Unicorns are mythical beasts. They are also start-up companies, particularly from the technology sector, which have been valued at more than US$1bn. And now Scotland is home to not one, but two of these legendary creatures.
The designation seems particularly fitting for Edinburgh-based FanDuel, which runs a website that allows Americans to create fantasy sports teams and then play against other users in open leagues or against friends in private contests. What sets the format apart from other competitions is that leagues can last for just a single day or week, meaning that players don’t have to commit to a whole season.
While the games may be fantasy, the business is very, very real. More than US$75m (£49m) is paid out each week in cash prizes, with the amount that players can win varying according to how much they have paid to enter their league. The appeal of winning real money in a single week has attracted more than one million paying players, boosting the company’s turnover from US$1m in 2011 to US$5m in 2012, US$15m in 2013 and US$57m in 2014, with revenues expected to top US$150m this year.
In July, FanDuel raised US$275m in a series E fundraising that was led by venture capital giant KKR, with Google Capital, Time Warner Investments and Turner Sports among the other investors taking part.
The National Football League (NFL) and National Basketball Association (NBA) got involved, as did the owners of some of the franchised sports clubs. Online gambling might be illegal in America, but the law protects fantasy sports games because they involve skill rather than chance. The deal valued the company at more than US$1bn and underlined the global scale of the business, with its founders criss-crossing the Atlantic from their bases in Edinburgh and New York to manage the growth of the firm, living what from the outside may appear to be a jet-setting lifestyle.
“Eating a bacon roll isn’t really part of a jet-setting lifestyle is it?” jokes chief executive Nigel Eccles as he tucks into his breakfast. Nigel has landed back in Edinburgh just a few hours earlier from his latest trip to New York and is joined by Lesley Eccles, executive vice-president for marketing. Along with chief product officer Tom Griffiths, creative director Rob Jones and technology director Chris Stafford, the husband-and-wife team founded the company in 2007.
Back then, things were very different, both for the company and for the couple. Lesley, from Forfar, and Nigel, from Northern Ireland, had met in 1995 while they were both students at the University of St Andrews.“We met at a ceilidh at the Golf Hotel,” remembers Lesley. Was it love at first sight? “Hmmm, I don’t know,” laughs Lesley. “I think it might have taken six months.” Nigel chips it: “It was certainly interest at first sight.”
After studying mathematics, Nigel moved to Oxford, while Lesley got a job with a software consultancy in Glasgow having completed her modern languages degree. After “doing the long-distance thing” as Lesley puts it, the couple moved to London together. But it was their return to Scotland in the summer of 2007 that sparked the idea of creating their own tech start-up. Nigel had taken a job with Johnston Press, the regional media company that owned more than 200 other local newspapers and which had paid the Barclay brothers £160m to buy The Scotsman, Scotland on Sunday and the Edinburgh Evening News just a year earlier.
“I’d been at two start-ups, one of which became BetFair, and I really wanted to go back and start my own business,” explains Nigel. “I came up with this idea and was looking around for someone to start it with.”
His idea was Hubdub, a website that allowed users to place wagers on the outcome of key stories that were in the news, such as who was going to win the 2007 US presidential election. “Les and I met Tom Griffith at a tech networking event in Edinburgh,” Nigel says.
“Tom, Rob and Chris had another start-up called Groopit. I started helping them with that and we realised that there was a really good opportunity for us to work together so we joined forces and launched Hubdub. We founded the company in November 2007 and got investment from Kevin Dorren and Iain Ritchie, two very well-known tech investors in Scotland. We launched a demonstration in January 2008 in Palm Springs.”
Buoyed by the launch of the business, the founders went looking for further funding to help grow the company and secured a meeting with Pentech Ventures. But the financial winds of change were already blowing. “As you’ll remember, 2008 started well but then there was the financial crisis towards the end of the year,” recounts Nigel. “In fact, the day that we pitched to Pentech was the day that Lehman Brothers went bankrupt. So it was a pretty nervous period between getting the term sheet and closing that funding round, which we did on Christmas Eve 2008.
“We came back in January 2009 and we looked at Hubdub, which we’d been working on for more than a year, and we started to think that it was going to be more challenging than we thought. And then, after two or three months, we started to realise that we probably weren’t going to hit our forecasts and it was incredibly hard to see how we were going to be successful with that product.”
