Vancouver-based Dapper Labs is raising a planned US$50-million funding round on the heels of a massive hit in the launch of NBA Top Shot, a blockchain-based marketplace for collectible basketball video highlights.
The company has plans for an even bigger funding round of US$250 million, according to a report from cryptocurrency news site The Block. The news outlet cited sources familiar with the deal, who said the round was underway and being led by billionaire investor Philippe Laffont’s Coatue Management.
Talking Point
NBA Top Shot, which allows collectors to trade blockchain-based basketball video highlights called Moments, has been a breakout hit for Vancouver-based Dapper Labs since it opened its beta version to the public in October. At least two Moments have sold for US$100,000 and the platform has generated US$65.8 million in overall sales as of last week, with US$43.8 million of total sales taking place in January alone. Dapper Labs is taking advantage of the success to at least double the US$50 million it’s raised to date, with a report from cryptocurrency news site The Block suggesting the company may be seeking far more.
Dapper Labs notified the U.S. Securities and Exchange Commission (SEC) of the US$50-million offering in a filing Friday. Private companies are required to notify the SEC within 15 days of the first sale of securities. The company has raised US$30.6 million in the round so far, the filing states.
Prior to its current raise, the company had previously raised a total of US$50 million, with previous investors including Andreessen Horowitz, Union Square Ventures and several NBA players including the Miami Heat’s Andre Iguodala and the Brooklyn Nets’ Spencer Dinwiddie. The company also raised US$18 million in October through a token sale for its Flow blockchain.
Dapper Labs declined The Logic’s request for comment on the fundraising efforts, and would not disclose who has committed to invest so far in the round disclosed in the filing. In response to The Block’s report, spokesperson Rachel Rogers said, “We don’t comment on rumours or speculation – which is what this is.”
Top Shot Moments are short video clips that serve as digital versions of traditional sports memorabilia. The NBA releases them in sets, selling them in bundles similar to packs of traditional sports cards, where the purchaser is unaware of what’s inside until after the purchase. Dapper Labs’ Flow blockchain technology allows Top Shot users to confirm the authenticity of the digital collectibles and trade them with each other, or sell them on the secondary market.
As of last week, the platform had generated US$65.8 million in overall sales, including sales on the secondary market, in the four months since Dapper Labs and the NBA opened a beta version of Top Shot to the public; US$43.8 million of total sales took place in January alone. At least two Top Shots video highlights, called Moments, have sold in the six figures.
Adrienne O’Keeffe, NBA associate vice-president of global partnerships, said Top Shot has over-delivered with its breakout success.
“What we’ve seen around Top Shot since the start of the season has exceeded our expectations,” she said. “We’ve always seen this as a long-term play, so we expected it to be successful, but the reaction we’ve seen from our fans has been great.”
Before blockchain technology, it was difficult to assign a scarcity-based value to a digital asset because anyone could copy it and distribute it widely—think of the problems the music industry faced because of pirating platforms like Napster and BitTorrent. The technology behind Bitcoin solved this problem for the first time through a mechanism that allows users to check a distributed ledger confirming a transaction was made by someone who legitimately held the digital currency and didn’t “double spend” by sending it to more than one person.
Top Shot doesn’t use the Bitcoin blockchain, but rather one created by Dapper Labs called Flow. Flow generates unique cryptocurrency tokens with attributes Top Shot’s software uses to generate the highlight videos.
While there’s nothing stopping the owner of a Moment from recording their screen and emailing it to their friends or uploading it to YouTube, the resulting video could be easily identified as a copy because it wouldn’t be generated by the underlying token. That makes it possible for users in the marketplace to determine who owns the highlights and for Dapper Labs and the NBA to take a cut of sales on the secondary market.
Big names are paying attention. Dapper Labs is also working on collaborations with Warner Music Group, Ubisoft and UFC, with Dapper’s head of partnerships Caty Tedman telling Fox in January, “We haven’t hit a league that is not interested.”
While most Moments sell for US$9 or less on the secondary market, savvy traders can amass collections that are worth serious money. Top Shot’s most prolific collector, who goes by the username Pranksy on Twitter, owns more than 28,000 Moments worth a total of about US$4 million, according to Top Shot data aggregator intangible.market.
In an interview over Twitter, Pranksy—a 29-year-old game designer in the U.K. who said he didn’t want to reveal his identity because he likes to keep his crypto-collectible moonlighting separate from his day job—said he was first attracted to the sector by another Dapper Labs product, CryptoKitties. Trading the collectible digital cats became so popular in 2017 that it slowed the performance of the Ethereum blockchain, which powers the platform, to a crawl.
“My friend told me that people were paying silly money for pictures of cats, so I dived straight in,” Pranksy said. “Three years plus later and I’m still here.”
Pranksy said he’ll hold some of his digital assets for the long term, but plans to take a profit on some of his Top Shot collection when the timing’s right. He said some other platforms are vulnerable to manipulation by people buying up and cornering a significant percentage of the crypto-collectibles on the market, but Top Shot’s user base is growing quickly enough to avoid that concern.
Another potential pitfall for any blockchain product is the evolving regulatory environment. In October, around the same time Top Shot opened up to the public, Waterloo, Ont.-founded company Kik announced it would pay a US$5-million fine as part of a settlement with the SEC, in connection with the 2017 sale of a crypto token called Kin.
Collins Belton, a lawyer at San Francisco-based firm Brookwood who specializes in blockchain and cryptocurrencies, said the structure of Dapper Labs’ Flow blockchain appears to have been well thought out to avoid that pitfall. The key legal question is whether a company is conducting an unregistered securities offering by selling a cryptocurrency, and Belton said the unique tokens generating Top Shot Moments have a clear purpose on the platform, as opposed to being stand-ins for share certificates.
“The NBA’s presence adds some validity,” Belton said. “This is a network that’s intended to be consumed, and not necessarily just bought and sold.”
It’s early days, but the risk the NBA took by jumping into an emerging market early is paying off so far. The NBA’s O’Keeffe said the league is working with Dapper on a mobile game and a fantasy-sports product where users can play general manager and use Moments to build a team.
“The idea of owning these moments of the game to showcase their fandom is something that we think has long term potential,” O’Keeffe said. “This is going to be an ongoing and evolving product that I think is going to be really exciting to fans.”
