Meet Tom Waterhouse

SPEAKER_02 0:02

Welcome back to Finance Friends. I'm your host, Fabian, and this is season four. This season we're diving deep into the world of investing. Not just where to put your money, but how to think like a professional investor. We are bringing you conversations with highly intelligent, incredibly motivated investors. With weekly episodes, make sure you stay tuned in. On the Finance Friends podcast today, we have the super impressive Tom Waterhouse, part of one of Australia's most well-known and famous bookmaking and horse racing families. He learned lots of tips and tricks from his grandfather when he was a kid, and he built his own bookie company and sold it for over$30 million. Wow. Now Tom runs a very successful venture capital fund called Waterhouse VC, and they invest in wagering industry companies. So Tom has returned 75% per annum over the last six years since the fund started. Listen in. Good afternoon, Tom. Welcome to the Finance Friends Podcast. Thank you. Yeah, great to be on. And you're in Melbourne for the week, you were saying?

SPEAKER_03 1:13

Yes, uh the week, uh, which uh is a lot of fun. Got here the uh last night and meetings back to back and then going to the tennis tomorrow night.

SPEAKER_02 1:20

Yeah, so we're talking about the Oz Open. We are recording in uh what is it? What's the nice day? The end of end of January.

SPEAKER_03 1:26

End of January. It's always such a good time. We we I lived down here with my wife for four years and just loved like just being around F the Australian Open the weather. You got the Aussie millions, or you used to have the Aussie Millions on at the same time. Good racing. It's it was fantastic.

SPEAKER_02 1:39

Yeah, do you obviously you come from a racing family? You like tennis and any other sports that you're you're into?

SPEAKER_03 1:45

Yeah, I um I love going to the the the uh big events, you know, like uh whether it's AFL grand final, the NRL grand final, oh state of origin, they're they're all great, you know. So week in, week out, the only sport that I'm really watching all the time is my kids' sport. Yeah, yeah. I go to unlimited basketball games and tennis matches and soccer games, and yeah. And probably a bit more satisfying seeing your kids. It's just amazing how like you really get into it. I thought, oh, who what about these parents? They get into it and yell on the sidelines, and now yeah, I'm one of those.

From Racetrack To Online Bookmaking

SPEAKER_02 2:17

It's funny because yeah, sometimes I run along the Yarra River and I see the the parents on their on their pushbikes cheering their kids while they row along the Yarra for their school sports. It's it's quite interesting. I don't have any children myself, but uh I do see my brother quite passionate when he's my nephew plays plays footy. Yeah, yeah, it's me. Oh, that's great. Um, so maybe let's start with from the beginning. So you from my understanding, you started uh you studied at university, is that right?

SPEAKER_03 2:41

Yeah, um studied commerce and major in finance and marketing at uni and um at Sydney Uni, which was which was a lot of fun. Um and we worked part-time while I was at uni as a bookie at the dogs, and um then at like provincial and country horse races, uh, horse race meetings, and and yeah, I just fell in love with betting. So I I I finished my degree, but definitely knew after the first year that I was destined to be a bookie.

SPEAKER_02 3:07

Yeah, okay. So maybe for people that aren't into the gambling game, which I think most people that work in finance have a good understanding of it, but explain what it what it what a bookie is and and what do you do?

