How I Invest with David Weisburd - E21: Jake Paul and Joey Levy of Betr on How to Build a $100 Billion Company

Episode Date: November 16, 2023

Jake Paul and Joey Levy, co-founder of Betr, sit down with David Weisburd to discuss the sports betting industry and how to build a $100 billion company. We’re proudly sponsored by Bidav Insurance Group, visit lux-str.com if you’re ready to level up your insurance plans.

Life is a game and we're playing real life monopoly. And since I was 17 years old, I went to Silicon Valley with my friend for about a week. And I thought it was the coolest thing ever and the challenges of these startups. I went to Uber, Google, Twitter at the time. And I saw all of these people working towards these goals and the feats that they were achieving. I think when I went to Google, they were like first experimenting with AI or like quantum computing or some crazy thing. And I was like, I couldn't even comprehend it as a 17 year old from Ohio. So I saw these people changing the world, the challenges they were facing, the levels they were surmounting to.

And I think that has been within me. And I was, and I saw these people and I got to talk to these CEOs and I was like, they're really no different than anybody else. Like if they can do this and achieve these huge things, then, then so can I. Jake Paul, Joey Levy, co-founders of Better. Great to have you guys on the podcast. Welcome to Limited Partner Podcast. Yeah, great, great to be here. Appreciate you having us on, David. Yeah, thank you. Excited. Thank you. So as I was telling you before the show, I spoke to a mutual friend of ours and NBA head coach, Mike Brown, who last year won, won NBA coach of the year. And he said, Jake, what you accomplished in boxing last three years is one of the greatest sports, sports feats he's ever seen in history. How are you able to

accomplish going from amateur to being an elite fighter in three years? Wow, that's a good one. That's a crazy statement coming from Mike. So Mike, what's up? Cameron, Elijah, what's up, everybody? I miss you guys. Hope you're doing well. But yeah, I don't know, man. It's just, it's believing in yourself and self-belief and not letting others constraints of what they think is possible in reality, limiting your own beliefs. And it shows what's possible with extreme dedication for 16 hours a day and surrounding yourself with the best people at the highest level. And just manifestation, visualization, and being a disruptor,

coming in with a different skill set at the right time. I mean, this is all about venture capital and investing in all this stuff. Everything's about timing. And I came into the sport when it was dying on its way out and it gave it this breath of fresh air. And I saw the opportunity to do so. And I saw how much help the sport needed. And I saw a lot of room to make changes. And that's really what's happened. I was with you after Akimoto after the fight. And you are still zeroed in. You had just one. And everybody was partying.

Yeah, Dave Grotman, you had purple, you had all these guys and you are still zeroed in. You had just one and everybody was partying. You had Dave Grotman, you had Purple, you had all these guys and you were still zeroed in. I've never seen somebody so focused in. What drives you? Man, I would say challenges excite me and seeing what I can accomplish and how far I can push my own self is a really fun game to play. And just getting better every single day gives me something to continue to work on and having purpose and setting very, very high goals for myself that are super far fetched, like becoming

a world champion in the sport of boxing is my goal. Right. So if I beat Nate Diaz, that's great and all like, yeah, maybe celebrate a little bit, but that's a spec on what I want to actually accomplish in the long run. So yeah, everyone's partying at Komodo, but actually I'm going to choose to remain sober because that's going to help me get to my goal faster. And there, and I just choose my moments where I, where I want to have fun, but I just have so much to prove and have two chips on each shoulder and just. So you want to be world champion boxer, which by the way, a year and a half ago, everybody

was laughing at you and thought that that was a crazy goal. Now people are like, can he do it? Can he not do it? Which is a huge evolution. But on top of that, you also want to be a billionaire and build one of the largest sports gaming companies. So you're already rich, you're already have your boxing. Why start a sports betting company? You know, life is a game and we're playing real life monopoly. And since I was 17 years old, I went to Silicon Valley with my friend for about a week. And I thought it was the coolest thing ever and the challenges of these startups. I went to Uber, Google, Twitter at the time. And I saw all of these people working towards these goals and then the feats that they were achieving. I think

