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A jolt for online gaming startups
SOURCE: INC42.COM
SEP 26, 2021
As Freshworks made a splash with its IPO, Indian online gaming startups received a big setback
The Freshworks IPO is on all our minds after its Nasdaq debut last week. The fact that Freshworks is the first software company from India to get there is a huge credit to the company that began its life in Chennai.
Meanwhile, Karnataka has proposed a ban on online gaming platforms in the state is expected to impact a slew of Indian startups.
Before we unpack this development and more, let’s take a look at the top stories from the week that went by:
One of the peculiarities of the Indian tech ecosystem is that it’s so tightly governed by laws and regulations that innovation can sometimes feel like swimming against the tide. Take for instance, the gaming tech startup ecosystem, which is now caught between various state governments looking to ban certain games and one of the most opportune times for the sector to achieve growth in India.
Last week, Karnataka Home Minister Araga Jnanendra tabled the Karnataka Police (Amendment) Bill, 2021 to ban online gaming or betting in the state, with maximum imprisonment of three years and a penalty up to INR 1 lakh.
The bill aims to “ban online games, involving all forms of wagering or betting, including in the form of tokens valued in terms of money paid before or after issue of it. It banned electronic means and virtual currency, electronic transfer of funds in connection with any game of chance”.
This past week, CAIT and other bodies called on the Karnataka government to review its ban and ensure that Indian gaming startups are not harmed.
Among several online games, fantasy sports games have seen a great surge in interest in the past few years, but their growth has raised concerns about whether this category of games constitute games of skill or games of chance. Dream11, an online fantasy sport platform, saw petitions filed against it in several courts, which were dismissed.
The Supreme Court too has dismissed a similar petition and has in the past classified rummy and other games as games of skill.
In a similar debate last month, Tamil Nadu had floated an ordinance to prohibit games of skill (if played for stakes) as wagering or betting in cyberspace which led to online gaming companies scrambling to obtain a stay.
The Madras HC struck down the amendments as overbearing, arbitrary and pernicious and is said to be working on a framework that is viable for all stakeholders.
In Karnataka, the state’s animation, visual, gaming and comic focussed venture fund will only be used to fund gaming startups which run on subscription or advertising-based business models, the state’s IT minister CN Ashwath Narayan said.
At the heart of the debate is the gambling vs games of skill debate and despite the industry clarifying on multiple occasions that the Supreme Court has already made this distinction, state governments continue to look at bans. Which way will the penny drop for the gaming industry?
Amid a sharp increase in pre-IPO activity and M&As, startup funding has picked up again after a brief decline in August. The past week saw 38 Indian startups raising money, with 10 mergers and acquisitions being reported.
Cars24 and Delhivery led the funding charts this week, with the former raising $450 Mn from DST Global, Falcon Edge and SoftBank Vision Fund.
Here’s the funding activity for the year till-date.
After its Nasdaq debut to much fanfare, Freshworks’ early investors are set to make a fortune with their shareholding now valued over multiple times the initial investments. FRSH shares closed at $47.55 at the close of the first day of trade. Its market capitalisation crossed $13.3 Bn.
Accel India, one of the earliest investors in Freshworks, has witnessed a nearly 1,000-fold growth in its shareholding value and its 25.5% stake is valued at over $3.06 Bn. Shares of entities related to Tiger Global have witnessed a 340-time return and are currently valued at nearly $3.12 Bn. Similarly, Sequoia Capital’s investment is now valued at more than $1.45 Bn, while Google’s CapitalG LP has 8.2% stake which is now worth over $986 Mn.
Besides early investors, over 500 of Freshworks’ shareholding employees in India have become crorepatis following the listing. Globally Freshworks has around 4,300 employees, of which 76% hold shares, cofounder and CEO Girish Mathrubootham said.
Of course, the Freshworks IPO has only given more confidence to the Indian companies looking to go public in India in the next few months. Paytm’s IPO is highly anticipated and founder Vijay Shekhar Sharma received ESOPs for the first time. The move will increase his stake by 2%-3%.
IPO-bound MobiKwik has reserved 4.5 Mn equity shares or 7% of the fully diluted outstanding shares under its ESOP programme. As per the fintech startup, the employees would get high returns by selling these stocks in the public listing.
OYO, which is targeting a $1 Bn public offering, is likely to file its draft red herring prospectus in the next 10 days, sources told Inc42. The hospitality unicorn converted itself into a public company and has shortlisted investment bankers such as JP Morgan, Kotak Mahindra Capital and Citi to manage its IPO.
And finally, here are the stories that caught our attention in the past week
We will be back with another weekly update next Sunday. See you then!
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