Building And Selling TomWaterhouse.com

Why Invest In Betting Suppliers

SPEAKER_03 3:16

Yeah, look, um so there's several different types of bookmakers, but essentially uh a bookmaker puts odds up on well, it used to be horse just horse racing, but now puts odds up on anything, whether it's uh an AFL game, basketball game, dogs, horses, you name it. And uh then the punters come and back it with them. So you used to have to, before the internet, really the only place to go and place a bet was the racetrack. And actually, if you wanted to take a telephone bet, you had to go to a a race meeting to take that telephone bet. So my great-grandfather was a bookie in the 1800s, grandfather was a bookie, my dad was a bookie, and um yeah, I I just worked one day for my dad in my first year of uni at the track and and fell in love with it. And then I worked with with him for many years. My grandfather came out of retirement to teach me how to how to be a bookie and uh had so much fun and and just knew that that's what I wanted to do. And it was actually an amazing industry because it was sort of pre uh like iPhone and 3G internet and all that sort of stuff. The betting at the races was still pretty big. And uh, so I I loved being a bookie, took big bets and moved down to Melbourne actually in 2008 to be a bookie here and betting on the Melbourne Cup and on Derby Day. It was it was huge betting. And then what happened? iPhone got released, uh, 3G internet, and they changed the advertising rules. So there was a high court case, uh, the Bet Fair one that allowed these corporate bookmakers to advertise across state lines. And suddenly from 2008 to 2009, I think I maybe like held like half a million dollars out of the favourite cash on 2008 Derby Day, and then it was like five or ten thousand by two thousand. It was a dramatic shift in where the turnover was coming from, and I I knew that I had to um move online. So 2009 uh Sand Down Cup Day was the last day I worked as a bookmaker on track, and and then I became a telephone internet bookmaker from that moment on in 2009, and and that was sort of the beginnings of tomwaterhouse.com, and um that was an incredible, really interesting journey. So that went from sort of myself and two other people in an office at Mooney Ponds uh to over a hundred people working in the team within sort of 18 months and a hundred customers to a quarter of a million customers in that 18-month period. So a lot of lessons uh learnt there, and sort of building a like an online business was was really interesting and and um a steep learning curve. And um yeah, but it was a very fast-paced growth time. You know, the the landscape had just opened up here, and then we we sold that business to William Hill in 2013, um, and then ran their business. They bought three businesses in Australia, ended up running that company for them for four years from 2014 to 2018, and then that sold to PokerStars as uh uh big consolidation here with Flutter and and a few other businesses, and and then so I started Waterhouse VC, um, which is a fund that invests in uh the suppliers, gambling suppliers. Been running that for the last six and a half years and and yeah, really found a got a strong passion for it and just find it so interesting, you know, going around the world and trying to find what's the next latest, greatest supplier in the industry. And uh yeah, it's uh it's really interesting and and very enjoyable and very enjoyable to be in the industry I that I'm not I know I'm passionate about, but see many different sides of it, which has been been really good.

SPEAKER_02 6:39

Yeah, because obviously from a I'm a I'm a member at Flemington, I go to the races every now and again. I went to actually Royal Ascot for the first time in June. And the members had the top hat on and tail, which was which was great fun. Um, but you know, a lot of people like myself don't know what what goes on in the background behind a betting company, and and obviously there's a lot of data, there's advertising, um, there's also you know regulation and and um you know AML and KYC, I think, requirements to that. So, you know, can you talk maybe a bit more about like you know, what are the companies that you look at that you know uh are beyond what the you know average punter, so to speak, would would see?

AI’s Impact On Operators And Syndicates

SPEAKER_03 7:16

Yeah, so look, 2005 there was big uh change in the UK that allowed the bookmakers there to obviously bet online, but also offer um like basically uh pokies in the shops and allowed them to have online gaming. And so the UK exploded in 2005, and then 2008 was a similar change in Australia, and you saw these big corporate bookmakers become FTSE 100 companies or ASX 100 companies, very, very large. And majority of the profits out of the industry were were taken by these these bookmakers. So, Sportsbet for when they bought uh Patty Power bought into the Australian market, they're growing revenue sort of 20, 30% top line and bottom line every year for like five or six years. And so it was very lucrative and and very much a growth space. But what happened uh sort of around 2015-16, the max the taxes dramatically changed and the regulations and restrictions also. And so the profits, uh suddenly these operators, uh their profits were squeezed, and scale and consolidation played a big part. And so realised when William Hill sold in 2018. I said, well, look, actually, it's probably quite easy for an analyst to understand the value of a Tap Corp or a Flutter or an N Tane. It's similar lines of the PL. And really, there's going to be consolidation, and scale is going to be really important. So it's probably a bit easier to understand those operators, but the suppliers to a Tap Corp or an N Tane or a Hong Kong Jockey Club are a little bit harder to understand. And so these big betting businesses, many of them don't own their own betting platform. When they bet on the Melbourne Cup, they're getting that, those data feeds from like a racing and sport or a bet makers. When they bet on the NBA or on the English Premier League, they're getting that from a company called Sports Radar or Genius Sports. Uh, they're using a lot of third-party data and a lot of third-party technology. And I thought, well, those supplies are probably a little bit harder to understand for investment analysts. And so maybe we have a bit of a niche of focusing in these supplies and understanding, well, if they're a supplier of one company, are they likely to be a supplier of 20? And also, how sticky are they going to be in the ecosystem? And so we started the fund in in 2019 really just to focus on the supply side of the industry, and that's where the fund started. And so we've just focused for the last six and a half years just on these suppliers, and we've got a deal type where we go and buy options in these suppliers, and that's turned out to be yeah, very lucrative for us, and we just focus on doing the same deal over and over again, and uh the work is going and finding them globally. So many of the businesses we find and and buy options in are in Eastern Europe or in South America or in Asia, and and you've got to find you've got to spend a lot of time going to different conferences and different places to try and find the new, latest, greatest tech that a Tab Corp or a sports bet may want.

