From banking to betting: the gamble that paid off
IF YOU didn’t have a dot-com idea at the end of the 90s, people looked at you in a slightly odd way,” says Ed Wray, the co-founder of Betfair. After eight years in the City at JP Morgan, he reached the role of vice president on the debt capital markets desk before finding his dot-com idea. And by finding it, he means he found Andrew Black, the other half of the Betfair founding team.
“We’re very different,” Wray says. “He’s a mathematician, a one-time hedge fund trader, one-time professional card player, one-time computer software engineer. He sort of brought all those ideas together and came up with Betfair.”
Betfair was quick off the mark. Wray met Black in 1998, started the business in 1999, before raising a million in capital and launching in 2000. “We just thought the business and technology worked in the financial sector, why couldn’t it for the betting market?” says Wray.
FRIENDS’ AND FAMILY’S CASH
Indeed, their friends and family seemed to agree. “We spectacularly failed to raise capital from the institutions at the end of ‘99. Partly because we weren’t very well versed in how to do it and partly because there was another company going around with a similar idea at the time,” Wray explains.
“The most nerve-wracking moment was receiving the money from friends and family, precisely because it was from friends and family. You were plagued with this idea that if you went to the pub with them, would they be thinking, ‘It’s nice to see you’ or, ‘why aren’t you in the office making my investment go further?’ – it was great for focusing the mind.”
Wray confesses that his pitch to them was well timed: “I rather craftily worked out when their bonuses were announced and when they would be paid and then went to see them in the gap.”
Their plan, however, delivered for their investors. The company was cash flow positive in just nine months. The two-man team quickly grew too. By 2002, they had bought out the company that beat them to the institutional funding in 2000, and had around 100 staff. Now they have thousands.
But it wasn’t an entirely smooth journey for them. “Our biggest issue was trying to get the banks to give us a merchant ID that would allow us to accept payments online. But in a classic catch-22 scenario, they didn’t want to give us one because we weren’t a big blue chip betting company. Without it though, we never could be.” Luckily the company found a way around it. “We were able to demonstrate to them that our model was safer than the traditional bookmakers since we didn’t take counterparty risk – customers are betting against each other, not the house.”
Does Wray bet? Occasionally, he says. Does Black? Wray answers simply and smiles: “Yes.”
Ed Wray will be speaking at the City PM and Entrepreneurs World conference on 22 June. Visit www.cityam-helix.com for more information.
CV | ED WRAY
Career history: Betfair’s non-executive chairman. He is the co-founder of the Betfair Group and was chief executive until 2003, after which he moved to Australia to set up Betfair’s Australian joint venture. He took over as chairman in 2006 and is now based in the UK. Prior to founding Betfair, he spent eight years at JP Morgan as a vice president in the debt capital markets and derivatives area. He has been a director of Betfair since August 1999.
Company revenue: £340.9m (2010)
Size: Betfair announced over 3m clients and a turnover in excess of £50m a week in 2009.
Founded: 2000 (listed 2010).
Awarded: Ernst & Young Entrepreneur of the Year, October 2009; Ernst and Young Emerging Entrepreneur of the Year, October 2002; Queen’s Award for Enterprise, April 2008; Queen’s Award for Enterprise, April 2003.