when I went to Google, they were like, first experiment, you know, with AI or like quantum computing or some crazy thing. And I was like, I couldn't even comprehend it as a 17 year old from Ohio. So I saw these people changing the world, the challenges they were facing, the levels they were surmounting to. And I think that has been within me. And I was, and I saw these people and I got to talk to these CEOs and I was like they're really no different than anybody else like if they can do this and achieve these huge things then then so can I and to me it's fun it's it's literally real life monopoly you have to play

all these pieces on the puzzle um and and the challenge of getting to that level. Probably one of the hardest things to do in the world is to create a billion dollar company. So it's one of my goals just to see and to say that I was able to do it. When you were playing Monopoly as a kid, who won you or Logan? It was probably a back and forth. It's always been a back and forth. It's always been competitive even in monopoly. Everything, everything. I say I can't play Uno with my friends because I just get so pissed off.

It's a common thing in startups. Peter Thiel, apparently when he loses chess, he throws, throws over the, throws over the chessboard. You mentioned visualization, working 16 hours a day as a source of your success, but ultimately you only have 24 hours a day. You talk a lot about psychedelics. I know from personal experience, roughly half of billionaires attribute a lot of their success to psychedelics. Do you attribute psychedelics as a source of your success? 100%. No, no question about it. I think there, you have to understand yourself and go inwards and work inwards and emotional intelligence and all of these things before you can like really master

everything. And business is all about relationship, team, understanding everyone else, working together in this way. And psychedelics actually gives you like a opening into that world, those energies, how to be a part of a community, love, push, pull, being a good leader. You know, all of these things kind of get opened up and you allow you to see things from a different perspective. And then just the amazing ideas that come from it, right? It's like Steve Jobs created the iPod off of some acid because he was like, why can't I bring the music with me? Absolutely. Steve Jobs even created Apple back in the day from his LSD experiences. Sergey Brin and Elon Musk are on the record as being big proponents of psychedelics and crediting a lot of that for their success. We have some of the top venture capitalists in the world

that come on it. And we have some very smart marketing people. But Jake, I think you are one of the most underrated marketing geniuses really in the world. And the reason I say that is because you found a way to be successful from platform to platform, from Vine to Instagram to TikTok. That's almost unprecedented. So I have to ask you this whole problem child persona, this whole fuck Jake Paul thing. Is this a marketing gimmick? You know, for sure. Like there's good news travels fast, bad news travels faster. People like drama. They like controversy. They like the things that are different. People want to see something that they've

never seen before. Um, and to cut right to the top in news and gossip and drama, it's like ruffle feathers. And then that was strategy from day one. To be a social media star, how did I first break into the mainstream media? I had all of these ideas and it was ruffling feathers. And I can play that character and be the bad guy and be the villain. And that's kind of how people have painted me. And then I embraced it and it was like, okay, cool. This is where we're going to go with this. It worked way better in the long run than, than just being the, you know, person with no opinion one way or the other. And we see that a lot of times now is like not choosing a side is, is choosing a side. So definitely very strategic and thoughtful around all this. And it just

perfectly aligns with boxing and, you know, having opponents and, and shit talking and all in the world I'm in. One thing to say you like playing the villain, but actually doing it, I saw you come out in Dallas and everybody booing you and you just had the most stoic face and just were so internally focused. It was inspiring. Joey, you did what, uh, to be completely frank, I have never met Jake. I've been really impressed by Jake in person. You know, I think he has the same persona as a unicorn founder without all the social media and all the boxing.

I think you saw that too, but you put your money where your mouth is. You, you gave half of your company to on a crazy bet on an influencer. What did you see in Jake that made you really give up half of your company to, on a crazy bet, on an influencer. What did you see in Jake that made you really give up half of your company to him? First and foremost, I'm a big believer in when you build a business with somebody, not to have this sort of wonky set of incentives where one individual who, you know, if you're truly a co-founder, I think co-founders should have equal amounts of equity unless there's some level of extenuating circumstances where that doesn't make sense. So that's kind of how I wanted to approach this from day one, where if I was going to

