Home Venture Capital Sharp Alpha Advisors Closes Oversubscribed $25M VC Fund

Sharp Alpha Advisors Closes Oversubscribed $25M VC Fund

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Sharp Alpha Advisors announced the final close of its second fund this week, an oversubscribed venture capital fund dedicated to investments in early stage sports, gaming, and entertainment businesses.

The announcement comes at a time ripe for growth in the venture capital industry, according to Lloyd Danzig, a renowned investor and managing partner of the firm. Sharp Alpha Fund II, an oversubscribed $25 million venture capital fund, is targeting 15 companies in its portfolio.

The fund targets seed investments in the range of $1 million to $2 million. Sharp Alpha Fund II is backed by public companies, U.S. financial institutions, owners of professional sports teams, family offices, top venture capitalists, and others. Sharp Alpha also operates a co-investment vehicle that provides limited partners with the ability to invest additional capital in select deals alongside the fund.

“The competitive entertainment category is experiencing exponential growth, but is desperate for innovation that early stage companies are best positioned to supply,” said Danzig, in a statement.

Underwriting with conviction

When Sharp Alpha Advisors closed Fund I, a $10 million fund in 2021, the portfolio contained 11 companies, drawing the likes of Players’ Lounge, GridRival, and Prophet, a peer-to-peer sports betting exchange. At the time, Sharp Alpha Fund I planned to spend half of the $10 million on initial allocations and the rest on follow-on investments.

The fund subsequently added several other investments, most notably Slamball last March. A hybrid sport combining elements of basketball, football, and gymnastics, Slamball returned last summer after a decade-long absence in the U.S. Two prominent sportsbooks, BetMGM and Circa Sports, offered betting odds on Slamball.

Slamball signed a two-year media rights deal with ESPN, but the league has not posted its schedule for this summer. Circa is a founding partner of the league.

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Although Danzig indicated that the Fund II portfolio will be “slightly more concentrated” than the portfolio for Fund I, it will pursue a similar underwriting strategy.

“We follow the same general philosophy of only underwriting deals that are potential fund-returners and reserving capital to concentrate in the best-performing positions,” he told Sports Handle.

While Sharp Alpha is targeting more than a dozen companies for the portfolio, the fund has only announced one — C15 Studio, a Dublin-registered media distributor. C15 serves as the official operator and distributor of Formula 1’s new streaming channel.

Prophet got off to an encouraging start in New Jersey, but announced Wednesday that it will be shutting down in the Garden State later this month. The exchange still plans to open in further states down the road.

A favorable environment

As the investment community approaches the second half of 2024, Wall Street awaits the next moves from the Federal Reserve. On May 1st, the Federal Open Market Committee (FOMC), held interest rates steady at a range between 5.25% and 5.5%. The Federal Funds Rate, the Fed’s benchmark interest rate, remains at a two-decade high amid sticky inflation.

At a meeting last December, the FOMC signaled it could cut rates up to three times this year. But this month, the Fed left rates unchanged for its sixth consecutive meeting as inflation remains persistently high. The Federal Funds Rate, a rate at which banks lend each other money, impacts borrowing costs for consumers. Typically, a rising interest rate environment tends to be a drag on venture capital. Once the Fed begins to lower rates, it could provide a much-needed tailwind for top venture capital funds.

Nevertheless, investment in seed companies over the long term may carry more relevance than the current “interest rate turbulence.” Danzig points to an “investor-friendly negotiating environment” in conjunction with a determined push from management teams to attain profitability. The environment, he notes, mimics a period just after the 2008 financial crisis, when prominent companies such as Uber, Venmo, and NerdWallet made their respective debuts. Interest rates in 2009 hovered near zero as the Fed encouraged investment in the private sector.

“No matter the economic backdrop, transformational founders building compelling solutions to important problems will continue to attract investment and drive innovation,” Danzig told Sports Handle.

In commenting on current market conditions, Danzig notes that we are entering the “most favorable period” over the past 15 years to invest in founders.

One of the leading investing experts in the sports betting industry, Danzig was recently named to Business Insider’s Top Venture Capitalists in Sports and ELG’s 40 Under 40 list. Sharp Alpha’s advisory board includes Keith Horn, a former COO of Elliott Management, Daniel Bernard, chairman of Redwood International Sports, and Don Kornstein, vice chairman of Caesars Entertainment.

Sharp Alpha appears extremely pleased that the fund exceeded its $25 million target. The venture capital fund remains committed to repaying its investors for their trust with “outsized financial returns,” Danzig emphasized.

“We are very grateful to have our Fund I investors back for Fund II, alongside an incredible roster of strategic and institutional limited partners,” Danzig told Sports Handle. The partners, he added, “not only validate, but bolster, the fund’s “positioning and thesis.”

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