CFO Connect

A start-up CFO’s role extends well beyond managing the company’s finances: they must create a growth path, forge relationships, drive measurable value, and establish core financial and reporting processes. Navin Agarwal, CFO of Dream11 – and winner of IMA’s 2018 India CFO Award in the ‘Excellence in a Start-up’ category – works in the new-age realm of online fantasy sports. His business has seen astonishing growth, expanding 4x in the last two years; in the first five months of FY19, it had already surpassed last year’s top-line numbers.

In Mr Agarwal’s view, robust controls are absolutely key – and Dream11’s achievements in this area are impressive, despite it being a high-volume, high-growth business. He also manages investor relations, handling a host of sophisticated, marquis investors who make possible an ongoing cycle of fundraising. Additionally, a rigorous system around cost efficiency has shored up the bottom-line, even as the company has had to incur huge marketing and IT expenditures.

Under Mr Agarwal’s watch, strong processes have been built to monitor the millions of transactions undertaken by customers each day. Given the huge risks that businesses like Dream11 carry on this front, this is critical to sustaining its rapid ramp-up. Mr Agarwal also confesses to being data-obsessed, but he puts this obsession to good use, leveraging last-mile data to drive spending decisions, and to arrive at future growth projections.

In an in-depth conversation with CFO Connect, Mr Agarwal shared his insights on the CFO’s role in creating a winning start-up proposition.

Driving Strategic Goals

Dream11 has achieved unprecedented growth in the last 2-3 years, gaining a market share of over 90% in its category. What are the secrets to achieving high growth?

The biggest opportunity for any technology-backed business is the possibility to expand in a short span of time. However, the aspiration to grow rapidly brings with it many big operational and financial challenges. To grow faster, a company needs to achieve the right balance between risk assessment and opportunity. Further, the decision-making process needs to be aligned with this aspiration, while the opportunity could be maximised by putting the right mechanism in place to evaluate each major business decisions. Like any other start-up, we had our learning curve. At a very early stage, we realised the power of robust data analysis to navigate through the complex decision-making process.

The tipping point for us came last year when the Indian judicial system ruled in our favour in a case filed by a user who demanded that the game should be considered as ‘gambling’. In a landmark judgement, the Punjab and Haryana High Court declared the Dream11 format of fantasy sports as legal, and one that requires considerable skill and judgment. This judgement was further ratified by the Supreme Court of India.

To grow rapidly, a company needs to achieve the right balance between risk assessment and opportunity, align decision-making processes with the aspiration, and maximise opportunities by putting the right mechanisms in place

This judicial outcome was not only a tipping point for us but the whole fantasy sports gaming sector. About 70 start-ups are operating in the space, and more are launching their products post the court judgement. With over 50 million Indian sports fans playing fantasy cricket, football, kabaddi, hockey and basketball, Dream11 is the leader in the fantasy sports industry, with a 95% market share as per a recent report by IFSG & AC Nielsen.

The landmark judgement declaring the Dream 11 format of online fantasy sports as legal was a tipping point for the company and in fact, for the entire fantasy sports gaming sector

Dream11 has been the first fantasy sports operator to tie up with some of the top sports leagues in the world, such as ICC, Cricket Australia, Pro Kabaddi League, CPL, ISL, FIH and NBA. The fantasy sports industry is rapidly evolving over the last couple of years, and to make sure it is well-regulated, with the number of operators growing from 10 in 2017 to 70 today, we have also set up the Indian Federation of Sports Gaming (IFSG) – India’s first sports gaming self-regulatory body to protect consumer interest and create standardised best practices in the industry.

Dream11 set up the Indian Federation of Sports Gaming (IFSG) – India’s first sports gaming self-regulatory body to protect consumer interest and create standardised best practices in the industry.

What efforts were made to achieve – and critically, to sustain – rapid growth?

Dream11’s price points for various contests have been finalised keeping in mind the dynamic and challenging Indian market. Our average, ticket size is as low as Rs 35, which speaks for itself. Aligning the right product mix and margins play a significant role in achieving a desired sustainable long-term revenue model.

Like any new business idea, a lot of experiments are done in order to achieve rapid growth and establish the product in the market. In this process, sometimes a company may overstretch itself in terms of reading market opportunities and managing bandwidth. The room for experimentation is as essential as containing risks and controlling costs.