have a co-founder in this business, because as you know, David, and I don't know if the broader, better story is out there, but I started my prior business, SimpleBet, to be a direct-to-consumer company and ultimately do what we're effectively doing it better. And I was on a mission to spin out direct-to-consumer from SimpleBet and go after better. And initially, I was going to do it myself. When I met Jake and spent a lot of time with him, and I think you touched upon this a couple of minutes ago, it's not just the 70 million followers across social media, which

obviously brings a pretty tremendous unfair advantage from a customer acquisition standpoint, but it's really the marketing genius that I don't think a lot of people candidly have. And Jake has the track record to really speak to that and just the level of focus and discipline. And I would say one of the things that Jake and I really have in common is the level of ambition we have. Anything less than a $10 billion publicly traded outcome for better would basically be considered a failure, I think, from our perspective. I think we just got along really well and have similar goals and objectives and have a very complimentary skill set where I basically spent my entire adult life, the last 10 years of my life going after the same

consumer experience problem in sports gaming. And Jake's been spending the last decade of my life going after the same consumer experience problem in sports gaming. And Jake's been spending the last decade of his life focused on, you know, being arguably the most disruptive marketer on the internet. And, you know, sports gaming and sports media are increasingly converging. And I think we just have really complimentary skill sets to go after an incredibly ambitious problem and company together and really just an alignment of values that enables us to work well together. Speaking of alignment, one of your investors told me that originally Jake offered to be 60 40 60 you Joey 40 him and you said no 50 50. Again, skin the game this is alignment tell me a little bit about that i think it's better to be 50 50 partners you know i want i i think it's just

for for jake to have the same level of incentive that i do is is critical to the success of the company and you know i'd much rather own 50 of a 10 or hundred billion dollar company than 60% of something that's worth a hundred million dollars. I just don't think that, um, you can do this to the level required, uh, particularly with, you know, somebody like, like Jake, that has a tremendous level of opportunity cost. I mean, there's a whole lot, a lot of other things that Jake could be doing. Um, then if we weren't both equally tied as, as being a whole lot of other things that Jake could be doing than if we weren't both equally tied as being the largest shareholders of this business. Today's episode is sponsored by Badaw Insurance Group. Badaw Insurance Group is run by my close friend, Amit Badaw, who insures

me both personally and at the corporate level. Most people are not aware of the inherent conflicts in insurance, where insurance agents are incentivized to send their clients to the most expensive option. Amit has always been an incredible partner to me in 10X Capital, driving down our fees considerably while providing a premium solution. I am proud to personally endorse Amit and I ask that you consider using Badaw Insurance Group for your next insurance need, whether it be DNO, cyber, or even personal car and home insurance. You could email Ahmet at ahmet at luxstr.com. That's A-H-M-E-T at L-U-X hyphen S-T-R dot com. Thank you. Jake, tell me a little bit about that.

I see when I went to the fight in Dallas and everything, you're decked out and better. I know you guys also may have tattoos, which we'll go into later, but you're decked out and better. I know, I know you guys also may have tattoos, which we'll go into later, but you're so committed to the business and you're so aligned with it. How has that relationship been with Joey and how's your relationship been in founding the company together? It's been phenomenal. And like Joey said earlier, sharing that same level of ambition, it's, it's either a thousand miles per hour, or, you know, not at all. And I'm, I'm the first half of that sentiment where it's like, if I'm going to do anything, I'm going to go at it 1000% and give it my best effort every single day, day in and day out and do everything I possibly can to ensure this company's success, you know, on a minute to minute, second to second basis. That's the attitude Joey has. And that's the attitude of the team that we've built has,

this is do or die. And, you know, at the end of the day, also this, a lot of this company's success, like my reputation is on the line here. Right. And I think Joey shares that as well. And so, you know, we will make this company a $10 billion company. And I stand on that and it goes down to the finest details of, yeah, like getting it tattooed. I think you tattooed it from two different sides for the camera angles. Is that right? Yeah. So it's on like the inner knee and on the outer knee so that like anytime people take a photo of me while I'm fighting, the logo shows up. It's not like you're saying I want to be a billionaire in some vacuum. You're giving up millions and millions of sponsorship of space