SPEAKER_02 10:15

Yeah, and obviously how's AI playing into this space? I'd imagine it'd be evolving quite quickly.

The Option-Only Deal Strategy

SPEAKER_03 10:22

Yeah, look, it is. Uh look, we don't know what the winners in the supply side are going to be. You know, so we'll like we if you said to me, well, oh, what are the uh 10 different suppliers we should focus on or that they're gonna be the next greatest hit? We try and see as much as possible. So we look at 20 to 30 businesses plus a week, myself and the team, and we're trying to basically see do we think that could work? Do you think the operators would want them? Do you think it's value buying the option? And there's some hits, but there's also a lot of misses. We we get it wrong, you know. We've um in terms of AI, we're seeing the the ability to scale a very large business, much smaller team. Uh, existing businesses being able to dramatically optimize uh their return and performance uh without expanding the team. So we're saying that, but we're not uh an understander of what will win. We just try and see as many things as possible and then pick the winners from what we see. But definitely AI is playing a big part. Um, and we're seeing that in not only operators but also the large betting syndicates, which we spent a lot of time looking at also, they've definitely been able to optimize and greatly improve their models. Now, whether that allows other groups to catch up to them, I don't know, but it's been been very interesting so far.

SPEAKER_02 11:41

Yeah, and have you seen any uh like maybe even professional um uh punters look at AI as a way to try and use algorithms to find the next winner?

SPEAKER_03 11:53

So like the existing groups that um we speak to regularly have have put AI in their systems and and found like whether it's mistakes in the models or found ways to optimize um to look at things differently. Now, I d I don't know, obviously they've got that big profit boost of being able to optimize things, whether that allows other groups to catch up to them much quicker than they could have before AI. I have no idea, and maybe that erodes that profitability gain, but definitely the large groups have seen that we've spoken to have seen significant profit increase through AI. Um but again, uh it may be an increase now and maybe different in two years, maybe a whole bunch of groups catch up.

SPEAKER_02 12:34

Yeah, and let's go back to sort of talked about options. So I assume that's is that it like a convertible security?

13F Parking: Managing Cash Without Drag

SPEAKER_03 12:40

Yeah, so we basically it depends if their company's listed or not listed. We buy an option and basically we buy an option that we have an agreed strike price today for three years. And so what we're trying to find is businesses that have normally we focus on businesses that are generating some revenue that have one or two contracts, that we go actually they're they're doing really well in Brazil, but we think that that could work in Eastern Europe, and we think there's a high likelihood they can go from having one or two contracts to 20 contracts, and so we've paid for an option agreed price, and obviously for them to sell that option to us, they think that agreed price is pretty lucrative or pretty good, but we see that they have a much bigger opportunity than what they're currently looking at, and sometimes they go nowhere and we've burnt the price of the cost of the option, but we're not paying a huge amount for those options because they're obviously out of the money at the at the time. Um, but we do get many of them right, and that's why we've uh obviously got great great returns since we started, and and that's sort of uh our advantage. You know, we just sort of know this one space really well and focus on one deal type and don't deviate from it.

SPEAKER_02 13:52

And given your um your relationships and knowledge of the market globally, do you provide any advisory services to these businesses?

SPEAKER_03 14:01

And and no, so we so we we don't we're happy like for investors in in our group, they might be interested in our deal flow and what we've looked at. So we uh very much share look, these are the 30 businesses we've looked at through the week. This is what we find interesting, this is where we see the industry going, but we don't do it as like a paid advisor, it's more just because the more expanded your network is and the more you're seen as a source of deal flow and what's interesting. Hopefully it comes in top of the funnel to you. They're like, oh, have you looked at this? What are your thoughts on that? Which gives us insight of where what's interesting and what to look at.

SPEAKER_02 14:37

Yeah.

SPEAKER_03 14:38

And what they're looking at.