Lesley, Nigel and their fellow founders headed to the South by Southwest film, interactive and music festival in Austin, Texas, in March 2009. A photograph on FanDuel’s website records the moment as they sat around with Post-It notes and brainstormed how they could solve their problem with Hubdub.
“One of our part-time community managers on Hubdub was a fantasy sports player and so we questioned him about it because we thought it was interesting,” says Nigel. “That was really the Genesis of the idea that we would pivot away from Hubdub and into FanDuel.
“None of us had played fantasy sports. We really didn’t know the market at all. I had no experience as a player, so I looked at the market and at that time there were about 30 million people playing fantasy sports. It was legally secure, you could play it for money and Federal law had blessed that and so really that’s what got us interested. Existing operators like Yahoo and ESPN hadn’t innovated for eight or ten years and so we thought we could do a lot better. We also found that younger players weren’t playing fantasy sports as much as you’d expect; the average age of a player was in their mid-40s. We thought we could make it faster and more friendly for the mobile platform, which would bring in a younger demographic.”
“But we both play now,” adds Lesley. “We play the NFL games and some NBA games. Baseball is incredibly difficult though.” FanDuel offers players the choice of four professional sports – American football, baseball, basketball and ice hockey – as well as college basketball and football.
With talk of all these exotic sports, does it feel strange for the company to earn its bread and butter from games that are so culturally-different to those that we’re so used to in Scotland? “It was in the early years,” agrees Nigel. “We had to learn an incredible amount about all the nuances of the sports industry. That was an incredible challenge but I’d say not today. We’re immersed in it now.”
Lesley adds: “Culturally, we’re much more aligned with America than we would be with football in Scotland. Personally, I’ve never followed football and wouldn’t be able to tell you a single player on the Scotland team.” She pauses for a moment. “Ally McCoist – is he still playing?” she laughs. “Part of it is also the way we live nowadays. American media is everywhere. We have ESPN on in the office. It’s very easy to immerse yourself in it.”
After coming up with the idea of switching from events in the news with Hubdub to events on the pitch with FanDuel, the next step was to start scaling-up the business. “The first year
was about getting the product right,” says Nigel. “Then in 2011 we raised about US$4m and for the first time we had money to start marketing the product. From there we’ve seen dramatic growth.”
That growth has prompted the company’s headcount to rise from 100 staff at the start of the year to around 400 now. Some 150 workers are based in the UK, with the rest in the US. Fresh from speaking at the Turing Festival, Edinburgh’s international technology festival, Lesley is optimistic about the outlook for the sector in Scotland.
“When we started back in 2007 and 2008, there really wasn’t much here in terms of a tech industry,” she explains. “In the early days we were very bullish about being able to build one here. The way we approached that was ‘Let’s build a really successful company and then start to give back and build that community as much as possible’.”
Research suggests that Scotland’s tech sector needs to recruit 11,000 staff each year to keep up with demand, prompting trade body ScotlandIS to join forces with the Scottish Government and Skills Development Scotland to launch CodeClan, the country’s first dedicated digital skills academy, which is opening its doors this autumn.
As well as increasing training, the very fact that Scotland now boasts two “unicorns” also appears to be helping the situation. As well as FanDuel, flight comparison website Skyscanner – run by chief executive Gareth Williams – has been valued at more than US$1bn.
“What we’re seeing now with Skyscanner and us being here and the likes of FreeAgent and all these other successful tech start-ups is that we’re able to attract talent up from London, which is something that we’ve not been able to do before,” says Lesley. “There is an ecosystem of technology companies, so it’s less risky for someone to move themselves and their family up here from London to relocate because it’s not just us or it’s not just Skyscanner here.
“I think Edinburgh is a fantastic source for talent and the quality of candidates that we get is incredibly high. We were in a position where we weren’t really well-known in the UK until relatively recently because our customer base was in the US. Now we’re finding that, as we become better known in the UK, we’re getting more applications from even higher-quality candidates. We’re also opening our office in Glasgow in September, which is broadening our reach for talent as well.”
Lesley’s comments about the ecosystem in Scotland will be music to the ears of Ken Morse, the former managing director of the entrepreneurship centre at the Massachusetts Institute of Technology (MIT), who back in 2009 said that creating such an environment was the key to building globally-successful companies north of the Border. One of the reasons that FanDuel and Skyscanner were asked to speak at this year’s Turing Festival was to inspire the next generation of tech start-ups.