on the ring of space on yourself on space on your body in order to commit and invest your equity essentially in that company. So I think that's something that's undervalued. The other aspect of that is you guys have not only do you both have tattoos, which I've never heard. I was an early investor in Palantir and they had this cult-like product and cult-like company, but they never had tattoos. So you guys are beating them on that. But you also convinced employees to tattoo yourself. Tell me about that. Well, I don't even know if we had to convince that. Well, I don't think we convinced like that. Everyone, everyone's just down because that's the, that's the culture, I guess, that's created. And this is, this is people's lives within the company. It's, it's my life. It's, it's Joey's life. And that's

the, I think one of the only ways to really have a breakthrough dominant company in this space, which is very difficult, very, you know, intense, there's big players involved, you know, there's licensing regulations, like we have to eat, breathe and sleep this. And I think since the first on early hires, that was just the culture culture and now it's permeated throughout the rest of the company and, and this is, this is everyone's lives. Let's actually go into the company itself. So better. So from a first principles basis, maybe Joey, do we really need another sports gaming company? There's a lot of sports gaming companies out there. Why do you guys exist? Yeah. So I would say this is predominantly around the incremental TAM that's not, that's

being underserved in, in sports gaming. Um, so for example, FanDuel and DraftKings are worth about 20 and $15 billion respectively. Um, yet they combine, they only have about 5 million monthly active users, which is a lot for real money gaming. But if you take a step back for a moment, you'll realize that they're currently in front of a hundred million gambling age sports fans, and they'll be in front of nearly double that 200 million as more jurisdictions open up. And I think we can all agree that FanDuel and DraftKings don't have a brand awareness problem, right?

They quite literally advertise like, like car insurance companies, except they're probably not as funny as they are. Um, so they have brand awareness, but there's about a 95% incremental TAM opportunity and we think it's due to product. I mean, everything we do it better. Um, really the, the primary emphasis of the company is to design sports gaming experiences that are simple and intuitive enough for people to interact with them, even if they've never played fantasy sports before or bet on sports before. And I think

we've accomplished that particularly with the better picks product experience, which we rolled out just two months ago on September 5th, ahead of the beginning of the NFL season. And it's immediately become one of the fastest growing products, not just in the industry today, but I think in the history of the U.S. sports gaming industry. And we're excited to roll out V one of our, of our sports book next year and, and really have a sports book business, a fantasy business that, that is already very successful and, uh, and then ultimately expand into other verticals. But it really, this is about that incremental Tam of the casual sports fan who doesn't know what a minus one 75 money

line means. Doesn't know what a plus five and a half point spread means. Doesn't know what a minus 175 money line means. Doesn't know what a plus five and a half point spread means. Doesn't know what a 49.50 slash year means. Doesn't want to interact with a sports book that is essentially an uninterpretable spreadsheet. As you know, David, I got involved in this category about seven years, really 10 years ago with DraftPop, my daily fantasy business. But in the sports betting category specifically about seven years ago when I started a project that ultimately became Simple Bet because I was an Ivy League educated daily fantasy sports operator that when the first time I tried to use a sports book, I literally did not know how to use it. It wasn't intuitive to me

that minus 175 meant to bet 175 to win a hundred. And it also struck me that it quite literally looked like a spreadsheet when I thought sports gaming was all about enhancing the consumption of sports and being fun and engaging and entertaining. So to, to, you know, be analogous to sort of another industry, we view the current products as kind of being the E-Trade, Fidelity, Charles Schwab's, what those companies were today trading. Nobody's really built the Robin Hood of gambling from a UI UX perspective. And that's ultimately why we started, why we started better and why we think there's a pretty substantial market opportunity for this business.

