College Dropouts Fund their Startup Draftpot on Reddit and Make $15,000 in Their First Week
Two college dropouts had no idea how to make a profitable business. But a post on Reddit changed the course of their lives forever. In this story you’ll learn how Joey Levy and his co-founder raised money on Reddit, made $15k in their first week, and went on to raise $2 million. This is the story of Draftpot.
There’s a LOT of money to be made in fantasy sports betting.
Just watch any football game these days and you’ll find yourself being bombarded by commercials from DraftKings and FanDuel, the two industry leaders in daily fantasy sports, where users build a fantasy team and score points on how well those players execute in the real game. Top scorers take home the money.
How much is being spent on sports betting globally? Estimates range from $400 BILLION to a TRILLION DOLLARS. Most of it from illegal transactions. (We’ll interview the bookies next!)
Per ESPN, $95 billion is wagered legally and illegally on college and pro football games alone. Eilers Research estimates that Daily Fantasy Sports (DFS) will generate $1.5 to $2.5 billion in entry fees by 2020.
And you can now add Joey Levy, CEO of Draftpot and his two co-founders to that list. All three recently took a leave of absence from college to join the gold rush.
Passion From The Start
Hailing from Plantation, Florida, Joey was always into sports, lifting weights and playing high school football. Until he tore his labrum and rotator cuff which put an end to his athletic career.
He focused on his academics and started a “pseudo” tutoring company in high school which made him “50k-100k” a year. Ultimately, he didn’t think it was as scalable as the tech industry and moved on to college.
Entrepreneurs usually get into an industry they are passionate about. For Joey, it was a birthright.
“My dad had been playing fantasy baseball by hand since the late 80’s early 90’s. When my mom was giving birth to me, he was on the phone doing his fantasy baseball auction.”
Obviously, his dad’s affinity for the game was passed down to his son.
“Fantasy sports is in my blood,” says Joey. “I’ve been playing high stakes fantasy baseball since I was 10 years old.”
After attending two years at Columbia University, Joey realized that there was no fantasy sports product catered to the casual, everyday fan who has a chance to win.
And why hadn’t there been?
Because only a small minority of professional fantasy draft users actually make money in the daily tournaments. And they’re the ones wagering up to six figures a week chasing after the massive pots.
With no skills to develop a site himself, Joey teamed up with two developers, his friend Josh Hughes and Jessica Vandebon (both engineers and Columbia students) to build a “beautiful and robust site.”
“We firmly believe fantasy sports fundamentally enhances the way people consume sports. It simply makes it more enjoyable to watch.”
This quote couldn’t be any truer. If you’ve ever placed money on sports, you’d know that a bet makes you care way more about a play, a player or team than you really should.
Even when friends and associates were skeptical about their ability to compete in the landscape, they forged ahead and put together a staff of nine, three in business development, two additional developers (students at Columbia) and a data scientist.
Timing and Luck
Every entrepreneur will tell you that timing and luck play a major factor in one’s life and business. For Joey and his team, it was a post on Reddit just a few months ago that was fortuitous.
Below is what he posted on the /r/entrepreneur subreddit that led him to his first investor and a moderate user base.
An unnamed Redditer liked the beta site so much, he invested the initial five-figures to get Draftpot going.
“We were lucky on Reddit. If that particular user wasn’t on that day, then Draftpot wouldn’t be what it is right now.”
That money allowed the company to grab API calls (real time statistics) for a few months, while also giving them the credibility to go after more investors.
Money Leads to More Money
Joey reached out to his family and friends, which quickly snowballed into a frenzy, with work colleagues wanting a piece of the action.
The team was invited to pitch to an institutional investor, Dorm Room Fund, who quickly jumped on board. Joey explains their significance:
“It wasn’t about their capital contribution but more about getting an institutional investor on your cap table because getting their stamp of approval contributes to the due diligence process.”
Including DRF and another VC firm, Draftpot raised over $2 million dollars and had 32 investors at their cap table in less than a year. He and his co-founders had no choice but to quit school.