Over a period, our experiments and learnings have laid a strong foundation. This is reflected in the quality of our investors, like Kalaari Capital, Think Investments, and Multiples Equity. Dream11 has emerged as one of the most popular gaming companies in India. Recently, Tencent, one of the world’s biggest Internet companies, invested in Dream11 – the first ever in an Indian gaming company. This speaks volume about our capability to read and exploit market opportunities in the online fantasy sports business.

Tencent’s recent investment in Dream11 – the first ever in an Indian gaming company – speaks volumes about our capability to read and exploit market opportunities in the online fantasy sports business

Where would you position Finance in achieving these objectives, and what role does it play in enabling the business to manage change effectively?

At Dream11, the CFO plays the key role of an integrator and navigator of the organisation by balancing short-term goals and long-term vision; driving and managing change and innovation; engaging and communicating effectively with investors, regulators, and other internal and external stakeholders; fulfilling custodian responsibilities by ensuring effective compliance and control, financial reporting; demonstrating ethical leadership and business integrity; and supporting the business at a strategic and operational level.

Two years back, there were only 5-6 players who were offering fantasy sports in India, today there are more than 70 apps/websites doing the same. This is a direct testament to the market opportunity created by us. We have tapped just 15% of the overall market. We believe that competition will bring its own challenges, but these new companies are going to educate and create an ecosystem for the fantasy sports industry in India. This will help to grow overall market size much more rapidly and will help create a strong online fantasy sports industry in India. We consider this as an opportunity instead of a challenge. Innovation in Dream11’s offerings, and new ways to engage with users to increase user stickiness on our platform, would be the key to achieving the company’s growth objectives.

In just two years, the online fantasy sports industry has grown from 5-6 players to 70 players now.

Raising Funds

In the last 15 months, you managed to successfully raise series C and D funds from marquis investors. Series A and B rounds have never been easy to come by in India. What challenges did you face in this regard? How did you overcome them, and what were your learnings?

One of our greatest challenges has always been to find ways to introduce new concepts to the Indian market. Even though fantasy sports have been played worldwide for 50+ years, it was an alien concept for the Indian market. Launching fantasy sports in India for the first time in 2008 (after Super Selector had shut down in 2001) meant that we had to hard sell the concept to potential hires, investors, and most importantly, to users.

It took us a few years of experimenting with the format and a lot of perseverance before we finally found the product that would resonate with sports fans in India. Since the beginning of the Dream11 journey, our primary objective has been to have the utmost trust of our users. Building trust is a gradual process, and we often had to go back to the drawing board keeping in mind our user-first approach. Over the years, users have started adopting the digital way of consumption, and have gradually started trusting the digital platforms, growth of ecommerce being one such success story.

Our constant endeavour to transparently accept payments and pay out to the winners has now built trust with over 45 million users. Another hurdle that we faced was around the legality of fantasy sports in the country. We take great care to comply with all central and state legislation in India to protect our users. Further, the Punjab and Haryana High Court’s landmark ruling gave a lot more clarity around the Dream11 format. This, in turn, has helped us gain our users’ trust and credibility in this nascent market.

The investor fraternity has started believing in fantasy sports business opportunity in India; and at an early stage, in addition to a couple of angel investors, Dream11 brought Kalaari and Think Investments, US-based hedge fund as marquis investors. With their belief in us, the company got additional growth capital during the first two rounds. Thereafter, we raised series C funding, led by Multiples and partnered by Kalaari and Think Investments, in early 2017.

Recently, Dream11 raised funds from Tencent in a series D round, which is their first investment in an Indian gaming company. Our strong business model, supported by 45 million registered users in India, and our growth strategy, resulted in raising funds from a strategic partner like Tencent. This partnership will help us learn and understand more about the intricacies of the gaming business from one of the largest gaming companies in the world.

Dream11’s user-first approach has been instrumental in gradually building user trust and credibility in a nascent market

According to you, how has the Indian start-up funding ecosystem evolved over the years?

India is one of the fastest growing economies in the world, and the number of start-ups and their quality has improved a lot over the years. The funding ecosystem has grown significantly to match the growth potential shown by the Indian economy and its entrepreneurs. India has produced a number of notable unicorns in the last few years, which reinforces the capability of Indian entrepreneurs to create value by building growth-oriented sustainable businesses.

More and more funds are getting attracted to India, which is a hot destination for FDI. As a result, a lot of money is being channelled towards start-ups that have delivered multi-fold returns to their investors and hence, the belief and risk appetite of investors have increased significantly for exploring the Indian market. The government has also started recognising the importance of the start-up ecosystem which is reflected in India’s improved ranking in the ease of doing business and other policy level initiatives taken in the last few years to promote small/medium businesses.

