Rich Wong of Accel Partners is more or less a fixture in mobile venture investing. While seeing Admob through to its $750 million sale to Google, he’s also made a number of notable investments in companies like Getjar, Mopub and 3LM, which was acquired before launch by Motorola.
His latest investment was with Angry Birds-maker Rovio, which attracted a $42 million Series A investment, after its title became the little-physics-game-that-could with nearly 100 million downloads.
A number of top-tier VCs like Sequoia and Andreessen Horowitz have gone in on mobile gaming in the last few months. But it seems like you really held out for the crown jewels with Rovio.
Well, I’m just a VC. I’ve known Peter Vesterbacka for nine years. And I told him, I have to work with you on this one. We’ve been waiting essentially a decade for the market to look like this. Is this a mass market idea? Can it scale?
When I saw all of my five-year-old nieces and nephews playing this game every day, I just knew that I really, really wanted to be part of this company. But Peter would say that they were just doing fine and that they didn’t need venture capital.
The story goes back to last summer when he first started at Rovio. Every four to five months, Peter and I would get together at different mobile conferences.When I saw him last summer, I asked him what he was up to. What’s going on? What’s hot? And he said he was going to do this thing called Angry Birds.
I knew it was at the top of the rankings, but I wondered, could it stay up there? It wasn’t obvious to me that it was going to be what it is today. It was still the very early days. So we stayed in touch, and then by mid-summer or so, I began to think — wow, it’s really taking off. They’re really continuing to stay at the top of the leaderboards.
I started to call them often and ask: Do you want to work together? Ultimately, it took nine months from summer until March to convince them. It’s great. If it takes that long, it’s still worth it.
Were you talking to anyone else?
I did talk to a few others. But there really aren’t others like this one. Obviously, I’m biased. But if you think about it – 200 million minutes of usage a day. 40 million monthly actives. This just doesn’t happen. It just doesn’t happen that a game that my 5-year-old loves is the same game my 40-year-old brother loves.
We’ve got a long ways to go. There are a lot of things that could not go right, but it’s a special company.
Is the valuation you went in on essentially a bet on Angry Birds alone? Or is it on the assumption that Rovio can successfully launch new IP? Basically, are you betting that they can not only create a Mario Bros.-style franchise, but a Zelda one too?
Angry Birds already has multiple flavors. There’s Seasons, Rio and other derivatives. Obviously, there is other physics-related gameplay they could do. But there is so much they can do with the content and characters they already have. They’ve found a way to keep it going in a way that very few other people have.
That’s thing one. Thing two is — remember JAMDAT? If that company was worth $680 million and they were making games on the Motorola Razr, which was state of the art at that time, and the market was an order of magnitude smaller than it is today, I think Rovio could be a very valuable company. Even with that valuation, you wouldn’t have to count on anything that’s not completely in line of sight to get a financial return.
But honestly, this thing can go in a whole bunch of different ways. It can go toward new IP. Or maybe they can create games from the pig’s point of view, like Peter has said in the past.
There’s all these other extensions like the Facebook launch. Rio is about to launch. Then you’ve got all of these other market dynamics like the Verizon iPhone, the acceleration of Android, the iPad 2. This is all going to accelerate the market dramatically.
Or if you think about this way — Angry Birds’ ad inventory alone is similar to Admob’s total inventory a little over 2 1/2 years ago. Think about all the deals that Jason Spero and Omar Hamoui had to strike to get there. Angry Birds is already that size.
You’re suggesting that Rovio sell its own inventory and cut out the networks?
Well, no. The New York Times has its own inventory they sell themselves but they also have remnant invetory that they put out to the networks. Rovio can sell X% itself and put Y% through Admob. You’re already seeing the beginnings of that with the Bing and Angry Birds deal, for example.
If you add that, plus different ways of extending the franchise — maybe with titles from the pigs’ perspective — you can see yourself through with a very nice outcome without assuming anything bigger.
The best part about this, is that this is an overnight success that took eight years to happen. This isn’t their first game. This is their 52nd game. These guys worked their asses off for years developing titles for Nokia and other devices. My point is that they had the discipline to go through all the things that were not successful — all those mistakes, all those landmines, all that institutional knowledge.
It’s a bit of truism that after you look at all the revenue and EBITDA multiples and the left-brain quantitative aspects of being a VC, it really comes down to: do you believe in the team or not?
These guys do not just have in theory an ability to fight through. They’ve proven themselves. They’ve fought through many tough times before. That’s why it’s a joy when you find a team you really believe in. I really believe in these guys.
How do you think venture capital money is going to change the landscape for smaller, indie mobile gaming developers? Are we going to see what happened on the Facebook platform where costs of user acquisition rise to the point where you end up with a handful of dominant companies like Zynga and EA Playfish?
It’s only the second inning. We just started. The iPhone is less than 3.5 years years old. Android is less than 2 years old. The iPad is 1.2 years old.
We’re just starting. There’s a ton of room for continued innovation. Do I believe and do I hope that Rovio is one of those dominant companies? I think they have earned the right to have a shot at it. I don’t want to be an oligopolist for saying it, but they have a very interesting position in the ecosystem.
While the industry has been moving to a free-to-play model with virtual currencies, Rovio has seemed to mostly stand by the premium, paid app model? Should they make the transition too?
They do have that Mighty Eagle virtual good purchase [which helps users pass a difficult level]. Everybody is going free-to-play with virtual goods. That’s the new Silicon Valley model. These guys are from Espoo, Finland. They don’t feel like they need to play conventionally. They’re fine with being off the beaten track.
Rovio has publicly criticized Android’s payments infrastructure in the past. Can Google get it right this year?
It has nowhere to go but towards improvement. Will it rival iTunes’ fitness in the next six months? I don’t know, but it will get better.
What’s Facebook’s role in mobile payments? Surely, they’ll want to have access to downstream revenues from their platform on mobile. But Apple is exerting more control. It seems like there is a natural tension there.
I’ve thought a lot about app stores, but not as much about payments. If I had my Facebook-Accel hat on, I couldn’t tell you. But from the more simplistic point of view of being an investor in Rovio, the good news is that all of these platform battles will make life better for them.
When I talk to mobile developers, they seem to be mostly thinking about Android or iOS. But when I talk to people who have been working in the mobile industry for a long time, they really hesitate to count any other platform out. Is it officially a two horse-race now?
Without the Nokia deal, it felt pretty uphill for Microsoft. One billion dollars buys you a lot of distribution. Nokia still ships a boatload of volume. Now it’s about how quickly they can move to those platforms. There will be some devices this year but the volume devices will come in 2012. That feels a little slow. The next-generation Android tablets will be out by then. Maybe it is a three-horse race. But if they miss another step, they may not be able to catch up.
That’s not a super insightful answer. I think they have a shot, but they had to pay for it.
Any last, less obvious thoughts on Rovio?
Rovio sold over 2 million plush toys. As a VC, I never thought I’d say the word plush toys in any context.
Whether it’s consumer brands or entertainment franchises, there are very few things that earn the right to get there. There are very few brands that get to be the Snoopy stuffed animal you get when you’re four years old that you keep until you’re much older so you can give it to your children.
Maybe this is a very biased Rovio point, but they are a brand with the potential to achieve that.
Free-to-play with virtual goods, Admob advertising, the one-time download, the subscription and so on — that’s the conventional gaming wisdom. But what if it’s all about plush toys? I know that it sounds crazy or odd. But maybe it’s $30 pigs.