The Three Strikes That Took Down an Online Casino Startup
In the high-risk world of online gambling startups, one company’s six-year journey between 2014 and 2020 highlights how a few critical mistakes and strikes of bad luck can be a business killer.
Here are the Three Strikes that ultimately forced them to shut down.
Strike 1: Underfunded for Market Dynamics
The startup raised a modest €500,000 in its initial funding round. While this may have seemed adequate at the time, the market shifted between 2015-2016 from a widely used non-capital intensive“revenue share” model to a capital intensive “Cost Per Acquisition” model. This meant that the affiliate websites that were sending traffic to the start up now wanted to get paid as soon as the traffic converted into a player, essentially bringing the costs forward so the business had to pay for the players before they earned any money on them. This completely changed the financial dynamics and capital requirements.
Despite this, between 2014 and 2020, the company experienced positive revenue performance, with steady months generating €120,000 and some peak periods reaching €600,000. However, there were also months where revenue plummeted to zero. The inconsistency in cash flow, coupled with the lack of ongoing capital infusions, limited the company’s ability to reinvest in critical areas such as marketing, operations, and product development.
Instead of focusing on commercial growth and securing exposure/acquisition partnerships, the founders concentrated on product development while they neglected to build a robust management team, spending too much time training inexperienced staff instead of hiring seasoned professionals who could handle the operational and financial complexities of scaling the business. This decision would come back to haunt them when the business faced more significant challenges.
Strike 2: Supplier Disputes, Technical Failures, Fraud
Another key challenge stemmed from initial reliance on a white-label casino supplier for the casino platform. While white-label solutions are common in the industry, the supplier struggled to meet expectations, particularly when it came to delivering a functional front-end. However, this wasn’t a significant setback for the startup, as the goal had always been to differentiate by developing a custom, gamified casino product.
Over the course of a year, the team invested significant time and effort in building their own technology. Unfortunately, on the day of launch, the platform failed due to fundamental development issues, which ultimately led to the dismissal of the CTO. This internal technical failure proved to be the first major obstacle, predating any market shifts, and significantly slowed the startup’s growth trajectory.
This forced the startup to either hire its own developers or push back launch dates, further slowing its growth trajectory. In an industry where speed to market is essential, these delays caused significant damage.
The company also became a victim of online fraud. This was a big deal. They could not prepare for or prevent this type of fraud unless they owned their own casino platform. Fraudsters created multiple fake accounts, exploited promotional offers, and manipulated in-game vulnerabilities to cash out winnings. It was not really "illegal" per se, they were exploiting holes in the system, and they did that very skilfully staying under the radar. Despite hiring statisticians and reviewing player patterns to prove fraud, the Maltese Gambling Authority ruled that the startup still had to pay out winnings. The fraudsters exploited a number of flaws in the platform but since the startup did not directly own the back-end casino platform, they couldn’t technically prevent abuse.
To make matters worse, the platform provider profited from transactional fees and had little incentive to help the startup stop the fraud.
Strike 3: Platform Migration Disaster
In an attempt to resolve these issues, the company decided to switch to a new casino platform provider, enticed by attractive terms including a €500,000 cash loan and one year without platform fees.
On paper, this seemed like the perfect solution, but in practice, it became the final nail in the coffin. It is worth noting that the new platform had 15 years of track record, was listed on the stock market, and publicly always boosted growth and success. But behind doors, they were a disaster…
After migrating to the new platform, players faced immediate technical difficulties. Many couldn’t log in to their accounts the first week and could not reach customer support, leading to widespread frustration and many players permanently leaving for other online casino brands. These ongoing technical issues piled up and lasted for months.
Affiliates continued to send traffic to the platform, but because of now downgraded product and conversion efforts, the startup couldn’t convert those visitors into paying customers. This loss of revenue, combined with a lack of proper customer support from the new platform provider, crippled the startup’s ability to operate.
For eight months, the startup battled VIP service, CRM and Customer Support issues while haemorrhaging cash. Affiliates and other partners were left unpaid, and despite taking out a personal loan, the founder could only pay 40% of what was owed to all affiliate partners. He did, however, manage to maintain his good name in the industry.
With no feasible way forward, the business was forced to shut down.
Summation
The story of this online casino startup serves as a cautionary tale for entrepreneurs in any industry. The company’s downfall was caused by three critical factors:
Inadequate funding: A small initial capital raise and failure to secure additional investments created severe cash flow limitations.
Reliance on flawed suppliers: Being fully reliant on white-label technology suppliers - and being let down by two in a row - delayed development and exposed the business to fraud.
Disastrous platform migration: A new platform, meant to solve their technical and operational problems, instead introduced more issues, preventing the company from converting traffic and generating revenue.
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