How New York Angels Bet on IC 360 and Won

This transcript has been AI generated. Please excuse any typos.

David (host): Welcome to the New York Angels edition of the Angel Nest, where real angel investors and entrepreneurs partner to build great new businesses. I’m David Hemenway. I’m a five-time founder and a member of the New York Angels, where we fund and mentor great young companies.

Today, we talk about sports betting, which has turned into a lucrative business in just a few years. But with all that money literally on the line, someone needs to make sure the wagers are monitored for integrity and fair play. Scott Saden and his team at IC360 provide integrity monitoring and compliance support for some of the biggest names in sports, like the NFL, NHL, Major League Baseball, PGA Tour.

Wow, talk about an impressive list. They’ve grown the business to more than $10 million in annual revenue, and early on even landed a strategic investment from Las Vegas Sands. We’ll also talk today to New York Angel member Doug Pearson about plug and play, which is a way that founders are using to scale their pitch and talk to hundreds of investors at once.

And then we’ll speak about tariffs and how they’re affecting startups with New York Angel member Bruce Kamenstein. Now to IC360, which I’m happy to say was financed by a seed investment round from the New York Angels. It’s a pleasure to welcome Scott today, along with New York Angel member and general sports expert Jeff Seltzer, who led the round and helped get everything started.

He’s been part of the board at IC360 and worked closely with the founders to build the business. Thank you both for being here today. Glad to be here.

Scott: Thank you, David. 

David (host):  Scott, tell us how IC360 works and how you’ve grown the business from scratch to more than $10 million in revenue. That’s just incredible.

Scott: I appreciate the kind words, David, and obviously the support from the New York Angels. It’s been a grind, no question about it, but it’s been, you know, obviously one of the more rewarding experiences in my life thus far. And I think the primary driver of both the success that we’ve had as well as the fact that it’s such a rewarding experience is just the deep-rooted relationships we’ve developed.

And we made a very, very conscious choice when we started out to really nurture those relationships because we recognized that the sports betting ecosystem in the regulated market is quite complicated, it’s quite nuanced, and there’s a lot of different stakeholders who don’t always have the same exact interests in every single aspect. And so for us, it was a matter of ensuring that the relationships we generated across sports properties, sportsbook operators, regulators, were affording us opportunities to solve some of those really nuanced and complex problems that were pretty consistently popping up for them.

David (host):  So tell us how it works. How does a platform even monitor all those sports gambling that’s happening?

Scott: Sure. So yeah, we really started out focusing on one specific product, and that was, as you mentioned, integrity monitoring. So we were looking for really kind of any abnormality across the sports wagering ecosystem that could be indicative of some type of foul play.

So examples like match fixing, game manipulation, the misuse of insider information, prohibited betting, et cetera. From the very beginning, we recognized that we needed to take an art plus science approach. And so from a technology and product perspective, our goal was to take as much data in as we possibly could.

That spans referee data, that spans information data around injuries and availability, that spans odds and market information. It covers account level wager detail that we receive from some of our sportsbook operators. And so we were hyper-focused on ingesting and collecting and aggregating as much data as we possibly could from myriad different sources.

On the art side, we surrounded ourselves with domain experts, with boots on the ground, analysts from different walks of life that all knew sports betting in and out. And our whole goal was to be looking for correlated anomalies. So not just the point spread moved one or two points, or there was a hundred-thousand-dollar wager on one particular market, but instead we were looking for abnormalities across multiple buckets.

So maybe a referee who consistently calls games that go over the wagering total 60 to 70 percent of the time. And for five straight games, he called a game that goes under the wagering total. And we saw a correlated anomaly with increased handle on the under in those five games in which he officiates.

That’s the type of anomaly that we would then send out to both sportsbook operators as well as sports properties that are implicated or involved.

David (host):  I want to ask Jeff Seltzer, who is known at the New York Angels as an avid sports fan, and he’s involved in most of our sports investments. Jeff, what got you involved in IC360? Was it because of the category or was it the picks and shovel approach that IC360 seems to be taking? Or was it Scott or all of the above? 

Jeff: Let’s go to the tape, as they say in the sports world. Okay, so we roll it back to the beginning of the pandemic.

