Supercell raised $130 Million from IVP, Index Ventures and Atomico. They invested at a business valuation of $ 770 Million. The fledgeling gaming landscape arrives.
FORBES:
Supercell may be the fastest growing game company ever
Why Index Ventures invested in Supercell:
By the time Forbes magazine publishes a story about a
company that rocketed from zero to more than $2.5 million in revenues per day in
less two years, you’d think that the best opportunity for a venture investment
has passed. But while many looked at Supercell’s phenomenal rise and assumed
that, statistically speaking, its best days had to be behind it, my partners
and I took the contrary view and decided to lead a €100 million investment in
the company.
Having
tracked Supercell since its
founding, we were aware of the enormous popularity of its two games. Both Clash
of Clans and Hay Day held Top 5 positions for the longest period of any game in
2012 and Clash has held more #1 Top Grossing positions than any other game on the
App Store-- ever. But staggering customer traction, revenue growth and
profitability were not the main reasons we invested in Supercell. We have
seen impressive numbers before-- granted none quite as impressive as these --
but what we found uniquely compelling was the way in which Ilkka Paananen and
his team had managed to deliver two incredibly popular games which were showing
no telltale signs of declining engagement, with such limited resources.
Although
Supercell began building its first game in 2011, its founders had been refining
the basic principles of their company over many years spent developing games
and leading teams for other companies such as Digital Chocolate and Sumea. During
these years, they not only honed their craft as coders, designers and leaders,
but also developed a practical sense of what works and what doesn’t work for
game companies, and emerged from the experience with a set of governing
principles that have proven to be the recipe for a truly disruptive company:
Stay small to get big
The
founders had witnessed the downfall of too many companies that had turned into
bloated, bureaucratic behemoths with many design studios in multiple time zones
requiring massive management overhead and crushing hierarchies to coordinate.
As
its name implies, Supercell is organized as a collection of small, independent
teams called cells tasked with developing new games or building new deep
features for existing games. Cells are given complete autonomy in terms of how
they organize themselves, prioritize ideas, distribute work and determine what
they ultimately produce. Describing himself as the “world’s least
powerful CEO”, Ilkka encourages cells to exercise extreme independence and
prides himself on having no creative control over them once they are
constituted. The company as a whole is merely an aggregation of these cells; a
Supercell.
With
only 100 employees compared to 3000 at Zynga and almost 10,000 at EA, Supercell
offers a radically new model for agile content development that has made it the
highest grossing iOS game developer with only 2 game titles (versus EA’s 970).
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| Source: Index Ventures |
Short development cycles
Clash
of Clans and Hay Day -- which are top grossing games in 122 and 78 countries
respectively -- were built and launched in six months by teams of five and six
people respectively. Keeping development cycles short means faster release
cycles and happier, more engaged users. It also forces the teams to focus on
the most important aspect of any game-- game play. This is in striking contrast
to the AAA console industry which appears to have largely forgotten the value
of great game play, devoting massive resources and Hollywood-class budgets to
games with immersive, cinematic production values.
iPad First
Supercell
made a bet that tablets would become the most popular gaming platform and
devoted all of its creativity and energy to building games specifically for the
iPad. The company has added iPhone versions but to this day, thinks of the iPad
as the primary platform for its games. While this choice may sound trivial, and
has now been adopted by many followers, the decision to focus everything on the
iPad and deliberately not build for multiple platforms is an example of
Supercell’s tremendous clarity of vision and the hallmark of a great strategy.
Build/test/refine/test/kill
Of
course Supercell doesn’t kill all of its games, but it is extremely disciplined
about deciding what game is ultimately launched. A cell building a game must
drive to a deadline, which the cell itself defines, when the game is
released internally. Both Clash of Clans and Hay Day reached this milestone in
only three months. Based on feedback from this initial test, the game is either
killed or sent back into development to be refined before another pivotal
internal release when the cell determines based on internal feedback whether
the game is killed or launched.
 |
| Source: Supercell |
Unlike
many studios that brush their failures under the rug, Supercell deliberately
celebrates kill decisions because it recognizes that by building games quickly
with small teams, it can have multiple shots at developing blockbuster game in
the time it takes others to build a single game. It is also psychologically and
economically easier to write off a project that was built by six people in six
months than one that took 100 people 18 months to build.
Soul before science
While
much has been said about some studios’ data-driven, rational approach to
architecting the perfect game, Supercell has shied away from this trend and
focused on embedding strong emotional hooks deep into the unique narratives,
characters and settings of its games. This means that players of Supercell
games get more involved and stay involved in the games for longer than many
other tablet games; on average, players of Clash of Clans play the game ten
times per day.
Free-to-play
My
partner Ben Holmes describes
Supercell as a third generation mobile gaming company. In the earliest
days of mobile gaming, before the emergence of the current, ubiquitous
smartphone platforms, the challenge of first generation companies like Glu
Mobile was to make versions of their game that would run on as many handsets as
possible and obtain access through the broadest range of operators. Lucky for
everyone, the world moved on from that scenario with the emergence of iOS and
Android which created an opportunity for second generation companies that
focused on game genres that would have the broadest possible appeal to the
millions of new players -- particularly the boatloads who joined the iOS
platform in 2009, 2010 and 2011. Companies like Rovio typified this approach. By
charging a low up-front price, they maximised the download volume and kept
themselves at the top of the app rankings, so that anyone looking for cool apps
for their new iOS device would see Angry Birds at the top of the leaderboards
and reinforce the virtuous circle.
Today
however, the majority of iOS app installs are driven by existing iOS users
rather than new ones so the second generation strategy is no longer optimal. As
a third generation company, Supercell focuses on maximizing the frequency of
play, the overall length of play (measured in months and even years versus
weeks) and the depth of player’s emotional attachment to the experience. These
three factors determine the monetization potential of a third generation game
which is why Supercell games, are free-to-play as a matter of strategy and
monetize via in-app purchases. Companies like King, Backflip, Nordeus and Kabam
also fall into the third generation category in our book.
By
making every game free-to-play and by offering motivated players a regular
stream of opportunities to enhance their experience by purchasing virtual
goods, Supercell creates a genuine connection with its users that is proving
much more sustainable than other games that have a pay-to-play model or exploit
social graphs to maximize virality.
As
we got to know Ilkka, his co-founders and the company they were building, we
were struck by the consistency with which these principles were embodied by
everyone on the team and by the coherence between these principles and the way
in which the company and its processes were organized. We were also completely
convinced by their long-haul commitment to building radically new type of game
company that aspired to create lasting, decade-long franchises on par with
World of Warcraft but on mobile devices with a free-to-play model; a company
more focused on keeping existing players engaged than trying to systematically
churn out novelties to attract new ones.
We
developed a very strong conviction that this little company in Helsinki had
deconstructed the game development process and come up with a unique model of
efficiency, discipline and agility. Given the health of its balance sheet,
Supercell clearly didn’t need to raise cash, so we proposed a deal under which
we would buy shares directly from shareholders. In keeping with Supercell’s
culture of fairness, every shareholder and option-holder at the company
was given an opportunity to sell the exact same proportion of their stock, put
some money in the bank and double down on their efforts to take the company to
the next level.
From
our point of view, the Supercell rocket still has a long way to go. We believe
it will be one of the companies that will leave a lasting mark on its industry
and are delighted to be part of
the crew.
Posted by Neil Rimer in Growth