And Tim, total addressable market, essentially how big the market is. A lot of people passed on Uber originally because they said the taxi market isn't big enough. And of course, now Uber is bigger than the entire taxi market. All outcomes that return 100x or the $10 billion, $100 billion companies that you guys aspire to fundamentally have to expand the Tam or else they would already be, you know, highly competitive. One of the main reasons that I invest in Better was because of your customer acquisition strategy and how you're able to leverage media in order to drive down your costs. Can you tell me a little bit about that? I think this was one of the biggest problems we saw in the industry was

where are DraftKings and FanDuel and maybe some of these other companies, you know, what's their biggest expense? And it's marketing. Billions of dollars, you know, out the door. So if we can come in and completely flip that and, you know, lower that expense tenfold and have better brand awareness with original content, then we're going to be eons ahead of everyone else. And that's where the two divisions of, you know, better media and then, you know, the sports gaming side come into play where we've now created this whole content

network and ecosystem and talent and original content 24 sevens that has grown the brand massively to be bigger and more recognizable and more well known than these, some of these other companies who have been spending billions and billions of dollars on the marketing. And what that allows us to do is have brand affinity, more loyalty to our customers. People feel more comfortable with our brand and trusting the product. And it lowers our customer acquisition costs significantly. And we've seen that to date be super, super effective. And quite frankly, it's one of our biggest X factors. Are we talking about 20, 30%? What goes on with your CAC? Yeah. I mean, I'd say it's an order of magnitude more efficient than the other,

than sort of the average blended CPA that we've heard the other operators are currently experiencing. And, you know, I think one of the things that, um, you know, obviously a lot of respect for, for Barstool Sports and the endeavor to go after the Barstool Sportsbook. But one of the differences in our approach, I would say when we decided to launch our sports gaming business and Penn decided to, to pursue Barstool Sportsbook brand is that it's not just about the organic audience to product conversion, but arguably the predominant value of media is that halo effect that it creates around your brand, as Jake alluded to, not just brand awareness, but brand affinity, right? So when you do paid user acquisition,

you have best in class efficiency. When consumers are scrolling on TikTok and there's a better advertisement there, it almost feels like organic content because they're already familiar with the brand, they're familiar with Jake, maybe they're familiar with Derek or one of our other content creators, and they'll stop and they'll, they'll ultimately convert

with, with best in class efficiency. So we've been able to strike a really nice balance, I think, between not just the organic audience to product conversion, but leveraging the brand of synod we've developed predominantly through original short form video to enable best in class efficiency on the paid UA side, which is really scalable, right? Because that's just money, right? If you have a good unit economics formula where you're confident that for every dollar

in marketing investment you spend, you're gonna get $8 in return for that, which may or may not be what we're currently experiencing, then it's just math at that point. And when payback periods are as tight as we're seeing them at better, you actually have an interesting dynamic where you can gradually pull forward marketing investment, maintain CAC efficiency, and actually accelerate your path to profitability while also growing the business because the unit economics are so attractive. Is Better a media company with a betting arm or a betting company with a media arm?

We're first and foremost a gaming business. And if you look at how we monetize the company, that really reflects that, right? I mean, we are monetizing Better Media independent of Better Gaming. And, you know, we do work with some great brand partners on that side of the house, but, um, everything we do first and foremost is to develop a brand awareness and brand affinity to enable us to have best in class efficiency on customer acquisition for our suite of, of products. And the vast, vast, vast level of energy and resource allocation and focus is geared towards monetization via better gaming. And we're really starting to see that in a significant way with the BetterPix product in

particular. It sounds like startup CEOs speak for not wanting to give away your secret sauce. Let's talk numbers. So you guys are doing exceptionally well. This is Q4 2023. Tell me a little bit about your numbers. You might get a little bit more startup CEO speak just in the interest of not, you know, speaking out of turn.

We're under a friend until this launches. I'll give you some ballpark, right? So we, we launched better initially as a media brand, uh, in August of 2022. We then, uh, launched, uh, uh, our sports book business in early, uh, 2023, uh, predominantly with a beta product micro betting focused app to just start laying the foundations of our online sports book business, establish our leadership position, responsible gaming. For example, we're still the only operator to ban credit cards as a depositing method and restrict the amount young consumers can deposit on a monthly basis, young being 21 to 25 years old, because we truly believe that sports gaming is for

entertainment value and people should technically not be able to gamble with money that they don't have. Only after laying the foundations of our OSB business and establishing our RG leadership position, did we want to get into the fantasy sports vertical, which we launched on September 5th. So we launched, we hard launched Better Picks on September 5th, two days before the NFL season and sitting here, we're filming this on November 11th. So just about two months after the launch. And, you know, this is a high eight figure revenue run rate business already. We possibly may end the year at beyond 100 million revenue run rate. The company likely does not need any incremental capital on top of our existing balance sheet to get