SPEAKER_02 14:39

Um, and in terms of regulation, we touched on that in the UK. Yeah. How like that exploded. Similar things happening in the US now. I'm not too familiar with it, but from what I heard, can you share some insight into sort of US gambling and uh is it state by state legislation or is it federal level?

Fund Scale, Soft Close, And Returns

Edge, Patience, And Risk Discipline

SPEAKER_03 14:58

Uh UK was sort of the blueprint of what happened in Australia, and then Australia and the UK was sort of the blueprint of what was happening in America. Uh, opening up explosion in value, uh, raw hockey sticks as everyone's making money time operator, then increase in regulation, taxation, advertising restrictions, and so on. And so we saw that play out in the UK. We saw that in in Australia, and it was playing out exactly the same way in the US. It was when Pasper got repealed in 2018, it was like, oh, it's the most amazing thing in the world. Everyone goes in, there's a million operators wanting to get licenses, state by state, it's opening up, everyone's spending a fortune on marketing, a whole bunch of new customer accounts, revenue's growing, share price of all of the big companies are growing. And then obviously restrictions, pushback, tax increase. But what's been really interesting about the US, and I, if you asked me two years ago what's going to happen in the US, I said, oh, well, you've seen what's going to happen in the US with the UK and Australia. Scale's going to win the large operators like a Flada and DraftKings and Caesars, they're going to be winners in that in that market because scale is so important. But what's happened is just a complete curveball in terms of regulation with like Calcian poly market. So these prediction markets have um bypassed state laws and they're a financial product. So now you can bet uh on sports, in, for instance, in Texas and California, which didn't allow sports betting. And also they've got an advantage because unlike a fan jewel that has to pay over 50 50% of gross profits tax in like the state of New York, these because they're financial products, not sports betting products, don't have to pay that state tax. So it's a real uh it's really interesting because suddenly you've seen, well, you've probably seen the drop-off in the flood of share price significantly over the few last few months. Is well, what's happening in this market is uh a Calcian poly market that uh growing in terms of uh front of mind and people talking about the product. I have never seen this uh in gambling since you know it's a real boom. And have they disrupted, are they now the major scale operators that are going to win in that market? It's it's probably too early to tell, but they've got a big advantage.

SPEAKER_02 17:14

Yeah, and also with um US politics, anything's possible to change overnight.

SPEAKER_03 17:21

That's right, it's it's it's a very different um uh in Australia it's it it definitely hasn't moved as fast as what it's moved in the US. It's it's it's really incredible, actually.

SPEAKER_02 17:33

Yeah, and can you share why maybe one um investment you've made within the last sort of what is it six and six years or give or take six and a half years of of the fund operating and and uh what you looked at and shared.

US Market Curveball: Prediction Markets

SPEAKER_03 17:45

Yeah, so like for for instance, we see a lot of uh businesses that are very similar. Like so we see a lot of data feed businesses, uh, we see a lot of platform businesses. When I say like a platform business, if you want to do um billybet.com, you either have to build your own tech or you have to get a white label solution. Yeah, and we see a lot of tech providers that have built uh a betting platform that they either want to use themselves or they want to white label it to many people that want to go into the space, and so it's hard for us uh like you come, you see one, you're like, oh well it looks great, but is it good? Is the underlying tech great? Is it can it scale? So we don't my expertise is not technical, you know. I I can't code, I know that there's a need for this, and I know who's likely to want to want that product, but I don't know from from a technical point of view. So we've got um amazing CTO, uh, a guy called uh Amir, who's uh was key developer head engineer for building the William Hill app, Dynamic Gods, uh Tom Waterhouse uh tipping app, done work with a whole bunch of um uh like apps and websites in the space. He's really switched on and he uh looks at all the technology and he said, Look, this platform business you're looking at, firstly he's poo-hooed many of them, and then he saw this one, he goes, actually, this one's really great. Um, it was based in in Vietnam. He said, Look, for us to develop what they've done would take us two years and considerable cost. We're able to buy an option in that business um uh like relatively or very, very cheaply, um, like in the thousands of sort of dollars. And and uh they were struggling for funding, they they hadn't couldn't pay the developers, and so we optioned that that up and and they we sort of said, Well, look, this is where you should focus on area that might be interesting. And so they were able to raise significant money, uh, significant money in the sort of month or two after that, especially when it was laid out how they should describe why they were technically very good. And then uh a buyer came and bought out that whole company within five months. So for us, is myself and the the team that look at the deals, we sort of know what's interesting, but it's also having the compliment uh to complement us the technical side of like this is actually really interesting tech. And so we we basically just try and see where there could be significant growth. And there's plenty of deals we've looked at, we've done similar options, uh a similar price, and there hasn't been the need for them, and there hasn't been a buy, but it's really where's the opportunity? Can they get many more contracts or a sale? And is it technically good enough to do so? And that's sort of what we focus on.