The funding ecosystem has grown significantly in India to match the growth potential shown by the Indian economy and its entrepreneurs.

How crucial is the timing of a capital-raising exercise in optimising the cost of financing? Equally, when do you know when to stop? The urge to put something aside when you have an opportunity to borrow is strong.

Dream11 is the first investor-funded fantasy sports company in India. Timely funding has played a very crucial role in the growth of Dream11. Our initial rounds of funding helped us capture the market and gave us a leadership position in the ever-growing segment. My experience with borrowing was not that encouraging. I believe, in India, borrowing opportunities for start-ups at an early stage are very limited and come with quasi-equity costs.

The borrowing opportunities for start-ups at early stages are very limited and come with quasi-equity costs.

Every counterparty has different expectations. How do you ensure harmony between counterparties and promoters?

All communication should lead to ‘focus on the benefit of the company’. I follow this mantra, and it makes my job as a CFO much easier to perform a balancing act between promoters and investors.

Driving Cost Efficiency

You have taken numerous steps to reduce both variable and fixed costs. Can you outline the steps taken, and the quantum of savings?

Containing major cost components during a rapid growth phase is a huge challenge. Marketing and IT operations costs – which go up to 70-80% of the total cost structure – require constant monitoring. In the absence of any standard or comparable cost benchmarking, rising costs raise constant, nagging questions as to whether the organisation’s spends are efficient enough. Fortunately, Dream11 has relied on its robust cost monitoring systems, which have helped a lot in achieving cost efficiency.

Our business is aligned with real-life matches. Sports schedules, in terms of day and time, matters the most while executing digital marketing initiatives. Digital advertising platforms give you a significant amount of control in terms of timing, which helps you to align marketing campaigns with match schedules, and can significantly improve ROI. Similarly, scaling technology infrastructure requirement as per projected traffic, and concurrency based on historical data, adds a lot to the bottom line.

Marketing and IT costs make for 80% of our total cost base. Robust cost monitoring has helped in achieving cost efficiency.

According to you, what is the potential of technology to drive cost efficiencies? Can you share some examples of tools and apps you used for this purpose?

Technology has played a very crucial role in building projection models, which analyse complex dynamic factors. It has simplified complexity by converting it into useful information for the business to consume. For instance, we have a contest generation engine which generates contests using AI and machine learning. Each user is recommended a customised contest based on his/her past consumption patterns and habits, which adds a lot of value to the business. Another example is the automated user internal credit rating mechanism which is one of the unique systems developed internally. It helps us reduce the risk of online fraudulent transactions. Many marketing schemes and features are linked to such user ratings to maximise return on investment for the company. Recently, we have implemented an instant withdrawal facility for our users. The credit rating system has immensely helped in rolling out such a feature containing the risks associated with the implementation

Technology plays a crucial role in building projection models, reduce the risk of fraud, and maximise returns for the company

Constantly automating functions through technology has helped in improving the benchmarks. New benchmark becomes the norm for the future and ensures that added efficiency is not lost. Internal audit also plays a significant role in ensuring that improved systems and processes are implemented.

Technology plays an extremely important role in ensuring internal controls.

Implementing a Governance Framework

You have been instrumental in implementing a robust internal controls framework for a unique gaming company like Dream11. How do you ensure consistency in high standards of transparency and disclosures whilst satisfying stakeholders’ information needs?

The internal controls framework needs more attention in a new-age online business as business execution processes are automated to a large extent. This is due to the need for a faster execution or, to put it differently, the need for gamification of business processes. It becomes more challenging, as by design, such business processes require a strong foundation of comprehensive, well thought, end-to-end detailed definition, and checks and balances embedded in those processes. It is important to note that an overdose of checks and balances might hurt execution speed and, in turn, may affect the user experience and the business.

Technology plays an extremely important role in ensuring internal controls as these checks and balances are monitored using technology. It becomes more challenging for businesses like ours when the business cycle is extremely short – from users joining the contest to winners getting declared. As a good business practice, we take pride in crediting user account for their winnings within the shortest possible time. Such automated credits for a large number of transactions on daily basis demands robust internal controls which, otherwise, may be a heavy cost to the business.

An overdose of checks and balances might hurt execution speed and, in turn, may affect the user experience and the business.

What practices did you adopt in this regard? Can you explain each effort and the key challenges you faced? How did you overcome them?