to profitability. Of course, we are exploring ways we can be opportunistic with prospective investments in paid user acquisition, particularly given we've been able to maintain efficiency despite increasing spend modestly week over week. And we're just about to crack the six-figure mark for active paying users, uh, despite launching this just about two months ago. So, um, no specific numbers there, but you have some ballparks. I appreciate that. I'm starting to visualize a G5 jet for myself. So I appreciate that. Uh, and speak, speaking of jets, you know, you guys, you guys want to be a $10 billion company. I look at your competitors, 15, $20 billion company. I see you guys as, as significantly better for, from a marketing standpoint. Is, is there a path to being a hundred billion dollar company here? Yes. It goes back to that back of the envelope

math that you just alluded to. I mean, you have, I mean, I think the fact that FanDuel and DraftKings are so valuable yet only have about 5% market penetration, really speaks to the opportunity here. I mean, this could candidly be bigger than $100 billion business. I described this at the top as kind of the Robinhood of gambling from a UI UX perspective. And obviously, Robinhood has done a great job from a financial perspective, and has resulted in a lot of returns for its earliest investors. But the Robinhood of gambling will be significantly larger than Robinhood because Robinhood is dealing with a finite amount of public equities that consumers are interested in buying and selling. But there's ultimately an infinite amount of moments of sporting events to enable consumers to bet on, to enable consumers to make statistical predictions on a product like Better Picks. acquiring a lot of incremental OPEX or CAPEX given we've made the foundational investments

in product technology operations, regulatory and government affairs, and then of course, marketing media and brand. So we've made these foundational investments over the past couple of years, and we can keep bolting on new verticals and new products like Better Picked without really needing a significant amount of incremental capital or time, we should see some pretty interesting economies of scale with this business as we continue to keep our heads down, stay focused, execute against our product roadmap and rapidly grow our revenue and customer base. What drives you, Joey?

We met a couple of years ago. I pretty much decided to invest after our first dinner. You explained the gaming industry more clearly than I had been hearing from people for five years. But on a fundamental level, it seems evident what drives Jake, but what drives you, Joey? So I dropped out of Columbia University

a little bit less than 10 years ago to pursue my first sports gaming startup. And at the time, it was Daily Fantasy, which was the only form of legal sports gaming in the United States with essentially the same vision that we have now, which is that, you know, at the time, FanDuel and DraftKings were also the market leader, but in DFS. And I just felt like their product experiences were fundamentally built for the power user that was using models and was researching for three hours a day and was a high volume user, right? So I've always felt like sports gaming in this country has been built for the power, high volume user, but there's tens to hundreds of millions of casual sports bands that have not been delivered product experiences that are simple, intuitive, and entertaining for them. So I went down this rabbit hole about a decade ago when I dropped out of school to pursue

my first business and I've been down that rabbit hole since and I've had some success along the way and, um, you know, haven't had, you know, quite the level of, uh, uh, financial success that Jake's had, but I've had some, a little bit myself and, you know, Simplebet is a, is a valuable business, um, which was my company before this. And, um, the, the motivation is, is less financial now and more just about winning the category. I think it's very common for a first-time entrepreneur to focus on money, second-time entrepreneur on building something really big.

Well, I think it's evident. All three of us are sitting in our office on Saturday. I know Jake, you came from training. Joey's in his HQ. I'm in my office. So I think we're three of a kind. It's been an absolute honor and pleasure to talk to you guys.

Jake, I know you're training 16 hours a day. I really appreciate you jumping out of training to jump on a call. And of course, Joey, you're the best. I'm inviting myself to the December 15th fight. So I'm looking forward to seeing both of you guys there. A hundred percent, man. Thanks for having us. We'll get the tickets set up and I'll see you in Orlando.

You got your tickets, man. Thank you for us. We'll get the tickets set up and I'll see you in Orlando. Yeah, we got your tickets, man. Thank you for listening to this week's episode. In order to make sure you do not miss out on next week's episode, please make sure to subscribe below. We thank you for your support.