SPEAKER_02 20:24

And how many positions do you hold in a portfolio?

Case Study: Option Win In Vietnam

SPEAKER_03 20:28

So we have 10 live option deals at the moment. Um we we typically always have sort of like 10 to 15 live option deals. They run for on average three years, and then what we do is so we basic well, not basically what we do is so we have no huge need, we're not paying a lot of money for the options until we have to convert them because they're way out of the money and they've got one contract or two contracts. Is what we do is we park all of the money in the fund in a 13F strategy. So we follow um 16 of the best performing long-only funds, like a Berkshire, Bridgewater, Tiger, Third Point, Apollo, Pershing, and so on, and we go through their 13F filings. So they're long-only funds, and every quarter they release uh their positions and uh their um weighting of their positions in their portfolio, and then we put four screens on those positions. So we only look at positions that are trading under 20 times PE, growing revenue greater than 20% year on year, basically uh no debt and over 1% of their portfolio. And then after the screens on, we normally get 10 to 15 positions, and then we evenly weight the money in the fund into those positions and we say to our investors, look, you're in these large cap on average, uh 60 billion marked cap uh companies on average, uh low PE, still high growth companies, uh, since the fund started doing with outperformed the S P with a better sharp ratio, yeah, much lower PE than what the the S P is trading out. And we say, look, we've got no, our skill is not in picking large cap US equities. But your money is here, we're just going to focus on finding option deals. And when we find an option deal, we need to convert and we need funds. We've got money there. If you guys want to take the money out, well, there's T plus two liquidity with our custodian to get the money to sell down those stocks. But we're just going to focus, hopefully, for the next five, 10 years, doing option deal after option deal. And we're going to be a good performing fund because worst case scenario, we're going to perform in line with the 13F stocks. But best case scenario, we're going to have an option come off every six, 12, 18 months. And we're going to significantly outperform those SP positions. So that's what we've we've done. And just keep focusing, doing that, doing what we're good at and where we've got an edge.

Sourcing Deals Through Global Conferences

SPEAKER_02 22:46

It's quite unique because it's a lot of closed-end funds will raise capital. And then deploying that capital takes time. Yeah. So they've got a cash drag on that fund. And especially if you go through an advice channel, they don't like to be invested in other global equities if they're allocating to, you know, whether it be a private equity fund or a VC fund like yourself.

Founder Grit And Speed As Moats

SPEAKER_03 23:11

Yeah. Well, the reason why we've basically did the fund of what we would want to do as a family, and we, for a long period of time, much longer than we've run the fund, have deployed into the 13F strategy. And we like parking our money in large quality US global stocks, US stocks. Um and we've had great good success doing that. So we go, we said to our investors, look, this is what we do, park the money there. We've got uh the money's hopefully working for us well in in those good companies, and then just focus on where we've got an edge. And there might be a period we don't have any deals coming off, but you're performing in line with basically the SP or a bit better than the SP historically. And but we're gonna keep looking at businesses, and we're pretty confident over a five, ten-year period, we're gonna have quite a few option deals come off, and and that's where we really have the outperformance. And so yeah, we like it as a as a family. It's um the issue that we've got and uh is that we just can't scale the fund, you know. So we're uh we're about to soft close uh the fund at the moment just for our existing investors because for us we can't be a two billion dollar fund because otherwise you're getting SP return rather than the option kickers coming off. So um that but that's that's fine. Like we'd rather get be a small niche fund that gets high return than be some massive fund with not like market return.

SPEAKER_02 24:36

And are you the only fund that because it's quite unique your fund offering? Are there any other I I'm not familiar with any other funds? I don't know.

