Investment in AI start-ups rockets as iGaming companies prioritise profitability
The iGaming AI sector is heating up for investment as companies shift their focus to efficiency and profitability amid a tougher economic climate.
VC firms and iGaming companies are investing in AI start-ups at an increasing rate, and the recent buzz surrounding OpenAI’s ChatGPT, an artificial intelligence chatbot that uses cutting-edge generative AI, has boosted this interest further.
From writing code and composing essays to generating ideas and scripts, ChatGPT can perform a multitude of tasks that got many to exclaim in recent weeks that AI has finally arrived.
Robin Reed, CEO of iGaming accelerator HappyHour.io, was amazed by ChatGPT’s capabilities, calling it “pretty insane” after testing it out.
Nico Jansen, CEO and founder of Bet IT Best, also praised ChatGPT’s coding abilities as being of an “unprecedented quality” in a recent episode of iGaming NEXT’s Weekly News.
It therefore comes as no surprise that interest in, and funding for, AI start-ups is on the rise.
Generative AI companies, which use large language models, received $1.37bn in venture capital investment in 2022, according to PitchBook.
This is nearly as much as was invested in the previous five years combined, and stands out in a year where deal values generally declined in other categories.
Tim Heath, founder of Yolo Group and Yolo Investments, told iGaming NEXT that there has been a significant increase in Google searches for ChatGPT since its release, despite the fact the “underlying technology has been around for a long time.”
Heath cited two companies in Yolo’s portfolio as examples: Narrativa, a natural language generation platform that provides content automation to various industries, and proto.cx, which also uses a GPT engine within its customer support technology.
In a gaming context, Heath said, approximately 50% of customer support requests concern deposits or withdrawals, while 40% are related to when bets will be settled.
Heath believes there is significant potential to proactively communicate with customers and answer their questions before they ask them.
Looking ahead, Heath predicts we will see many start-ups using the ChatGPT rails to solve specific and niche problem areas, “which is always exciting for an investor looking to invest into early-stage companies solving customer problems”.
However, generative AI is not the only type of AI that is attracting the attention of the sector.
Lloyd Danzig, founder and managing partner of US sports betting VC fund Sharp Alpha Advisors, told iGaming NEXT that AI is especially adept at pattern recognition and prediction, which are crucial tasks for gaming companies.
Danzig pointed out that odds-making, risk management, fraud detection, responsible gaming, user experience (UX) personalisation, and bet recommendations all rely on the ability to detect patterns and make accurate predictions in real-time.
He also emphasised that machine learning, another subfield of AI, is already being widely used across tech stacks, and is only “increasing in its pervasiveness”.
Many gaming operators have in-house data science teams that build custom models and solutions, but there are also several B2B companies that offer model-as-a-service options.
“Future Anthem leverages AI to help operators optimise each user’s experience while reinforcing responsible gaming behaviours. Kero Sports uses AI to curate contextually-relevant micro markets based on game states,” Danzig said.
LeoVentures, the venture capital arm of LeoVegas, just made a seed investment of €250,000 in humbl.ai, a start-up developing a modular suite of tools that, besides automation, also uses machine learning and predictive models to support iGaming and e-commerce businesses in areas such as paid media, affiliation, SEO, and compliance.
Founder Alen Kojadinovic told iGaming NEXT that AI’s problem-solving capabilities can speed up analysing large amounts of data, making many business decisions cheaper.
“Our solutions will help companies to optimise their marketing spend, while on the compliance front, humbl.ai’s tools will allow operators help to predict and prevent compliance breaches,” he said.
The company plans to commercialise its product within the next quarter and sell it to other iGaming firms and digital verticals in the future.
“We’re incredibly grateful to be able to work with a top-tier operator,” Kojadinovic stated, noting the difficulty of raising capital in the current market.
“During the boom, virtually every start-up could secure funding at high valuations, with only unprofitable, or unsustainable, growth to show for it.
“But with rising interest rates, the situation has changed dramatically. Many VCs now want to see a plan for reaching break-even at minimum, and at Humbl.ai, that is certainly a goal we are striving for as well,” he added.
Kojadinovic agreed with statements made by VC firms to iGaming NEXT last year that the current macroeconomic climate is causing venture capitalists in the iGaming industry to exercise caution.
However, AI appears to be a popular investment opportunity as companies recognise the potential for enhanced operations and cost-savings through the implementation of the latest AI technologies.
The human impact on people and staff as a result of those savings is a conversation for another day, but the buzz surrounding ChatGPT and AI has almost certainly generated new start-up ideas for entrepreneurs in our industry.