Understanding each financial transaction type in terms of reporting, compliance and analysis requirements, and defining framework around these requirements successfully means half the job is done. We aim to build only those parameters which are essential and can be achieved without adding the additional burden of complexity on platforms. This ensures a high standard of consistency, accuracy, transparency and disclosures with far better internal control.

Another important area is clearly defining the user acquisition strategy and building platform capability to deliver data accordingly. Our platform and system capabilities have evolved to deliver the required data and analysis capable of delivering business insights to drive efficiency of each marketing campaign. Over a period of time, the systems driving attribution capability across digital advertising platform and user acquisition channels (marketing, referral and organic) have improved, and have helped us make our marketing campaigns more effective.

Retention marketing plays a crucial role as a part of the user retention strategy. We run various offers to bring our users back on the Dream11 platform. At Dream11, we encourage the team to do experiments and many times these experiments may not deliver as expected. We take learnings from these and apply them in subsequent retention campaigns. It is imperative that internal controls are in place to mitigate risks when we experiment. For instance, recently, we introduced API-based IMPS withdrawals for our users, which enables credit in the users’ bank account within a couple of seconds. Rolling out such features is the key to enhancing user experience and trust.

At Dream11, we encourage experimentation, and take learnings to implement changes on ongoing basis.

Leveraging technology

Data obsession is one of the cultural values of any employee at Dream11. How crucial is data in driving business value?

We have a very robust data science team, which helps us identify trends, read and analyse data in the best possible manner. It provides guidance in building sensible projections for new user acquisitions, user repeat behaviour, and payback period. Dream11 deals with the most complex sports dynamics such as variety in sports, different types of tournaments and formats, match timings and unique fan behaviour across sports. Complexity further increases with constant efforts to improve the product offering, adding new sports and tournaments on the platform.

Any company’s growth plan is commensurate with its marketing activities, which require a lot of data to ensure that every penny invested to grow the business is reflected in user cohorts, in terms of a reasonable payback period. Few marketing activities are planned on-the-go, basis recent user behaviour data – which is possible only if technology is leveraged to use and read data without losing much time. At Dream11, our data science team plays a crucial role in ensuring that latest data is available to all relevant stakeholders.

Data obsession is a cultural value at Dream11. The data science plays a crucial role in identifying trends, analysing data and building projections for new user acquisitions, user repeat behaviour and payback period.

Processes like ICE (Impact, Confidence/Customer, Ease) and HEAL (Hypothesis, Experiment, Analysis, Learning) are implemented to take major decisions, and create data-driven processes. An analysis of the success or failure of a particular decision is solely based on a comparison of hypothesis vs actual, which inculcates a data-driven approach amongst stakeholders. We allow each team member irrespective of his/her designation/position in the company to share ideas (backed by data), thus promoting a strong data culture. Our HR processes also run many employee polls before implementing HR-led initiatives which further reinforces a data-driven culture in the company.

What other technology initiatives have you taken to improve process efficiency and reduce user risks?

Our business involves huge volumes of transactions that carry significant value and therefore, warrant a strong process driven approach. This is extremely complex as each transaction data needs to be maintained and monitored every day for each user, contest, and match. This cannot be done without the help of technology, which records, compiles, stores and retrieves data for running the business, analysis and compliance. Dream11’s Finance team extensively uses technology to monitor internal controls designed to analyse each type of transaction. Considering the volume, we understand that it is almost impossible to monitor each transaction. Data is revalidated and/or cross-checked by applying multiple checks and internal controls put in place by the Finance team.

The internal control framework put in place by the Finance team enables automated monitoring of millions of user transactions

On a lighter note

To add value by improving operational efficiency, be an effective partner to my fellow CXOs, be a good planner of our business resources, and most importantly, continue to be the custodian of financial data.

In some of my previous assignments, cutting down the costs became a priority. In order to achieve that, I had to take tough decisions like retrenching employees. Some of them were my teammates, which made it even tougher.

Learn how to play guitar. It has been on my to-do list for a while now, and I would really like that to be ticked off.

Learn and unlearn at every opportunity available. Fostering a learning spirit helps finance teams across sectors remain relevant. Enabling that within our ever-growing business at Dream11 helps me become a better CFO.

THE START-UP CFO: CREATING A WINNING PROPOSITION - Navin Agarwal Dream 11

Driving Strategic Goals

Raising Funds

Driving Cost Efficiency

Implementing a Governance Framework

Leveraging technology

On a lighter note

THE START-UP CFO: CREATING A WINNING PROPOSITION - Navin Agarwal Dream 11

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