SPEAKER_03 24:43

My background is not as in a yeah in running funds, you know. Like I it's been six and a half years of of like assembling a team that's got background and experience in it and and going through the process, which has been really interesting. But we just thought, well, what is what would we do as a family? Uh and from us as a family, we like being in the US equity market in quality stocks, and we love doing deals in an area we know really well. And so we just stuck to that and just very clear with the uh investors that look, this is what we're doing as a family, this is exactly what we do, this is where your money is parked, these are the positions, this is what we're trying to achieve through options. Um, and yeah, they've seemed pretty comfortable with it.

SPEAKER_02 25:26

Yeah, yeah, and your returns have uh speak for themselves. Are you happy to share information on on your returns?

Esports Data And Staying In Lane

SPEAKER_03 25:32

Yeah, well, look, um it's it's lumpy because obviously when we haven't got an option coming off, we perform basically in line with the SP, but we've compounded over 70% per annum uh for six and a half years. But that's you know, like that's when an option deal comes off, you get the big spike, and it doesn't mean if you went in today you're gonna get SP style return until another one comes off, you know. You and I hope one comes off a year every year, but yeah, you just don't know, you know, obviously, right? It's um and that's part and parcel of it. So yeah, hopefully yeah, we we know this space well, but that doesn't mean we're guaranteed to get good option deals come off all the time.

SPEAKER_02 26:17

And what have you most enjoyed about moving into funds management? Obviously, CEO of a massive organization to being a fund manager.

Who Invests And How To Connect

Closing, Socials, And Disclaimer

SPEAKER_03 26:26

Yeah, talking about the skill skills. I think the alignment is um the alignment with uh group of investors where we're like partners, you know, you know, we're going in the same journey, we're really like when an option deal comes off, it's rah-rah, hockey sticks, how good is that? This is what we're looking at. Like it's very much um you're on the same side trying to achieve great return or great deals or whatever. As a bookie, you might really like your clients, but when they lose, you win, and when you win, they lose. Yeah, you know, it's a very different um relationship, you know. It might be still a good relationship, but I it's um and for me, uh I like this, but there's in terms of investing, there's very similar uh things in terms of like I I know my dad was professional better for 45 years, and we had great edge in the market. He he's great at doing form analysis. And I remember being armed with his form at the races, and but one of the best lessons is that just because he's good at the form and he wins betting on racing, he doesn't have edge all the time. So if you play every race and you're playing tough punters, you're gonna have your pants pulled down. You know, it's very hard to um to win all the time. So you've got to pick and choose when to play, and so patience is uh is really, really important. And so I I used to go to the races and and there'd be maybe a provincial race meeting, and there'd be eight races uh for the day, and three races are made in no exposed form, and I would go, well, I'm just gonna sit down and read the newspaper, and if one of my good clients wants to call up and have a bet, no problem. But I haven't got edge here, you know, where when it's all uh horses that have had 30 plus starts and the form's exposed, and my dad's got real edge. Well, let's play because there's edge. And so knowing when to stick your neck out, and for us, I really like the option strategy because we don't have to play all the time, you know. We park our money and are in the game in in the SP, but we're really only making a really uh big investment when we have had time to see for three years whether this business is a good uh proposition to put significant funds into it. And so uh the whole thing about patience playing when you have edge, uh, like is yeah, is really valuable lessons. And there's many different lessons uh in whether it's betting and investing and playing the market and like level head and and uh just not chasing your losses, just knowing like uh it's yeah, it's it's enjoyable. What's also different about investing is in betting, you have a high or low every five or ten minutes, like it might be every 40 minutes if you're a local bookmaker, but if you're in the state, it's every five or ten minutes. And that's very exhilarating. You know, it's like playing high-stakes poker non-stop all the time. Uh with investing, you might be working three years with an option, but you might be working to try and get that option for another year. So it might be three or four years to get that, you know, it's a and so it's a much longer time frame of getting a big payoff. And that's very I I really enjoy it because it's a it's a much smoother journey, but it's a different type of exhilaration to being a bookmaker.

SPEAKER_02 29:53

Yeah, well, you can you can be on the journey with the company. Yes. Yeah, yeah. Uh and so your is it a is it the fund a closed-ended fund?

SPEAKER_03 30:03

No, so it's just a unit trust. Yeah. And so we we're just closing it because we can't manage we don't think we can manage billions of dollars or something. Yeah. We're gonna get SP return if we do that, rather than getting hopefully outsized return.

SPEAKER_00 30:17

Yeah.

SPEAKER_02 30:18

And what advice would you give to someone that maybe wants to get into um funds management? And obviously you've you're quite unique because obviously what you're doing at the moment in funds management is you know very specific to your background in in uh in wagering. But do you have any advice for someone that might be doing something a bit different that wants to um move into funds management?

