Ministries collide on ecomm rules; Dream11 makes a profit

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The changes to India’s e-commerce rules proposed by the Department of Consumers have met with criticism from businesses since they were announced in June. Now it turns out that they are facing strong opposition from within the government itself, according to a Reuters report.

Also in this letter:

  • Dream11 makes a profit of 180 million rupees in FY20
  • Mobikwik reserves 7% of equity for employee stock options
  • Flipkart is holding flagship sales October 7-12

Two ministries, NITI Aayog, contradict parts of the proposed e-commerce rules

India’s plan to tighten its rules on e-commerce businesses has met with internal government dissent, Reuters reported, based on memos it reviewed.

Catch up quickly: In June, the Department of Consumers announced a number of proposed changes to e-commerce rules, including a ban on “flash sales,” domination over private labels, and increased scrutiny of relationships between online marketplace operators and their vendors. It is not yet clear when the ministry will implement the new rules.

Details: The Treasury Department has a dozen objections in total and has labeled some proposals as “excessive” and “without economic justification”. An August 31 memo from the ministry’s economics department said the rules would hit a sector that could boost job creation and tax revenue. A proposal that would make e-commerce companies liable for the mistakes made by their salespeople would be a “big damper” and could force companies to “rethink their basic business models.”

On July 6, NITI Aayog Vice Chairman Rajiv Kumar wrote to Consumer Minister Piyush Goyal saying the rules could harm small businesses. “They also send the message of unpredictability and inconsistency in our policy making,” he added.

On July 22nd, the Department of Corporate Affairs rejected a clause in the proposed rules that said e-commerce companies should not abuse their dominant position in India. It called the provision “unnecessary and redundant” and said that this is best handled by India’s Competition Commission.

Rethink politics? It is not clear how these objections will ultimately be reflected in the proposed changes to e-commerce rules announced in June for the upper echelons of Prime Minister Narendra Modi’s government ”.

“The Treasury Department, raising such concerns, would likely encourage a policy rethink,” said Suhaan Mukerji, managing partner at PLR Chambers, a law firm specializing in public policy.

Answer: A consumer department spokesman told Reuters in a statement that “internal discussions between various stakeholders, including government agencies, (a) are indicative of a mature and healthy decision-making process in a democracy”.

Big picture: The Treasury Department and NITI Aayog’s arguments coincide with concerns from e-commerce companies and even the US government, which said India has changed its e-commerce policy too many times over the past few years and has taken a tough approach that the USA in particular harms companies.

In July, less than a month after the new draft rule was announced, Flipkart, Amazon India, Tata Group and other e-commerce companies told the government that they were particularly concerned about the “bond clause” that might prevent them from doing so to sell their own platforms on their side. In August we reported that the Ministry of Consumer Protection is revising the draft regulation, in particular the definitions of “related party” and “e-commerce entity”. Now government objections seem to be delaying them further.

GST clarification: Meanwhile, the IT-BPO industry said a clarification on the intermediary status of companies issued by the GST Council on Monday will ease litigation and release significant industry refunds that have been withheld due to confusion over whether exports were an intermediary service. The industry association Nasscom also welcomed the clarification on the GST export status of subsidiaries of the group.

On Monday, the government made it clear that services outsourced to India or provided in the country to foreign companies will not be treated as intermediary services and therefore will not be charged with 18% GST.

Dream11 generates 2.5 times sales, Rs 180 crore profit in FY20

Dream11Dream11 co-founder and CEO Harsh Jain

The online fantasy gaming platform Dream11 posted a profit of 180 billion rupees in FY20, making it one of the few Indian consumer tech unicorns to become profitable. The company had posted a loss of Rs 87 billion in the previous fiscal year.

  • Omni-channel beauty and personal care retailer Nykaa is the only other major consumer-centric startup to have made a profit – nearly Rs.62 billion in FY21.

The payment: Dream11 also saw sales increase more than 2.5 times to Rs 2,070.4 billion in FY20 from Rs 775.5 billion in FY19, according to the latest regulatory documents from the Tofler business intelligence platform. She attributed the sales growth to “innovative marketing strategies” and “exciting new products”.

Spending increased to Rs 1,867 crore in FY20 from Rs 934 crore in the previous year. The company spent Rs 1,328.02 billion – 71% of its total spending – on advertising and promotions, compared to Rs 785 billion in the previous fiscal year. Employee benefit spending increased 133.6% to Rs 153.21 billion in FY20.