So everyone is kind of hunkered down. My son, Ian, who looks at sports and media deals with me, he was bunkered here at the beach. And we know Wayne Kimmel very well, runs 76 Capital.

He led the seed round for IC360. And he was having a showcase for his companies as a way to get the word out as everyone was kind of sheltering in place. So Ian and I joined the Zoom.

And one of the companies that presented was what was called US Integrity at the time. And Scott was on and they went through their stuff. And we’re listening, we’re saying, this is really interesting.

And then Scott went into talking about how you monitor referees, and biases of referees, and how you kind of have to consider the bias. And Ian and I, we were like, this is fascinating. Now, at the same time, there were no sports, and we never knew whether there was going to be sports again.

But we really liked this. So we had another call with Scott, lasted a couple of hours. He took us through the thing, ran through some demos.

And we said, this is great, we’re going to bring it to New York Angels. So we went through the diligence process, which we led our good friend, Michael Kosta was very, very helpful during this process as well. And we went through it, and the group decided to go ahead, because it was so unique.

And it was again, we have done sports investing, we had done one other sports betting deal. But this was investing kind of in the cops instead of necessarily the robbers, not saying that they’re robbers, but kind of the police aspects of it. And a lot of us are fintech guys.

So we came out of Wall Street, and we can see the similarities between fintech and Wall Street and betting. And one aspect, one important aspect, of course, is compliance and monitoring. So this really kind of caught the interest of everyone.

And much to the credit of the group, we went through, even though we never knew whether there was going to be sports betting again. And kudos to Scott and the team for convincing us to dive in when we never knew. I think there was like table tennis in Bulgaria, that was only the only sport you could bet on at the time.

David (host):  Yeah, it was a strange time for sure. So Scott, talk about having investors on your board, and what that experience was like. And in general, how investors at our stage can be more helpful to founders like you?

Scott: Well, I remember, as Jeff mentioned, it was such a difficult and precarious time for us. I mean, we were quite literally planning to go to market with the financing right when the world stopped in COVID. And so it was a tough macro environment, of course.

The thing that I loved about the New York Angel process happens to be the same thing that I, in the moment, hated about the New York Angel process, which was the process. So when you’re in it, it’s hard. But that would be the same for any type of financing process that you’re going through at any level, really, whether it’s pre-seed, seed, or later.

But what I recognized sort of towards the tail end of it was, boy, I hope we get this over the finish line. But even if we don’t, the fact that we now have all of our materials aggregated in a way that makes sense, that we’re telling a story, it’s really helped the company. We now know what we should be focusing on.

It’s really important to kind of zoom out every now and again and say, from a macro perspective, what’s working, what’s not, what is the future, where do we want to be in six months, where we want to be in a year? And the process really allows you to answer some of those questions. It really allows you to ask some of those questions.

So again, taking me back to sort of the initial part of the answer, the process itself is rewarding. When you’re talking to so many different experts from different walks of life who all want one thing, an interesting and profitable investment, you get to really dig in to some of those questions that you sometimes forget to ask yourself when you’re knee-deep in product building or relationship building. So the process is rewarding regardless of the outcome, it truly is.

Now, of course, throughout the process, we learned that many of the New York Angels have differentiated expertise in different categories. So whether it’s product and technology, artificial intelligence, relationships, introductions into different verticals or areas or industries, or just running a business, starting and running a business, that was obviously very appealing to us because we were still in an early stage and what exactly we needed from a potential investor was not always clear to us other than capital. And so the breadth as opposed to depth was very appealing.

David (host): So Jeff, we all want good returns from angel investing, of course, but it strikes me in a situation like this where a lot of the payback, a lot of the dividends are really emotional and the satisfaction that you get from helping a company like IC360 grow. 

Jeff: Yeah, it’s been great. And again, I just want to say that the tremendous faith that our group had in Scott and the team to do this during COVID, we really didn’t know whether it was going to do anything, but we ultimately believed that everything was going to be okay and that the sports betting market was going to be huge.

And that was also difficult because it was state by state regulation. There weren’t a lot of states that are doing that. So what has been great is to kind of there to see this kind of the sports betting market evolved and to see these guys who really had a notion and a demo and all, whatever it is, to become the industry leader, to have all those logos, to have everyone wanting to talk to them, to see articles where they’re in the middle of everything is great.