SPEAKER_03 30:40

And yeah, I think um whatever you do, you have to have edge. Like, there's no point like having a Me Too product. Like, oh I'm you have to be able to understand something and better than what the market can understand. And if you've got real edge in anything, you're going to get outsized return and you're gonna attract capital, you know, like that's and so spending the time to deeply understand an area is very valuable. My I remember my dad said to me when I was uh kitty said, Look, you've got to focus on an area where there's a lot of money changing hands, because if there's a lot of money changing hands, a little bit of that sticks, it's still a lot of money from your point of view, and you can spend just as much time focusing on a market that's got very little money in it compared to a lot of money, but it's the same time involved, you want to be in the one that's a a big market. So you want to be a special uh from my point of view, be a specialist, but be a specialist in a decent sized market, you know. And um uh gambling is not the biggest market in the world, but it's a trillion dollar industry and it's a global industry and it's been an industry since the beginning of time. People have gambled, and um so and also my family background. I I was lucky that I'm born into a family that's lives and breathes horse racing and betting. So I've sort of stuck to my knitting in different forms, but stuck to that because I have an advantage in that area. Um like I spot groups of investors that focus on boat racing in Japan or cocoa trading or like a crypto trade. I like they're all in different areas and they're deep in it and they've done really well, you know. So I think being deep and having a a really good understanding of one area and hopefully an area with size is is pretty valuable.

SPEAKER_02 32:27

Yeah, well, definitely. Invest in something you know a lot about, and if you don't allocate you know, allocate that or or choose the the the expert to run your money for you. Yeah. Yeah. And and your clients, are they high net worth investors, family officers, private wealth advisors, or is it a combination of clients?

SPEAKER_03 32:47

Obviously, we're wholesale funds, so then you have wholesale investors and and generally they're people that uh uh involved in some way with the the gambling industry. So uh might be large breeders or large corporate bookmakers or large listed companies or like these type of um uh these type of um investors because they understand what we're looking at. You know, it's uh they understand why we would understand this area of the market well, and also they're interested in our deal flow. So if we don't do an option deal, they might be interested. Oh, well, you looked at those businesses. What what did you see or what's interesting about that? So um, and for us, um it's complimentary because they might say, Oh, actually that's no interest to us, but you should speak to Waterhouse VC because they understand this or they understand that. So um typically we've like we don't go um like from my point of view, I spend nearly 99% of my time looking at deals. Because I'm like, well, if we focus on finding deals and the options, we keep doing the options and some of them come off, everything else takes care of itself. But traditionally, people in the industry, because we come across them, have been the ones that have invested.

SPEAKER_02 33:58

Yeah, and as have the deals now, given you've got a six-year track record, are they come uh businesses coming to you and saying, hey, are you looking at it? Would you have been a partnering with us?

SPEAKER_03 34:08

So you just don't know. Like I just know with Tomwaterhouse.com there was so much we didn't know about building a corporate bookmaking business, and there was so much we don't know about funds and that we didn't know in 2019 when we started. But what we realized pretty quickly is the value for us is to be speaking and attending at all the major global gambling conferences. So last week I was speaking in Barcelona, the team are in Dubai next week for Sigma, then they're in Rio for SBC, then they're in New York for iGaming next, and then they're in Manila or something. Like basically, wherever there's a conference, yeah, we're headline speaking and allows us to like there were 50,000 people in Barcelona last week at the conference, like it's football fields of suppliers. So for us, it's you can't get a better place to be to go and speak with like we would have spoken. I would have spoken to 50, 60 businesses last week. So that is real value. Uh, and we get a lot of inbound because we've been in the space for a long period of time, but really face to face, seeing these businesses, understanding, speaking to the founders at all these conferences is really valuable. And also the team, like uh they are very experienced now, you know, they know what we're looking for and they've done a great job and definitely what made my wife a lot happier than I'm not always on the road. You know, I'm on the road a lot, but not on the road as much as I was a few years ago.

SPEAKER_02 35:28

Have you seen a correlation uh between founder led businesses, the performance of those businesses versus just the management running a business?