Trouble in Karnataka: Co-founded by Jain and Bhavit Sheth in 2008, Dream11 had over 9 crore active users playing fantasy cricket, soccer, kabaddi, and hockey, according to the file. While the Supreme Court ruled in July that Dream11’s fantasy sports format was a “game of skill,” the Karnataka government tabled a bill last week banning such games as part of “online gambling.” However, the bill made exceptions for lotteries and betting on horse races.

Valuation: Dream Sports closed a $ 400 million secondary financing round earlier this year, which was valued at approximately $ 5 billion. According to industry sources, another second round with a significant jump in valuation is underway. In a secondary transaction, existing investors sell their shares to new ones and the money does not flow into the company’s coffers.

To expand its non-fantasy gaming offering, the company set up a $ 250 million corporate venture fund in August to support sports tech startups. It finances the entire fund from its balance sheet and has already made more than eight investments.

Tweet of the day

Mobikwik, which is linked to the IPO, reserves 7% of its equity for employee stock options

ESOP
Digital payments company Mobikwik announced today that it has reserved 4.5 million shares, or 7% of its equity, for its employee stock option plans (Esop) for its upcoming initial public offering (IPO).

Employee stock options are a type of benefit granted by companies. They give employees the right to buy shares in the company at a certain price for a limited period of time. Mobikwik said in a press release that its Esop program was designed to “attract, retain and reward high-income employees in a competitive talent market.”

The company announced that its last fundraiser in July, which received it from the Abu Dhabi Investment Authority (ADIA) at $ 20 million at a valuation of Rs 895.80 per share, was an average increase in the number of stock options held by its employees recorded six times. The round valued Mobikwik at $ 720 million.

Based on this assessment, Mobikwik claimed that seven of its employees had stock options worth more than Rs.10 billion, 31 had more than Rs.1 billion each, and 118 employees, or a quarter of the total, had more than Rs.10 billion each.

Initial public offering: The company plans to raise 1,900 billion rupees ($ 255 million) on its IPO, slated later this year. According to the draft IPO prospectus, Mobikwik intends to raise Rs 1,500 crore through a primary share sale. The rest will be a secondary transaction where existing investors will sell part of their shares. Investors in the 11-year-old startup include Sequoia Capital India, Bajaj Finance, American Express, Cisco and the Abu Dhabi Investment Authority.

Flipkart is holding flagship sales October 7-12

Flipkart
Flipkart said it will hold its flagship sale, Big Billion Days, October 7-12 this year. The six day event will feature a variety of new product launches, games, interactive videos, live streams and rewards.

The Walmart-owned e-tailer said customers who didn’t subscribe to its Plus membership will also get early access by redeeming 50 earned SuperCoins on the Flipkart app.

Flipkart said it will further strengthen its seller base and is well on its way to having 4.2 lakh sellers by December 2021. It currently supports digital trading for 3.75 lakh sellers and said it has added 75,000 new sellers in the past few months, mostly from tier 2 and 3 markets like Agra, Indore, Jaipur, Panipat, Rajkot and Surat.

In August, we reported that Amazon India and Flipkart took a cautious approach to marketing their Independence Day sales in order to avoid further regulatory scrutiny. The Indian Competition Commission (CCI) is currently investigating, among other things, allegations of high discounts on e-marketplaces and the preferential treatment of selected sellers.

SoftBank leads $ 680 million funding round in NFT fantasy football game

SoftBank
The blockchain-based fantasy soccer game Sorare has raised $ 680 million in a funding round led by SoftBank. Football players like former England international Rio Ferdinand and Spaniard Gerard Pique were also among the investors, the company said.

Paris-based Sorare said the investment valued the company at $ 4.3 billion.

Founded in 2018, Sorare is an online game where players buy officially licensed cards that represent soccer players and form teams that play against each other, with the outcome based on the players’ performance in real-world games.

The cards are traded in the form of non-fungible tokens (NFTs), a type of crypto asset that records the ownership status of digital goods on the blockchain. The market for NFTs exploded in 2021, with collector and sports-related tokens proving to be the most popular. Read our explanations for NFTs here.

Today’s ETtech Top 5 newsletter was written by Zaheer Merchant in Mumbai. Graphics and illustrations by Rahul Awasthi.

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