Just weeks after closing the $305 million VC round at a $2.6 billion valuation, Dapper Labs, the Vancouver-based startup behind the leading NFT marketplace NBA Top Shot, is reportedly raising more capital. The new round could triple the company’s valuation to $7.5 billion, according to The Information.
The new round is being led by Tiger cub hedge fund Coatue Management, which led the previous round and recently invested in crypto custody startup Fireblocks, backed by BNY Mellon. Dapper Labs has not been immediately available and Coatue’s representative declined to comment.
A Case of Venture Capital FOMO?
Crypto startups seem to be raising capital at a whopping speed in terms of both frequency and value. Just last month, three companies, BlockFi, Blockchain.com and Dapper Labs, raised mega-rounds of $300 million or more.
While venture capital is by definition a risky endeavor, there are reasons why firms would be willing to quickly double, or triple down on an investment. For instance, they are willing to pay up a premium to make sure they are “not missing the boat on what they think is a category winner,” says Paul Veradittakit, partner at Pantera Capital, one of the earliest cryptocurrency and blockchain-focused investment firms.
Backed by basketball legend Michael Jordan and Brooklyn Nets forward Kevin Durant, Dapper Labs seems to fit the bill. NBA Top Shot alone was responsible for $500 million in transactions, exactly a third of the $1.5 billion NFT trading volume seen in the first quarter – an increase of 2,627% compared with the last quarter of 2020, according to the Dapp Industry Report by decentralized application (dapp) tracker DappRadar.
However, with the potential upside comes added risk. Dapper’s “tremendous growth” and brand recognition are the reasons why investors put in hundreds of millions at such speed, but “there’s a danger to be raising quite a bit of money marked up above the last round” so soon, thinks Veradittakit. Under the pressure of meeting investors’ expectations, the company risks deploying too much capital too quickly.
Where The Money Will Go
In addition to striking while the iron is hot, it will be critical for the Vancouver startup to smartly use the funds to improve customer experiences and accelerate slowing growth. Though the NBA Top Shot marketplace continues to maintain the leading position in the NFT space, the number of traders, trading volume and sales have significantly dropped over the last 30 days. “The data would suggest it’s cooling down for the time being,” writes Ian Kane, Dapp Radar’s senior content and media relations specialist, in an email. The NFT market as a whole seems to be slowing down. Trading volumes on OpenSea and CryptoPunks, some of the largest NFT marketplaces, are down by 18.8% and 38.4% respectively.
Dapper Labs is also facing user retention and satisfaction challenges. According to Kane, “customers became disappointed and disenchanted with continuously failed drops, a stalling website, and broken queues” – all due, in large part, to overwhelming demand and limited supply.
The NBA Top Shot Discord channel is full of reported technical issues and platform maintenances. “They were literally just a victim of their own amazing success,” says Kane. But “it’s important to remember the entire project is still in beta. They are doing an amazing job.”