Write-Offs Nobody Wants to Talk About: VCs And India's Gaming Ban

All it took was 96 hours for a bill to become a law that would effectively wipe out the INR 20,000 Cr real money gaming industry in India.

In the consequent cacophony of job losses, uncertainty for founders and rush for a survival blueprint, resonate the woes of investors.

The real money gaming (RMG) industry has reportedly raised more than $2 Bn from venture capital firms with nearly 400 RMG startups collectively holding $15 Bn in investment value.

More than the shock, the investor community was shaken by its suddenness. “It was like a thunderbolt striking out of nowhere,” a senior partner at a growth stage VC fund with top gaming companies in its portfolio shared, refusing to go on record in this volatile situation.

But the government refused to agree.

“VCs knew this was an industry with issues. It is not an India-specific problem. Everywhere in the world, people are facing these challenges and grappling with them,” electronics and information technology minister Ashwini Vaishnaw was quoted as saying in the media last week.

“The legislation was not unexpected,” agreed Brijesh Damodaran, partner and investment manager at Auxano Capital that has funded esports gaming platform Lets Play Now, said.

“But no one in the investor ecosystem was certain of the swiftness with which Parliament passed the law.”

Real money gaming saw investments peak during the pandemic with nearly $1 Bn pouring in between 2020 and 2022 across 75 funding rounds. But, after the GST levy in 2023, the funding tap ran dry, slowing down VC investments to $40 Mn from nine rounds. In the impact of heavy taxation, some users migrated to illegal and offshore platforms that continued to operate and advertise in 2024.

Higher taxes and stricter regulations did throw up some hiccups, but the sector regained its momentum soon. With more than 500 Mn digital gamers today, India’s $3.7 Bn gaming industry is estimated to reach $9.1 Bn by 2029, according to the India Gaming Report 2025.

Top gaming firms like Dream11, Mobile Premier League (MPL), Games 24×7, Winzo and Zupee raised most of their funding through the years of boom and VCs like PeakXV Partners, Orios Venture Partners, Tiger Global, Elevation Capital, Beenext, Alpha Wave Global were sitting on the cap table of the top five-six Indian RMG firms.

The blanket ban on real money games has left most things teetering on the edge.

A Ban That Burnt Books

If cryptocurrency has not been banned by the Indian government even after its links with money laundering and terror funding was unearthed, then why gaming?

IT Minister Vaishnaw reportedly told Parliament last week that online money games had harmed 45 Cr people, driving them into INR 20,000 Cr losses, and triggering depression and suicides.

“The government should have come down hard on platforms where there were no entry barriers for people to play and simultaneously bring out a set of guardrails for eligibility based on skill and income threshold, but a blanket ban has been a death knell,” said a partner at a VC firm, which ploughed nearly $100 Mn into a gaming unicorn, on condition of anonymity since he was not authorised to interact with the media.

VCs never want to be on the wrong end of the regulator, neither they believe that there could be a rollback. “The consistency of the restriction suggests it’s part of a broader consumer protection framework,” observed Arjun Malhotra, who founded Good Capital, a VC firm invested in interactive RMG app Tamasha.live, said.

Some major gaming startups like Dream11, Zupee and Gameskraft have meanwhile announced that they would not pursue a legal course to seek remedial measures, with their fate already in limbo, awaiting a Supreme Court verdict on the protracted INR 2.5 Lakh Cr GST case on RMG. The court is also expected to decide if real money gaming, fantasy sports, poker and rummy should be treated as games of skill or games of luck.

But that’s not the entire squad. Head Digital Works, which operates A23 Rummy, one of India’s prominent RMG platforms with over 70 Mn users, has moved the Karnataka High Court, questioning the constitutionality of the Promotion and Regulation of Online Gaming Act, 2025.

Write-offs are inevitable – that’s the larger sentiment in the VC circle with stakes in real money gaming startups.

It will, however, not be a BYJU’s-like write-off, where the founders or promoters are accused of mismanaging the business, according to a senior executive advising a VC fund with $150-200 Mn parked in the disputed sector.

“There’s no blame game here. Everyone is bleeding. This would reflect on the balance sheets of VC firms months later.” The official sought to stay anonymous because of the unstable condition in the market he operates in.

In terms of the scale of the impact, global crossover funds like Tiger Global, DST Global and Peak XV that wrote large growth cheques, are likely to be hit hardest.

