Keep calm and carry on: Tim Heath on managing investments through an economic downturn
iGaming companies should focus on their customers and double down on their USP despite declining macroeconomic conditions, according to Yolo Investments general partner Tim Heath.
Speaking with Pierre Lindh on the iGaming NEXT Podcast, Heath explained how these foundational ideas have helped propel Yolo’s portfolio of managed assets to over €600m in value, and helped him develop an attitude to investing that keeps him coming back for more.
“We’re not a penny stock trader,” Heath explained. “We’re not looking to enter a position and exit a position a day or a minute later. We’re typically looking at a five year horizon when we’re making an investment.
“I think if you look at what builds great businesses, it’s about just having a long-term plan, and doing the right thing. Looking after the customer, building great products, having that product-market fit, and knowing what your customers want.
“If you start getting worried about what the market thinks about you the whole time, you can lose focus on what’s important.”
Yolo Investments general partner Tim Heath: “We’re not looking to enter a position and exit a position a day or a minute later. We’re typically looking at a five year horizon when we’re making an investment.”
Heath’s lived experience with cryptocurrency volatility has helped him develop this long-term perspective, he said.
“People always say to me; ‘what do you do when the bitcoin price drops down?’ I’m like, how do I handle it? I close the app. I don’t look at it. And that’s a very hard thing for people to do.
“But having been through a number of bull and bear cycles in crypto over the last eight years now, guess what; the markets will recover, crypto will recover.”
Heath suggested that instead of obsessing over valuations or share prices, iGaming companies should remember the importance of building a unique value proposition within the industry.
According to Heath, iGaming start-ups should double down on their USP in an uncertain environment, or what he calls their “unfair advantage”.
“I can’t control the crypto market, you can’t control the stock market, all we can do is control the controllables. We’re not smarter than the market, this is the bottom line.”
He added: “If you get that unfair advantage right, people will subscribe to your business, people will pay for your services, and that is what can scale and really start creating amazing valuations.”
For investors, the story is not so different – at least from Heath’s point of view. No matter the strategy, one golden rule should always remain in the world of investment: “Don’t invest more than you can afford to lose.
“And if you start taking margin loans to invest on something, I can’t control the crypto market, you can’t control the stock market, all we can do is control the controllables, and we’re not smarter than the market, this is the bottom line.
“So, don’t invest more than you can afford to lose – like gambling, in essence – and then if [a valuation] is going down, we’ll sit on that position, and if you’re investing in strong fundamentals of a company, over a five-year period, you should have a decent return.”
“When there is a recession coming in, people will go back to sin activities more. Drinking, smoking, drugs, gambling. It’s the way it’s been and everything’s very cyclical, in that sense.”
Indeed, even during periods of economic difficulty – such as the period of recession or stagflation that could plague the remainder of 2022 – Heath finds solace in the robust nature of the iGaming industry.
When asked how different industries might be affected by prevailing market conditions, he said: “So let’s start with gaming, it’s the easy one. It’ll increase. We saw during Covid it will bust all recessionary pressures.
“When there is a recession coming in, or what did you call it – a stagflation – people will go back to sin activities more. Drinking, smoking, drugs, gambling. It’s the way it’s been and everything’s very cyclical, in that sense.
“I think there might be less exits and less investments done in an uncertain climate, for sure. And people need to then sort of just keep their head down and work hard and deliver. But it’s a good time to run a business.”
Tim Heath draws upon two decades of experience within the iGaming and emerging technologies sectors as GP of Yolo Investments. An early adopter of Bitcoin in 2013, he was founder and CEO of the Yolo Group (formerly the Coingaming Group) until 2020. The group operates leading crypto gaming brands Bitcasino and Sportsbet.io, with the latter securing high-profile sponsorships with Premier League clubs Arsenal and Southampton.