And it is a great team. Truly, they have put together great, great people. So it’s a pleasure to interact with everyone. And so we have some fun.

David (host): Scott, how big can this become?

Scott:  Yeah, I mean, I think we’ve got grand aspirations, right? Like we, from the very beginning, the goal was to leverage integrity monitoring as an entry point that we can build a true reg tech one-stop shop. And so we want to stay in compliance and regulatory technology, but we always recognized that in order to do true and effective integrity monitoring, you need to cover a wide array of verticals.

You’re going to need to have some type of AML KYC insight. You’re going to have to have transaction monitoring. You’re going have to have some kind of geolocation detection and fraud oversight.

And so for us, like, we’re very, very good at prohibited betting through ProBet, advisory solutions through our consultation division, integrity monitoring through our core competency, education through our e-learning and onsite delivery, Playbook AI, which is our aggregated review of different legislation and procedures and process and statutes and regulation. So we’ve made incremental progress in our ultimate goal of being a one-stop solution for sports properties, sportsbooks, and regulators. We’re not there yet.

There’s still a long ways to go. There’s still a long tail in order to really deliver the efficient solution of every mission critical service that a sportsbook operator, supplier, sports property needs.

David (host): Scott Saden doing a great job building an amazing business and sounds like you’re having a lot of fun doing it. Thanks for joining us today. And Jeff Seltzer, New York Angel member, who you might say is doubling down on IC360.

Scott and Jeff: That’s exactly right. Thank you, David. Appreciate it. Thanks, David.

David (host): So while New York Angels will always be focused on New York, of course, we also work with other investors and angel groups from around the country, sometimes even from around the world. And it’s all really to source the best opportunities wherever they may be. Now we want to meet Doug Pearson.

Doug’s a New York Angel member, and he’s helping to scale our outreach and our efforts to connect to NYA with more founders, improve our deal flow, and work with more investment groups. So Doug, thanks for joining us today.

Doug: My pleasure. Thank you. I know you’ve just run a successful plug-and-play event that resulted in some great new investments. Tell us about it, if you would.

Well, some people may have attended this as well, but we organized something a little over a year ago to bring together a lot of angel groups that were 10 in the initial trial, 31 in the one we did in May. And the idea was to get a peek at plug-and-play’s large cohort of startups in a way that we really couldn’t before. Plug-and-play does an in-person summit, as they call it, every six months.

But it’s a very difficult thing for angels to penetrate. And this way, we got a way to pick the ones we wanted to see that were the most angel-friendly. We brought a big group.

That’s resulted in some diligence. The first trial run resulted in 2 million and some of investment from the angels. So we think there’s something here.

David (host):  Yeah, that’s great. It’s all changed so much since COVID, right? Now we can invest in anything, anywhere, or all around the world.

Doug: Yeah, right. That’s really helped our deal flow. And plug-and-play and every accelerator, for the most part, is a physical place.

So if your angel group is not in that place, you really don’t have access to those startups unless you do something like we did. It seems like it’s a great way for founders to scale their pitch. I think it is.

I mean, I can be selfish as an angel and say, we have a lot to bring to the party. But from a founder’s point of view, this is human nature. If somebody shows up with a single check to close you around like a VC might versus the serial process of meeting enough angels to fill you around, of course, you’re going to be biased toward the single simpler process.

So I think founders naturally would prefer to get a single check from either a large angel group or a VC. Now we can sync up a number of angel groups around the country and get pretty close to that timeline and then offer an alternative to that founder, which I think is better. Angels can be friendlier investors at that stage and also a lot more helpful in terms of mentorship than a VC might.

David (host):  Sure. What other kinds of events are you working on in order to spread the word and help founders scale their pitches? Well, we want to find other accelerators to do this with.

Doug: We were approached by Techstars. That’s another large one. And so we did a fairly similar event in May with them.

And I think we’ll repeat both of those. We’re trying to find other accelerators that are interested and that are worth doing. We’re also hoping, because we’ve made some friends now in the angel community, that each of them, like New York Angels, has relationships with local accelerators that have strong programs.