“It would have been pretty irresponsible to do anything else other than Draftpot.”
For most entrepreneurs, finding investors is a long tough process that can take the enthusiasm right out of the startup. You have to establish relationships if you don’t have any, set up meetings with the right partners and then make the perfect pitch. And even if everything goes as planned, you’ll still find yourself getting rejected.
For Draftpot, that road was definitely a lot shorter and smoother, gaining investors and press within a few months. Joey explains:
“Fundraising is not easy. However, there are investors out there who are actively seeking really good opportunities. If you have a great product, it’s not particularly difficult to raise money. It’s about meeting the right people who share your vision.”
The Game Plan
Instead of moving into some Soho loft or Park Avenue office space, Joey and his co-founders decided to save money and moved into a four-bedroom apartment near Columbia.
This was now their home office, three bedrooms for Joey, Josh and Vanessa.
“The fourth bedroom is our office so we have nine people working out of here every day. It’s a good setup and we have plenty of space which allows us to work around the clock. Good for productivity.”
There are a lot of entrepreneurs who use investor money to live a more lavish lifestyle. It’s comparable to what athletes do with their first paychecks after getting drafted. Buy a sick ride, rent out a multi-million dollar condo and purchase a blinged out timepiece.
Joey, on the other hand, understands the responsibility that comes when you raise money.
“When you initially raise money, it’s incredibly critical on how you use it. If you don’t use it correctly, you are stuck.”
Since two of their co-founders were engineers, some of the money goes to developing the product and the rest goes to acquiring users.
Strategies For Growth
With all the money that’s being thrown around, there’s a ton of competition in the industry. Over 20 DFS sites besides the two well known brands mentioned earlier are vying for user dollars.
Joey wants Draftpot to grow organically and does so by giving out incentives like CPA (cost per action) or revenue share deals to their digital partners. He explains that the lifetime value of a user and the ROI in the industry is very high, so they can give out generous deals.
“I think what we did a good job of and encourage more startups to do is to incentivize your initial users to go out and recruit more users for you. Because if there are people who are using your product and are passionate about it, they are happy to refer their friends to it.”
Instead of “burning money on standard media,” Draftpot uses unorthodox strategies such as “establishing a campus rep program.” A tactic no other competitor is using.
“We feel that the college demo was ignored in respect to fantasy sports despite being really active in the market. We used websites that sourced where college students were looking for jobs and incentivized those students to get their friends to use the site.”
That strategy helped gain them thousands of new users while only costing them a few dollars per acquisition.
Lastly, Draftpot is looking to treat their players better than their competitors. Such as giving out better deposit bonuses with faster release rates.
For example, Yahoo will match your deposit bonus but only release 4% of the bonus for every contest you play. On the other hand, Draftpot will match it right away.
Compared to competitors who offer $250 deposit bonuses, Draftpot gives their users four times that amount.
And of course social media such as Twitter, Facebook and Instagram all help increase the brand awareness.
In terms of profits, Draftpot derives their income through one revenue stream, which is the “rake,” a percentage of the total deposits.
“The most we’ll ever take is 10% and most of our contests are around 8%. Our two largest competitors take 12-15% rake.”
In week one, they took over $150k of deposits, generating them $15k. With over 7,500 current users, their goal is to get to 10,000 users in a few weeks. By the end of the fiscal year, they want to pay out as much as $10 million which means they’d collect $1 million in revenue.
Not bad for a couple of college dropouts.
The last thing Joey says about growth and business is the most important. And if you’ve read any of our past articles, you’ll know that all entrepreneurs stress the same.
“Biggest thing is meeting the right people and facilitating those connections. Establishing a personal connection is the most effective. Get out there as much as possible because you never know when someone who’s interested in you is on a certain platform.”
Simply, no one builds a business alone.
Joey Levy’s Fantasy Sports Tips
Consider player match ups, weather conditions and definitely be contrarian. It’s not having the best players across the board who win but the ones who pick the players that nobody has on their radar. Identify the really good sleepers.
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