So what are Lesley and Nigel’s top tips for budding entrepreneurs? “Don’t give up,” replies Lesley immediately. “The number one killer of start-ups is that they just give up because it’s too hard. And it was incredibly hard in the early days.”
Nigel nods. “Not giving up is really important,” he agrees. “Also, really focus on having the best co-founders and early employees that you can. Nothing kills start-ups faster than hiring badly. It’s the hardest thing to fix. If you pick the wrong co-founders then it’s usually terminal.”
Not giving up was clearly a lesson the pair learned during the transition from Hubdub to FanDuel. Coming up through the ranks has also made them appreciate the way in which they have been able to access funding, totalling around US$363m so far. “The most recent round was much, much more straightforward,” says Nigel.
“We came out of the last football season and we’d had an incredible season. Two-thirds of our revenues came in the fourth quarter last year. We grew much faster than we’d expected to, so we felt that we should do another funding round. One of our existing investors, KKR, had only invested a small amount in our series D round last summer and they were very keen to lead the round and they made us an offer we couldn’t refuse. We also went out and spoke to some of our media partners, so Turner came in and NBC. Somewhat to our surprise, Google invested as well. Google had never made a sports investment so it was very significant that we were its first one.
“So that round was actually fairly straightforward. Compare it with, say, our series B round, which was our first funding round for FanDuel. That was very early and I don’t think most investors thought there was a market, never mind us winning the market. So we had to get to scale and re-prove a lot of things. It was a dramatically different experience. One of the things about our funding rounds now is that they’re completely discretionary. We could decide not to raise money and just not grow quite as quickly.”
FanDuel has already used part of the US$275m it raised over the summer to buy Kotikan, an Edinburgh-based app developer that had been undertaking work for it over the previous 18 months. Kotikan, which was turning over about £2.4m before the acquisition and which had also designed apps for Skyscanner and Standard Life, and its 56 staff have now been rolled into the FanDuel fold, along with New York-based NumberFire and a team from Orlando’s Zynga Sports.
“NumberFire is a tools business – its mission is to make every sports fan better educated,” says Nigel. “So they can give you stats on a team’s likelihood to win a game or if a team is down in the fourth quarter then what percentage chance does it have of coming back. They do very, very deep analytics and they employ data scientists who mine those sort of things. Zynga Sports is very deep in social mobile games, so we’re looking to that team to enrich our core product.”
Nigel is clear about the purpose for the broader FanDuel business. “I’ll tell you one thing, the valuation isn’t a focus,” he says. “The mission of the company is to make sports more exciting. If you take a play-off game when it’s the end of the fourth quarter and your home team is down three points and they’re on the five-yard line then that’s an edge-of-the-seat moment of excitement.
Compare that to a late season game and your team is not going to make the play-offs and they’re playing another team that’s not going to make the play-offs then that’s going to be a dull game. Our mission as a company is to make all games like that play-off game.”
Perhaps a suitable comparison for football fans here in Scotland would be making mid-table games at the end of the season following the split as exciting as a cup final or those final few matches when teams are competing to clinch a Europa League slot. Allowing users to build fantasy teams using real-life players under a salary cap allows them to have an added interest in the outcome.
Much of the latest funding round will be spent on marketing, pushing the FanDuel brand in the US, but the Eccles also have their sights set on expansion into Europe. Nigel says it’s “early days” and that the company would look to make the leap itself rather than partnering with another business, such as an online gambling firm. “We’re provisionally targeting that we might launch something next year,” he says. “I think the UK will be our first market.” Lesley adds: “We feel like we’ve only just scratched the surface.”
With the pressure of running an international business and balancing family life with three children, how does it feel to be married to one of your business partners? There’s a pause and the pair turn to each other and say: “How about you answer that question?” before sharing a laugh.
“It’s much easier to be married and both us of working in this business than for just one of us to be working here,” begins Nigel. “It’s incredibly all-consuming, so when you’re both working on it you can both understand it. The other thing I’d say is that it works well for us, but marriages may vary for other people. I’ve heard other people say that they’ve got very good marriages but they could never work together. When other people ask about it, I’m hesitant to recommend it because I don’t want to be the cause of your business failing along with your marriage.”
Lesley laughs “I definitely think that if we weren’t both in it together then we would have divorced by now, for sure,”