The brunt is likely to be somewhat moderate for mid-stage or seed-stage investors like Kalaari Capital, Multiple Alternate Investments, Think Investments, as most of these funds lowered their stakes in gaming startups since the sector ran into rough waters. A crop of early to growth stage funds, however, may see their entire investments decimated because of their double-digit stakes in small RMG apps that are shutting down.

While flagship ventures like Dream11, MPL, WinZo, Zupee and Paytm First Games have publicly announced the closure of RMG businesses and a shift in pivots, many early to Series A-stage RMG companies are staring at a complete shutdown.

‘Pause And Pivot’ Rules VC Sentiment

There were more people playing real money games than those trading in futures and options (F&O), argued Damodaran.

“All companies were making profits because of user volumes even as ticket sizes remained small. We also saw healthy growth in the number of mature or serious gamers in the ecosystem. From the VC standpoint, we need to adopt a wait-and-watch strategy on how the companies will pivot and leverage the user data,” he said.

As venture capitalists hit a blind alley, most funds are weighing a pivot to domains beyond the ban such as esports, wealthtech and gaming infrastructure. The ambit widens to overseas expansion and even microdramas. Hike’s Rush, for instance, has turned focus to the US market, leveraging its pay-to-earn crypto gaming model.

Relocating operations, however, brings operational complexities without guaranteed regulatory relief. “We see adaptive pathways like community-driven gaming, led by influencers, AI companions and studios, and shift to premium in-app purchase models. But, since the user base is still largely Indian, it won’t help much,” said Malhora of Good Capital, which has substantial investment in a popular RMG startup.

The stakeholders Inc42 spoke to said that for companies with large user bases in India moving overseas will be akin to starting from ground up. At the same time, there are multiple geographies like Southeast Asia, Middle East and parts of Europe that have strict regulations around RMG.

Industry sources said that VCs are largely aligned with the pivots announced by the top 5-6 gaming companies. “Investments, however, will hit a pause because of the uncertainties,” Singh said.

These pivots are quick-fixes for the immediate crisis, and certainly not panaceas – that’s largely the approach of the VCs focussed on gaming startups. The high margins that made real money gaming so attractive, often outsmarting other gaming verticals, are unlikely to be replicated in these pivots, tempering investor optimism.

The Shock And The Aftermath

While VCs agree to the government’s intent behind banning real money games, some went an extra mile to draw a parallel to the crackdown on microlending firms that were charging hefty interests.

Real money games contribute nearly INR 20,000-25,000 Cr in direct and indirect taxes, support over 2 Lakh direct and indirect jobs and the sector has so far attracted $3 Bn in foreign investments. “Community protection has been prioritised over any large-scale economic impact,” Damodaran said.

With platforms like Dream11 no longer offering real-money contests, some players may turn to VPNs or offshore sites in unregulated markets. The government will now have to work towards preventing illegal platforms from posing a threat to India’s data security.

There have been whiffs of cautious optimism, too, among the VCs.

“If the bigger players come out of this, they’ll come out stronger,” Aditya Singh Founder of All In Capital said, noting that the ban would deter new entrants and consolidate the market for the established ones.

The absence of a united industry voice – unlike the crypto sector’s response to its 2022 tax regime – has, however, left some VCs frustrated.

In an informal interaction with Inc42, a senior executive at an RMG startup cited the example of Amazon and Walmart navigating the maze of FDI guidelines to stress that the onus of mapping the road ahead lies with large companies and founders. “But the engagement with the government must not stop,” he said.

Multiple investors also pointed out that the ban would dent the toplines of IPO-bound fintech startups like Razorpay and Cashfree that have some of the top RMG companies as their clients and were processing millions of payments on these platforms.

The RMG saga has forced VCs to confront a hard truth in the investment playbook – in India, regulatory risk is as existential as market risk.

“We assumed taxation was the end of the risk. We were wrong. Now, regulatory clarity means restrictions, not accommodation,” a partner at a VC firm said in an off-the-record interaction.

What started as one of India’s most profitable digital sectors is now at the mercy of regulators and courts. For founders, the playbook shifts to survival. For VCs, the ban will remain a tale of caution. And, for those whose jobs are in the line of fire, it will be one of the worst nightmares.

The next few months will be critical, with legal battles unfolding, pivots taking shape, and the fate of India’s gaming story as a VC favourite being rewritten.

[Edited By Kumar Chatterjee]

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