Supercell might just be the most successful start-up you’ve never heard of: The young Helsinki-based company launched two iPad games, one in late June called Hay Day, the other in August, called Clash of Clans. One instantly became a global hit, the other a blockbuster, and the company has been generating $500,000 a day in revenues ever since.
“It is not that well-known but this company is off the charts; it has the fastest revenue growth of any start-up Accel has ever invested in worldwide,” says Kevin Comolli, a partner in the London office of Accel Partners. Given Accel’s track record – it is an investor in the likes of Facebook, Wonga, Qliktech and Rovio — that is saying something.
Supercell is just the latest example of how Europe is – for the first time — producing venture-backed category leaders across the digital space. Europe, which has long had strengths in B2B (think Business Objects, SAP, ARM, Autonomy and Dassault Systems), is now churning out top gaming developers such as Rovio, Mind Candy, King.com, Peak Games, Wooga, Gameforge, Bigpoint and Big Fish Games.
Europe is also the primary source of next-generation Internet audio and music discovery and distribution platforms such as Sweden’s Spotify, Germany’s SoundCloud and the U.K.’s Shazam.
These companies are part of a backlog of start-ups that might exit over the next three years.
“Given the lack of a domestic European market for IPOs of companies in the technology sector, and an uncertain M&A market, there is a significant number of European companies that are considering going public in the U.S.,” says Chris Grew, a partner in the London offices of the global law firm Orrick.
Supercell, which has gone from zero revenues to being IPO-ready in an extraordinarily short period of time, could be among them. Supercell’s spectacular growth comes at a time when Zynga’s stock has lost 75% of its value and the maker of Farmville and other popular Facebook games is laying off employees and closing studios. Europeans are, in fact, proving more adept at monetizing the next generation of gaming than their U.S. rivals and that in turn is helping create a burgeoning batch of fast-growing Internet companies (see the Top 25 list on pages 12 and 13).
Accel looked at the gaming sector in 2006 and realized that the U.S. was stuck in consoles and that start-ups based in Europe and Asia were more likely to advance the next generation, says Comolli. When massively multiplayer online games emerged Accel invested in Gameforge, a German video game developer and publisher which was named a World Economic Forum Technology Pioneer. Then, after Accel invested in Facebook, it realized the importance of the social graph and social gaming and invested in U.K.-based Playfish, which was sold to Electronic Arts in 2009 for about $400 million.
When the number of smartphones began exceeding the number of PCs and gaming began moving onto mobile Accel invested in Finland’s Rovio, the company behind the runaway hit Angry Birds and a whole range of merchandise, from movies to stuffed animals. Now gaming is moving onto tablets, which led the London-based venture firm to make a $12 million investment in Finland’s Supercell.
Joining the round was Klaus Kersting, founder of Gameforge. And it was Kristian Segerstrale, the CEO of Playfish (now an executive at EA) who introduced Accel’s Comolli to Ilkka Paananen, one of six co-founders of Supercell, all whom have deep experience in gaming.
Paananen, Supercell’s CEO, is the founder of Sumea, which developed games like Yo Yo Fighter which were distributed via mobile operators such as Vodafone, O2, Orange AT&T, T-Mobile and Cingular. Sumea was sold to Digital Chocolate in 2004 and Paananen served as the acquiring company’s CEO for six years. In 2010 he quit Digital Chocolate and rounded up a team of people from gaming developers like Remedy Entertainment to form Supercell.
The group raised $3 million in a seed round from London Venture Partners and closed its series A round with Accel in May of 2011, bringing the total raised to date to $15 million.
Supercell started out with a vision of cross-platform game services: next-generation social multiplayer games that could be accessed via Facebook, smartphones or tablets, says Paananen. The first games it developed were ok, but “not great for any of the platforms,” he says.
Accel convinced Supercell to pivot, killing a number of ongoing projects so that it could concentrate on tablet first. “It was a turning point for the company,” says Paananen. “The energy freed up by focusing on one single platform increased the quality of the games.”
Another difference with Zynga is that Supercell’s games use Facebook Connect but are not built on Facebook itself. “Tablet and mobile users monetize better,” says Paananen.
That said, a number of European companies in areas such as music, gaming and fashion are thriving by putting their IP on Facebook’s platform. Two European companies were ranked in the top ten on AppData’s Facebook developer leaderboard on October 29th, ahead of EA and Instagram: King.com, a London-based cross-platform social games company best known for its popular Bubble Witch Saga, was ranked number 4 while Germany’s Wooga was number six; and Nordeus, a fast-growing gaming company based in Belgrade that makes a social game that enables people to run their own football clubs, play with their friends and compete against the world, which credits Facebook for its success. Its game, Top Eleven, is the most-played online sports game in the world, with more than six million monthly and two million daily users on web, Android and iOS devices.
But it is not just about the platform. “What Europeans have gotten right is to be bit more focused on quality of game play and innovation,” says Paananen. Accel’s Comolli agrees. “Zynga’s first games were all about land grab, rather than the quality of games,” he says “Fast forward six, seven years and quality of games really matters. With Supercell you are getting Digital Chocolate-quality games, with tablet first, and a focus on iOS – that’s the secret sauce.”
After its release in August Clash of Clans quickly became the number one top-grossing iPad game in 66 countries for weeks on end, while Hay Day was in the top ten of the top-grossing iPad games in 33 countries. (Supercell’s iPad games are available in 224 countries.) After paying the required percentage to Apple it is generating $350,000 a day in revenues, with less than 1% of its turnover coming from its native Finland, says Paananen.
Expect more companies like Supercell and Rovio to rise up on the Continent and start grabbing market share, predicts Comolli. “When we set up shop here it was an acknowledgement that Silicon Valley never had a monopoly on innovation and that billion-dollar companies could be built from Europe,” says Comolli. “There is now enough evidence with companies like Rovio, Qliktech, Wonga, Spotify, Betfair, Yandex and Skype, for entrepreneurs to be inspired, for VCs to be confident, and for the LPs [Limited Partners] to be optimistic that, ‘yes you can produce big outcomes that produce superior returns in Europe’.”