David (host):  Each of them might help us create a program. Maybe it’s a little smaller scale, but every bit as high quality startups that we could all look at and see things that we would never see. Doug Pearson, thanks so much for what you’re doing for us today and every day in terms of finding more deals and bringing us together with more angels.

Doug: It seems like it just benefits the entire community. Thank you for inviting me. This was a pleasure, and I hope it helps.

David (host):  All right. Speak to you soon. Thanks, Doug.

Now, tariffs are in the news, of course. We think of them as affecting big companies like Walmart, Target, and GM. But New York Angel member Bruce Kamenstein, who has a background in household consumer products, says that’s not true.

He’s an early investor in Fuego, which claims to have the world’s best dance sneakers. And Bruce says even the threat of tariffs is bad for business, even if you’re a startup. Thanks for joining us, Bruce.

Bruce: Thank you, David, for having me. So, the first thought is can’t companies just pass on the cost? Yeah, you can do that.

It’s difficult. Every product has sensitivity in retail, so it’s not just so easy to increase price. But that’s what companies are doing now.

They have to. It’s a combination of increasing price, and it’s also dealing with your factories and negotiating better pricing from your suppliers in China or wherever you’re making your product. How difficult is it for small companies in terms of cash flow?

It’s very difficult because, first of all, the tariff is paid when the container arrives at the port. So, this presents a real cash flow problem. And by the way, the tariffs increased 30, 50 percent depending upon the product.

And this has happened overnight. So, if you have a cash flow projection that’s based over a year, it’s out the window because you just don’t, you all of a sudden have to pay 50 percent increase of your cost of goods sold overnight. I had a retailer told me that they had $20 million worth of merchandise floating on the ocean and no idea what the tariff was going to be when it arrives.

The bigger problem, even worse than the increase, right, might be the uncertainty. It’s a big problem because how do you produce an income statement? How do you know what your profit’s going to be at the end of the year or if there is a profit?

I mean, how do you project what your costs are going to be? And a lot of these companies, if you’re selling to retailers, have to cost out products for January, February, March for spring season. And how do you know what your costs are?

So, you have to estimate it. You really wonder what it’s costing the economy in terms of maybe businesses that are planning on expansions but they can’t get firm quotes for construction. I mean, it just goes right down the line.

And it’s easier in those situations, especially for the startups that you and I deal with, it’s easier for them just not to expand. But that’s bad for everybody. Yeah.

And the unpredictable nature is really, really hurting these small businesses because, you know, they don’t have the wherewithal of large companies. They don’t have huge staff. And to reshore the product is just not possible.

I mean, to make these products in the United States, it’s generally not really going to happen. So, we’re doing what’s called tariff hopping. We’re going to different countries.

David (host):  And that’s not easy also. And that’s taken away from innovation of these small companies, which really breaks my heart because that’s what America’s all about, is coming up with great ideas and offshoring and going where it’s best to make the product. I’m curious, what brought you to New York Angels?

Bruce: A friend of mine who introduced me. I just sold my company and I wanted something to do. And I love innovation.

I love entrepreneurship. I thought this was a great thing for me. And I’m loving it.

I really am. I love to see the young founders. I love to see the energy of these companies.

And I’m really, really enjoying it. When I first started with New York Angels, I was just so struck by the diversity of expertise in the room. I don’t think I’ve ever seen a business come in to pitch New York Angels where somebody in the group hadn’t done it or knew about it, or at least knew somebody who’d done it.

David (host):  That’s the amazing part of New York Angels, you know. There’s always somebody, an expert in any field there, which is great. Bruce Kamenstein, New York Angel member, thanks so much for joining us today.

Bruce: Thanks, David, for having me. 

David (host):  You can learn about joining our group or applying for funding for your startup at newyorkangels.com. And you can find contact information for our guest today or reach me with any comments or questions you might have at theangelnest.com.

I’d love to hear from you. A reminder that we don’t make or recommend investments at the Angel Nest. And this program is for informational purposes only.

We produce the Angel Nest with help from Rob Higley. Today, it’s Kathleen Conte at the controls of CDM Studios here at the famous Art Deco Film Center building just west of Times Square in New York. I’m David Hemingway.

Thanks for listening. So long till next time.