A year and a half on, however, Dream Capital’s investment is looking like a dud, with Rario barely surviving. Indeed, the corporate venture arm itself is set to disappear after being rolled back into parent Dream Sports, marking the end of an experiment by the gaming and sports focussed company.
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Dev Bajaj, the head of Dream Capital, is on his way out, and Dream Sports is now gearing up to going back to an in-house corporate development structure to explore strategic opportunities, according to a source aware of the development. All this comes at a time when Dream11, another Dream Sports-owned eponymous online fantasy gaming platform, is facing a huge goods and services tax (GST) demand of over Rs 25,000 crore.
The blow of the newly introduced 28% GST levy on the full face value of bets placed on real-money games will mean Dream Sports’ profit pool is likely to be hit by 80% and revenue by 40%, according to a person aware of the matter. The firm reported a Rs 142 crore net profit on Rs 4,000 crore of revenue in FY22.
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Dream Capital’s origins
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In August 2021, at the peak of the technology funding boom, Dream Sports announced with much fanfare that it had launched Dream Capital. With a corpus of $250 million (over Rs 2,000 crore) to be deployed from its balance sheet, the idea was for the venture arm to back startups in the gaming, sports and related sectors.
“We want to redeploy our Ebitda and reinvest further into inorganic growth because, while organic growth continues, we don’t want to fall into that age-old trap of trying to do everything ourselves,” Harsh Jain, cofounder and CEO of Dream Sports, had told ET in an interview in 2021. Ebitda stands for earnings before interest, tax, depreciation and amortisation.
Dream Sports was valued at over $8 billion at the time (it has not raised external funding since then) and wanted to build an Alphabet-like sports conglomerate through product diversification, propelled by acquisitions and funding in startups, Jain had said.
But with the prolonged funding downturn and tax issues hurting the sector, there has been a rethink, a person familiar with the situation at Dream Sports said on the condition of anonymity.
“They realised they can’t operate through a venture capital model where the failure rate can be high. Along with that, the involvement in early stage startups is very high, which they were unable to do keeping in mind the complexities of the gaming sector… Going ahead, Dream Sports will scout for companies that widen the group’s sports offerings and are more strategic in nature,” the person added.
Widening the game
Led by Bajaj, a former partner at venture capital firm Kalaari Capital, the fund made one of its largest investments — $50 million — in content and commerce platform FanCode, followed by smaller bets on startups such as Fittr, an online fitness marketplace.
FanCode, which was founded in 2019 by Yannick Colaco and Prasana Krishnan, offers sports statistics and content. This was followed by Dream Sports in 2021 acquiring Rolocule Games, a Pune-based mobile games developer, which was rebranded Dream Game Studios. The group uses the developer to launch interactive games.
Following its diversification strategy, Dream11 said last week that it acquired Sixer, a platform that deals in fantasy cricket stocks. Users on Sixer’s platform can buy stocks related to the cricketers of their liking, with the value of the stocks going up or down depending on the real-life performance of the player.
“Amidst its GST tax issues, Dream Sports will look at larger opportunities across sports, sports commerce, health and fitness…,” said another person who is familiar with the situation.
A Dream Sports spokesperson declined to comment.
Also read | Decoding government’s tax math for online gaming players
Rario’s rapid rise and fall
The decision by Dream Sports to abandon its venture investing ambitions is closely tied to the failure of its most high-profile bet, Rario, made during the peak of the Web3 bull-run worldwide. Rario faced a significant setback when a ruling by the Delhi High Court cast a cloud over the millions it had invested to create NFTs and the like.
After securing series-A funding in April 2022 from Dream Sports and investors such as Alpha Wave Global participating, Rario had spent around Rs 148 crore on nearly 170 licensing deals, forming partnerships with cricketing entities such as Cricket Australia and the Australian Cricketers’ Association to create NFTs and games. These digital cards allowed users to form teams and participate in D3, Dream Sports’ strategy game.
However, rival Mobile Premier League’s Striker Club introduced a similar game, which used caricatures created by independent artists for digital player cards instead of purchasing expensive player licences. Rario responded by taking MPL to court, alleging that Striker’s digital player cards were based on identities and personalities and that MPL was monetising them without the players’ authorisation. The company also sought an interim injunction to halt MPL from hosting online fantasy games via NFTs.
In April, the Delhi High Court rejected Rario’s plea against Striker and MPL, asserting that using celebrity names and images for satire, parody, art and similar purposes was protected under Article 19(1) of the Constitution and did not infringe on the right to publicity. In doing so, it invalidated the costly rights acquired by Rario.
The high court verdict triggered a turmoil between Dream Sports and Rario founders Ankit Wadhwah and Sunny Bhanot. “This is when Dream Sports started pulling back,” said one of the sources aware of the matter.
The court verdict also led to the termination of a $20-25 million series-B funding round that was to be led by Dream Capital with participation also from external investors. “The ruling impacted the Series-B decision, which was declined by Dream Sports’ board, and things went downhill from April,” a second source in the know confirmed.
According to one of the people cited earlier in the story, Rario was struggling to meet its liabilities and operating expenses. And its revenue had been severely impacted by the tax rules governing virtual digital assets.
“The company missed its revenue projections by nearly 90%. Between May and August, Dream Sports considered various options to salvage what it could from Rario, including merging the company with a Singapore-based entity that runs D3 or liquidating it entirely,” said another of the people cited earlier. “Dream Sports did not take a board seat in Rario because of the startup being in the Web3 space,” the person added.
The downward spiral culminated in the separation of the Rario founders from the company.
Rario’s Wadhwah declined to respond to ET’s queries.
What’s next for Rario? The platform has appealed the Delhi High Court’s order. It is also in the midst of renegotiating all its deals, which were secured during the NFT bull run. Last month, a few employees voluntarily left and another 20-22 were let go of across various functions. Rario’s chief financial officer Priyesh Karia has taken over as CEO of the company and his priority will be to extend the runway.
An investor in Rario, requesting anonymity, said he is hoping for Dream Sports to somehow make the asphyxiating startup successful in the cricket NFT sector. “I am still hopeful for the team. Obviously, founders leaving the company is not a good look, but Dream11 has successfully acquired and integrated companies in the past,” the investor said. “So, as a minority investor, I am expecting they will turn the situation around.”