in that than ever before.

Um, and look, we can be the best at building product and and can with a lot of confidence say in the space, we are the best at building product. Not just because it's our DNA and what we prioritize and what we look for in people and what we really care about.

Um, but also just by the kind of function of how this space came. Almost every other large player is largely reliant on legacy tech that was initially built for a different market, for different customers, for the UK and Europe.

Um, and we had the opportunity when we started this business to to really play a long game and say, "Hey, we're going to we're going to build this for the future. We're going to build to build the best product. So, we should build all our own technology.

" Um, and that's what we've done both fantasy sports now licensed sports betting technology. And that gives us the ability to build a differentiated product to build a better product um, and to just have the fastest product velocity.

I think the whole company's sick of hearing me say it because every two weeks when we do our big company meetings, the two things I make sure I say every two weeks are it's product and it's people.

Those are the two reasons we're going to win and we have to have the product fastest product velocity and the best people here and that's what we focus on. Can you talk a little bit about regulation? I know the products are legal in Wikipedia says 31 states.

I don't know if that's exactly exactly accurate, but um obviously there's a march from the whole industry and even though you're competing, you're probably working together in some ways. Is there a lobbying group that you're part of?

Like mechanically, if you're part of an industry and you got to kind of team up with your rivals. What does that look like dayto-day? Yeah, so there's a lot of different um there's kind of a lot of different pieces to it because there's we we offer games right now in 41 states. Okay.

We offer our core game, our our pick them game in 36 states. Sure. Um where licensed sports betting in one state when Missouri launches um later this year, December 1st, it will be a second state. Um or so we hope. We obviously need to get licensed um by the regulator there.

And um for us, it's all about like we we want to always build games within the laws um and build the best customer experience we can within the laws and and kind of the wants of the regulators. Um, this space is definitely highly political.

U, there's a lot of competition and a lot of people who candidly don't have the means to compete or the ability to compete on products. So, they try to compete in other ways. Um, that's definitely something we faced.

And when we do that, we always try to team up with the people who care about customer experience, care about delivering the best products to customers and say, "Hey, that that's how people should compete. That's how people should win. It should be all about customer experience.

" How do you think about focus specifically with the team? I'm sure that everybody or not everybody, but I'm sure a lot of the people that join underdog do it because they like they're just obsessed with sports and they and they love the products that you guys make.

But at the same time, like you know, if you've got a lot riding on a certain outcome, it can be distracting from actually building the underlying product.

And then I'm sure for you and and other people on the team, there's also a lot of, you know, distractions around some athletes like, "Hey, you want floor seats to this game? " You know, like they're a fan. like how how how have you guys stayed focused?

Cuz clearly clearly to accomplish what you have in the last 5 years, like you've had to be pulling some, you know, very late nights and and really leaving it all um on the court. On the court. There we go. Landed it. Oh, it's funny.

We're we're we're maybe signing a lease for a new office and we have this vision of putting a basketball court in there. So there basketball courts and we'll really be on the court then. There we go. Look, we're we're really lucky. We get to work in sports. Um sports is fun. Sports brings people together.

I've been a sports fan my whole life. That's obviously kind of how I got into this. Um, and I just think there's so many wonderful virtues of sports and and the community communities it creates and the bond it creates. Um, and I just think that that's a blessing for us.

Look, we it's funny over the course of my career, people and not as much anymore, but people used to say, "Oh, we don't invest in hit in games businesses because it's hits driven businesses and it's tough to predict hits. " Like the sports are the hits and the hits keep coming. We don't have to worry about that. Yeah.

Can you tell take me on a little bit of a historic like historical tour of the industry? Like when I was a kid, it was like gambling. It only happens in Las Vegas. Then in college, people were playing online poker and then there was like a poker apocalypse or something where all those things got shut down.

Can you give me some just historical anecdotes? What were the key turning points in the in the industry? Yeah. Um, let me start post. I believe that was 2006. Okay. And that's when poker really kind of went away online in America.

that's now come back, but just in a few states and nowhere near till kind of what it was then. Got it. Um, real money fantasy sports as we know it really started in 2009. Um, FanDuel, that's actually when Starry was born as well.

Um, FanDuel kind of being the largest of that early generation obviously and have continued to be the largest. Um, there were a lot of incumbents who weren't so pleased to kind of see their success. And in 2015, um, there was kind of this regulatory storm that hit the fantasy sports industry.

For a period, 15 attorney generals said the business was illegal. They were under an FBI investigation. They were under a DOJ investigation only like a six-month stretch. The industry then got together and said, "Hey, we need to clarify the laws. We believe what we're doing is legal. We need to clarify the laws.

" Um, and and got together and passed legislation. There's now fantasy sports legislation in, I believe, 22 states. Um, so that that happened then.

Then, um, there's always kind of been fits and starts of, hey, maybe legalized sports betting is going to come to America, but it never really did until 2017, a court case called PASSPA. Went to the Supreme Court. It was being kind of pushed by New Jersey who wanted to offer sports betting.

Went to the Supreme Court um, in 2018 when PASSPA was overturned by the Supreme Court. that made sports betting no longer federally illegal in the US. And from there, states can legalize it as they so choose.

Um, somewhere around 28 states, I believe, have now legalized online sports betting um or or sports betting in some format.

And so, the companies that were best positioned for that early set were FanDuel and DraftKings because of the fantasy sports advantages, the customers, they had the ability to operate a digital business. Um, and that's kind of wave one of sports betting in America.

Now, when passable was repealed, um there were 31 days until New Jersey was launching sports betting and then a quick wave of six dates came soon after.

So, every company that wanted to be live for the market open had to take tech that was already built and operational that was built in the UK and Europe where there was a way more mature market and and bring it to America.

And that's why if you look around the space today, you kind of see products that look almost all the same, right? There's different colors. There's sometimes different prices, but the core experience is the same. We believe I believe that's not the right product for American customers. It's a very hardcore product.

It's very transactional. Um, and SC not that much fun. We believe that the games we build and the games that should be built are to make sports more fun for someone who's watching a game and wants to increase their enjoyment with the game or who wants a reason to watch the game um or something to do with their friends.

And so that's specifically what we build for. An analogy I use quite often, and I've never been a fan of using a company's analogy for for another, but I think it just fits so well for what what we're about and what we believe the opportunity is. Think about what Robin Hood is to stock brokerage.

That's kind of what we are to sports book, right? Simpler, more intuitive, more approachable, more fun, less transactional, less about big dollars and thinking about it from a financial perspective. more. Put $10 on on an experience tonight on your opinions. Express your opinions on sports and have fun with that. Cool.

Very very awesome. Very cool. Uh congratulations. Massive milestone. It's great having you on. Yeah. Congratulations. Looking forward to uh looking forward to the next markup, I'm sure. Thank you. We're working on it. Yeah. Awesome, dude. Thanks for coming out. We'll talk soon. See you. Bye. That's great.

We got Rob coming in soon. Another young. Uh who led Jordan? How did Jordy wind up with the soundboard this show? I feel like I would be a little bit more responsible with it, but Oh, you can trust me with the sound 25 times. Oh, wow. With incredible uh sound effects. So, we got Rob Mower