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February 13, 2023

Arctos, Norwest Back GeoComply, Unicorn Expands into New Verticals

GeoComply Solutions recently announced it closed on a secondary funding round backed by Arctos Sports Partners and Norwest Venture Partners. Valuation metrics were not disclosed, but the deal’s value is north of $100 million. 

The geolocation compliance provider maintains a dominant position within the U.S. regulated online gambling market. The company is believed to have more than 95% market share.

And there remains room to continue to grow that business. “Online sports betting in the U.S. is still far from reaching a ceiling, and there's no reason why geolocation won't continue to be a central part of the U.S. regulated betting experience,” Chris Grove (co-founding partner, Acies Investments) said. “Those conditions mean there's plenty of room for growth for anyone serving the regulatory tech side of the industry, including geolocation providers.” 

Acies is an investor in XPoint, a competitor to GeoComply.

But it is the potential for GeoComply to accelerate expansion within other verticals that has investors so bullish on the company’s future. Co-founders “Anna [Sainsbury] and David [Briggs] have built an impressive, profitable business serving the gaming and sports betting market, and we look forward to partnering with them as GeoComply expands into financial services, crypto and other verticals,” Jon Kossow (managing partner, Norwest) said in a press release.

GeoComply was founded in 2011 to solve a specific problem–the need to pinpoint exactly where a digital user is at a given time and ensure that individual is unable to manipulate their location data.

The company’s software was initially developed to aid compliance with the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). The federal law authorized iGaming to occur if a state permitted it, and the state was using technology to verify the bettors' age and location within the jurisdiction.

It wasn’t until 2018, when the Professional and Amateur Sports Protection Act (PASPA) was repealed, that U.S. online sports betting opportunities became available to GeoComply. The company’s geofencing tech became a necessity with it a federal felony to book bets across state lines.

The majority of GeoComply clients today are U.S. platform providers or sports betting operators. 

GeoComply processes more than 10 billion transactions annually for those companies. That figure is noteworthy as revenues are tied to transaction volume. Sainsbury said the business generated more than $100 million in annual income in ‘22.

The company’s gaming arm drives the business, and there remains room for it to grow. 

However, shifting consumption habits and advancements in technology have opened up two promising new verticals over the last decade: media rights management and financial services. 

“More people started streaming content [in the early 2010s] and VPNs became an issue for content owners,” Sainsbury said. “So, [in 2016], we started to help content owners enforce VPN detection with streaming companies.”

Nearly 30%

of online users today use virtual private networks (or VPNs) to manipulate their IP address and location. Sainsbury explained the problem with that, at least as it relates to sports, is rights are typically sold on a market-by-market basis. If a fan in the U.K. can “manipulate their IP [address] to make it appear as if they are in India, it means they are getting to watch [EPL] content for much less [than they should].”

And that behavior threatens the league’s entire commercial model. Rights owners are “selling their content to main [domestic] broadcasters at huge premiums. [Piracy] really devalues that,” she said. 

If fans aren’t tuning in, there is less of a reason for a broadcaster to pay up for the rights in the future.

More recently, GeoComply has been working with financial institutions and cryptocurrency exchanges to help ensure their compliance with Office of Foreign Assets Control (OFAC) sanctions programs. The company took note of the

steep fines

industry stakeholders faced in ’22, and is now using its geolocation compliance solution to help prevent future violations from occurring. 

Historically speaking, those industries have relied on IP addresses as the foundational data point for location verification.  

But as Sainsbury explained, IP addresses were not built to serve up geolocation data and the tech has since morphed into “the foundation of most fraud solutions.”

Additionally, most online traffic now occurs on mobile devices where the IP address is actually the location of the telecommunications company and not the user, making the data point even less relevant.  

GeoComply is helping to solve the problem by ensuring the IP addresses being used are reliable and accurately represent the users’ current location. 

Its tech has also been “excellent at identifying account takeover, money laundering, [and at] stopping people in sanctioned jurisdictions from being able to engage with [its] clients,” Sainsbury said. To date, GeoComply has halted four million transactions originating in off-limits locales. 

The secondary investment round serves as a reward for the GeoComply team and shareholders alike. 

It also presents an opportunity for the company to add a pair of savvy, well-respected investors with a fresh perspective. “We wanted to bring in the experience of both Norwest and Arctos and thought they would be great partners to help us deliver on this next phase of our business,” Sainsbury said.

GeoComply was minted a unicorn during its last raise in early ’21. Blackstone Growth and Atairos financed that round. 

Sainsbury said the company’s strong positioning in the gaming industry and opportunities to take share in other verticals prevented existing market conditions from negatively influencing its valuation this time around. “We have seen our valuation grow in line with our business.”

Fun Fact

: 

GeoComply prepared to process 160 million transactions during Super Bowl LVII, twice as many as last year’s game. A portion of those wagers were expected to be made by fans in attendance. The Super Bowl was played in a state with legalized sports betting for the first time.  

For contextual purposes, 11-13% of fans attending Cardinals games in Arizona this year wagered on sports while at the stadium.