Waterhouse VC: Turning back the clock

In his latest column, Tom Waterhouse of Waterhouse VC reviews how the fund has performed over the last year.

We started the fund on 19 August 2019 and I am very pleased that our five-year anniversary is fast approaching, with outstanding results for investors over the past year. The fund returned 53.3% for the 2024 financial year, a result our team is proud of.

While global equities have been favourable over the past 12 months, our performance has not relied on these tailwinds, outperforming the S&P 500 by +31%. Returns have been achieved across each pillar of our strategy (Option Deals, Professional Betting, Global Equities).

We’re pleased with the fund’s performance since launching, particularly given the challenges of finding attractive deals during a period of exuberance for growth assets in 2021. Last year’s results bring the return since inception to 102% per annum before all fees. An investment of $100,000 at inception in August 2019, assuming reinvestment of all distributions and before fees, would be worth $3.06m as at 30 June 2024.

Waterhouse VC’s performance. Source: Waterhouse VC

Winner’s circle

The fund has generated a positive return in eight of the last 12 months. Two businesses in particular, Project Tennis and Saintly, contributed significantly to the fund’s performance.

Project Tennis is a professional betting syndicate specialising in tennis. Waterhouse VC invested in the syndicate in July 2023. The syndicate has achieved:

Profit of £5 million in 2023, tripling 2022 profits;

Industry-leading win rate of over 5% on betting turnover.

This income stream is uncorrelated with financial markets and is passed through to our investors, with the fund set to earn back its entire investment within two years.

Saintly is a crypto wagering operator and B2B platform. The position was exited in August 2023 and has been the largest single contributor to the fund’s performance over the last year. The deal delivered a 23x return, showcasing our ability to leverage our industry network for strategic exits and move quickly when an opportunity arises to achieve the best possible outcome for our investors.

Waterhouse VC’s journey with Saintly. Source: Waterhouse VC

Class of 2024

Successful years are not just about outperforming the market, although we certainly prefer it. They’re also about setting the fund up for future performance with opportunities on attractive deal terms.

On this front, we are seeing an acceleration of deal flow on the back of our compounding track record and industry network. The fund completed three option deals in the June quarter, one of which we discuss in depth below.

B2B focus

Our primary focus on B2B suppliers to wagering operators has not wavered. We prefer B2B for four key reasons:

ReasonRationaleUndiscoveredB2C investment opportunities (such as Entain, Flutter and DraftKings) are more accessible to equity investors than B2B suppliers. B2B suppliers are not household names and are overlooked by most investors.Superior Business ModelsIncreased global regulation and taxation make it more challenging for B2C operators to grow revenue and profits. Although this environment impacts B2B suppliers, they are generally more insulated as they generate revenue by taking a percentage of net gaming revenue (NGR) and typically have a diversified client base.Mission CriticalWagering is highly competitive in all markets, with increasing customer acquisition costs. In such a competitive industry, B2B suppliers are critical for operators to differentiate through user experience and product.Our Domain ExpertiseWaterhouse VC’s in-house engineering team has developed several wagering websites and plays a crucial role in investment due diligence, giving the team an informational advantage over other investors when evaluating B2B suppliers.

Project Marston

As the fund matures, our deal flow has accelerated, particularly in professional betting syndicates. We last discussed professional betting in February. Successful betting syndicates are extremely rare and the largest syndicates have maintained dominance for over two decades. Waterhouse VC currently owns an economic interest in two professional betting syndicates – Project Tennis and Project Marston.

Project Marston is a professional betting syndicate focused on live dealer online blackjack. Globally, online casino (live, RNG-tables and slots) grew at 21% annually between 2019 and 2023.

Live casino has been the fastest growing segment within online casino, with an annual growth rate of 24% over the same period. This growth supports the proliferation of professional betting activity focused on the segment.

CategoryGlobal Casino Market Share (%)Land-based Casino78%Random Number Generator (RNG)17%Live Casino5%Global casino market in 2023. Source: Evolution

One of the UK’s largest bookmakers recently led Project Marston’s funding round. Waterhouse VC invested in Project Marston in June and betting operations were immediately scaled up. The fund is on track to earn back its entire investment within 12 months.

“We’re entering a huge, growing market that is as yet, largely unexploited and I strongly believe this has the potential to run very profitably for years” – founder, Project Marston.

A game of live dealer online blackjack. Source: Livedealer.org

Onwards and upwards

The fund is currently in advanced stages of due diligence or recently signed agreements with seven businesses, two of which are professional betting syndicates:

Horse racing betting syndicate

Cricket betting syndicate

B2B technology solutions provider focused on horse racing

Affiliate marketing business

B2B technology supplier focused on global lottery

Subscription business that offers daily giveaways

Customer engagement and retention tool using skill-based gaming

We look forward to discussing these businesses in future columns.

Waterhouse VC is a fund for wholesale investors, specialising in global publicly listed and private businesses related to wagering and gaming. Since inception in August 2019, Waterhouse VC has achieved a gross total return of +2,960% (+102% annualised), as at 30 June 2024, assuming the reinvestment of all distributions.