SPEAKER_03 35:38

Yeah, I think for us is that we the key thing for us is that we would rather we just want to find someone that will stop at nothing to not let the business fail. You know, they'd rather die than let that business fail. If you find that sort of person that's so passionate, now they might be founder or they might be one of the people the founder's hired and and they're incentivized, whether it's through pride or money or whatever the the mechanics are, but they deeply care that this business and they're gonna do whatever it takes to make it work. We've seen some businesses that are nowhere near as good as other businesses that we've had options in, but the founder or the person running it has been relentless. Yeah, you know, and so for us that's a real uh a real tick. Um and the other thing we we see a lot of is just how quickly the good founders or the good leaders turn around stuff. So we have a standard deal template that we we do for our deals, and and like the really from what we've seen, the ones that go really well are just they're pushing us to and we can move fast because we're doing doing the same thing. They're pushing us because we're not moving fast enough. So where's the deal? What's happening here? When are we speaking to this person? When are we presenting to that? What's happening? And they're relentless on us, and we're like, oh my gosh, we're gonna have to quicken things up, and then you have other people that you deal with, and like it just takes like six weeks for them to like say yes or no to something, you know, it's and that time is so crucial, and moving at a pace and making decisions uh and pivoting if you have to, like, but making a decision and then going down it and then pivoting, you're already iterating many times where there's some groups that we see that just take forever to do anything.

SPEAKER_02 37:26

I I I agree, like you're better off making a decision and getting it wrong than not making any decision at all.

SPEAKER_03 37:31

Yeah. Especially low-cost decisions, like if you can make a decision and try it and not risk the farm, like you you learn, as you say, you're learning something by that decision, you know, like it's like it's um yeah, you're moving at pace. Yeah, and because really all these businesses, what they put in the first deck, how they end up is actually quite different because they've gone, oh, I didn't realise this happened, or this regulation changed, or this happens, or this. So everything just changes. The ability to pivot, yeah.

SPEAKER_02 38:03

Um, and then in terms of uh like gaming, like video games, and and that's becoming more and more popular. And um do you play in that space too? Because is the technology can be a bit of a crossover?

SPEAKER_03 38:17

Yeah, so we've optioned up um we've optioned up uh like data providers for like esports.

SPEAKER_00 38:23

Yeah.

SPEAKER_03 38:24

Um, and like for instance, we optioned up a business based in Prague, and like we did a lot of time working out uh which were the best esport data providers, and then we spoke to the esports leagues, why have these guys got agreements? And then we spoke to the people that they had contracts with, what's their service level agreements, what's their uptime like, what's their response time like? Um, then we like spoke to like all the prize, why do you like this provider better than this provider? What margin are you making compared to this product? So we did a lot of work and then we optioned up uh a very interesting provider in that space a few years ago, but it's really focusing on what our area of understanding and edge. Like if you say I've got the best new video game that everyone's gonna love, I just don't know, you know, and and I don't think our team, they're probably more equipped than I am, but they're not as equipped as probably we need to be to go and invest in the next video game provider. But understanding like a data supplier for bookmakers that need an esports, then that's right in our skill set, you know. So we just sort of just keep very narrow in our area that we know how to play in.

SPEAKER_02 39:27

Yeah. And if if if wholesale investors want to invest in the fund, do you know you mentioned there's a bit of a soft close, but is there still an opportunity to have a chat to someone in your distribution team?

SPEAKER_03 39:37

Yeah, so we for wholesale investors we're the fund's still open, so it's it's not like um yeah, it's closed, no.

SPEAKER_02 39:44

Yeah, yeah. Okay, and we'll we'll share the the details of um you know its ability to to contact one of your distribution team for our listeners. Um well, thank you for coming in. I really appreciate it. It's a pleasure meeting you.

SPEAKER_03 39:56

Yeah, uh thanks for your time, and yeah, it's good to be on uh on the podcast.

SPEAKER_02 40:00

I look forward to seeing the the journey unfold over the next decade. Thank you very much.

SPEAKER_03 40:04

Yeah, really appreciate it.

SPEAKER_02 40:06

Thanks for listening this week. Stay tuned for our next episode and keep up to date with us by following the Finance Friends podcast on Instagram and TikTok. Plus, connect with us and our guests over on our LinkedIn page, all linked in the show notes.

SPEAKER_01 40:25

Disclaimer. This podcast exists for informational and entertainment purposes only. The personal opinions of the speaker and guests do not represent the view of any other party. If this recording contains reference to financial products, that reference does not constitute advice nor recommendations and may not be relied upon.