By Vikas SN
Former Nazara Technologies CEO Manish Agarwal is partnering with angel investor Ishank Gupta to launch Kratos Studios, a Web3 gaming venture that has raised Rs 160 crore ($20 million) financing, marking a significant seed investment amidst a digital asset downturn led by crypto rout and the country's prolonged funding slowdown.
The fundraise was led by Accel, with participation from investors such as Prosus Ventures, Courtside Ventures, Nexus Venture Partners, and Nazara Technologies, among others.
The token round values the company at Rs 1,200 crore ($150 million) on a fully diluted basis. In token rounds, investors back a startup by directly buying tokens of the company instead of taking equity in the firm.
The company plans to use the funds raised to build the distribution rails in emerging markets for global Web3 games apart from investing in "most promising" Web3 games across the world.
In addition to the fundraise, Kratos Studios also announced that it has completed the acquisition of Polygon Labs-backed IndiGG through token swap, and that the company plans to operate its Web3 gaming operations under the IndiGG brand.
IndiGG's existing INDI tokens will be swapped with the new tokens once the company releases them for the general public (known as Token Generation Event) in the next 12 months, Agarwal told Moneycontrol. Until then, the INDI token will continue to trade on existing exchanges.
"We want to have a single source of value creation. Our view is that if the community creates value, then only investors, founders and the team will get value. We didn't want to create any structure where the community is not partaking. So, even the founders don't own equity," Agarwal said.
IndiGG is an India-focused sub-decentralised autonomous organisation (subDAO) of the Philippine play-to-earn gaming guild Yield Guild Games (YGG), which was built in partnership with Polygon Labs.
Decentralised autonomous organisation (DAO) is a kind of business structure where the control is spread out across a community with no central authority, thereby eliminating the need for traditional organisational hierarchies.
IndiGG raised $6 million in seed funding from investors such as Sequoia India, Lightspeed Venture Partners, and Animoca Brands in January 2022. Agarwal, who was at Nazara Technologies at the time, had also participated in the funding round as an angel investor.
In a statement, the startup said both its co-founders will continue to work closely with Polygon’s co-founder Sandeep Nailwal and Yield Guild Games (YGG)’s co-founder Gabby Dizon as it aims to build the largest gaming DAO in the world.
Focus on product-market fit before token launch
Agarwal said that they do not want to rush the launch of the new token without first establishing product-market fit and tokenomics.
"The launch of the token is purely a function of three things - the consumer traction on the platform, when we are able to see the economics of supply and demand of the token, and our handle on levers to control inflation and deflation," he said.
Agarwal added "We are here for a marathon. I have always built businesses which have a brick by brick foundation, so that you can have scalable, sustainable, profitable business models. That may come across as a non-Web3 topic since Web3 people don't usually talk about revenue or profits."
"We are providing the 500M+ South Asian gamers an opportunity to leverage their time and skill to become creators of digital goods on the blockchain for global games. This will enable South Asia to transform into a digital goods’ factory for the gaming world," he said.
Ishank Gupta said "The IndiGG stack will partner with existing gaming micro-communities in South Asia, both on-ground and online, as sub-DAOs in the IndiGG ecosystem. These micro-communities will facilitate community growth for global Web3 games,"
Web3 gaming had witnessed significant activity and investment in early 2022, driven by the rising adoption of blockchain and digital assets.
However, the downfall of Axie Infinity, once considered the poster child of blockchain gaming, along with the collapse of Terra Luna and FTX late last year, and a massive correction in the crypto space, had resulted in investor interest cooling off in the space.
That said, Indian gaming startup founders have previously said that Web3 gaming could provide potentially better monetisation opportunities for game developers, since it creates more equitable value for all the stakeholders in the ecosystem including game developers, content creators and the end customer, which doesn't exist in the current gaming ecosystem.
"Blockchain can fundamentally transform gaming and accelerate the growth in emerging markets. We believe that this team is the best suited to unlock this value for Gamers. We are committed to build a vibrant gaming ecosystem alongside IndiGG," said Subrata Mitra, Partner at Accel in a statement.