Early in its life King, the makers of the popular Candy Crush Saga, came within a day of going bust, yet months later landed an eye-popping $23 million A round. It has pivoted not once but twice and in doing so produced one of the world’s most successful games out of London and then floated on the New York Stock Exchange. How did King hit the jackpot?
Like many overnight successes, King has been around for more than a decade. Founded in 2003 as Midasplayer, the company was started by six guys: co-CEOs Toby Rowland and Riccardo Zacconi, based in London, and CTO Thomas Hartwig, Managing Director Lars Markgren, Chief Creative Officer Sebastian Knutsson and Chief Systems Architect Patrik Stymne in Stockholm. All but Rowland are still at the company.
The team had worked on a number of projects and in late 2002 everybody in the group was looking for a new gig. “I was the games guy. I had seen a business model built on skill games from a company called Skilljam,” says Knutsson. Other big players at the time included Worldwinner, which had raised $17.5 million. The only European competition came from UK-based Gameaccount. According to a report by IESE Business School, the worldwide size of skills-based games was estimated to be around €100 million to €200 million by the end of 2003.
Web Portals Were Still Gateways To The Web
The founders pooled their funds and set to work in February 2003, agreeing that no one would draw a salary for the first year. The company officially launched on 1 August, 2003.
Mark Zuckerberg was still a year away from launching Thefacebook, so where did a fledgling gaming start-up go to get players? It was web portals like AOL, MSN and Yahoo and their European equivalents that were still gateways to the web.
“They often had tons of games traffic but could not monetize it. We proposed a turnkey service where you could integrate our service [and] redesign it so it fitted the Yahoos and AOLs of the world.”
Although the model worked, like so many start-ups, balancing cash flow was a finely-tuned process. Players played in tournaments with real or practice money. If they played with real money Midasplayer took 25% of the tournament jackpot. According to an interview in 2009 Zacconi said that in 2003 the company brought in just €14,000 yet expenses racked up. Without investors the fledgling company would collapse.
Rowland and Zacconi turned to Melvyn Morris, who they had worked with at dating site uDate. He had sold it for $150 million. According to Knutsson, Morris put up €500,000.
Money Arrived With One Day To Go
Morris’s investment “was in the nick of time,” says Knutsson. “We got the fax on 23rd December. We knew we wouldn’t make the year if we didn’t get the money in. It was the last day.”
With Morris’s money, as well as other investors including Klaus Hommels on board, the company started to see revenue climb from €2.3 million in 2004 to €10.8 million in 2005, when the company broke into profit, to €20 million in 2006, €29 million in 2007, and €38 million in 2008, according to Zacconi’s 2009 interview.
“We became the dominant player in Europe,” says Knutsson.
The First Pivot
In 2005, the company, by then around 100-strong with offices in Germany and the U.S., raised its second, and last, funding round. Apax, in its last venture deal, invested €28.9 million. (At the IPO price its stake was valued at $3.25 billion.) Index Ventures joined as a junior partner, investing €5 million. Pre-money the company had been valued at around $35 million.
“We decided after that round that we wanted to build our own direct business,” says Knutsson. “We knew we needed a better domain name. Midasplayer was always a bit of a mouthful.
We bought King from a private individual who had it for his email with him and his mother. We paid around $1 million.”
But by 2009 it was clear there were problems. “A company called Facebook was starting to suck up a lot of users from our portal partnerships,” recalls Knutsson. “We had one year where Yahoo’s game channel went from 23 million uniques to 14 million in less than a year.”
Unless King.com did something big it was in trouble. “In 2009-10 growth was stagnant. We had this term, when we were talking about our partners, as being “F by F” [f***** by Facebook].”
In October 2010 the company announced a shake-up. The web team was slashed in half, releasing coders to work on five new projects to crack Facebook.
“We knew we had to manage the transition with improving the communication internally, managing that risk of trying to pivot and make sure the staff were part of that journey and understanding why we are doing it,” says Knutsson. “We had to reinvent ourselves. That was tough.”
Of the five games one failed, three did OK, but one was to prove the key to unlocking Facebook and provide King with its magic formula — the saga.
Making The Shift To Mobile
“The saga is such a simple idea it works on a three-year-old. It is the simplicity that is its strength, not its complexity.”
It was Bubble Witch Saga that pushed King into the public eye. “It started to monetize to a level that Facebook and our competitors took notice.”
It was around this time that the company realized that once again it was going to have to make another shift, this time to mobile.
Its first mobile game was Miner Speed. “It was a simple game so it was easy to transfer to mobile to understand the impact,” says Knutsson. That experiment led up to The Big One, Candy Crush Saga. “This was our strongest game on Facebook; we knew we had to get it right,” says Knutsson. They had no idea how big it would prove to be.
“Our internal target, was ‘can we do a game that could reach a top 10 for a week?’” They could. And then some. King reported profit of $567.6 million last year, up from $7.8 million in 2012. Revenue leapt to $1.88 billion from $164.4 million. “Candy Crush” was played by 93 million people more than a billion times daily in December, King said in its IPO filing.
The Road To IPO
Candy Crush Saga pulled the trigger for King’s IPO. “It became an option that we started to discuss more and more.”
Knutsson was phlegmatic about King’s performance since its March 26th IPO, when it hemorrhaged $1 billion of value. According to data from Dealogic, King had the worst performance of any company raising more than $500 million since it started keeping records in 1995.
Despite the performance of King’s stock, Knutsson is confident. The company is pushing into Asia, having signed a deal earlier this year with China’s Tencent to distribute Candy Crush to its more than 220 million active monthly users .
He also rejects speculation that the company is a one-hit-wonder, although out of its $1.9 billion in 2013 revenues, Candy Crush Saga accounted for $1.47 billion or 78%. “Building a network of games has always been our plan, a network built around the saga format.”
So far the markets don’t appear to share his optimism. Having IPO’d at $22.50, so far the price has peaked at $21.39 and at press time is currently trading around $16.50. It looks like King’s toughest game is going to be NYSE-saga, a game of many, many levels.