0 commentsAOL made the bulk of their 1999/2000 fast-money from their infamous Business Affairs unit. This AOL team was responsible for gobbling up dozens and dozens of deals with freshly banked Valley start-ups, at a minimum of $5 million each. In return for a lump sum payment to the Business Affairs division, AOL would officially endorse Company X in a certain industry - say, Over-the-Counter Senior Arthritis Medicine - and would market the services to their approx 30 million captive customers. An announcement would go out - "AOL has selected eArthritis.com to be our exclusive Senior Joint Medicine Provider (SJMP) through 2010." and eArthritis's successful IPO was now almost guaranteed thanks to an AOL partnership.
The deals closed for $5, $10- sometimes even $25 million cash. AOL had an informal rule to try and get at least half of a company's entire venture capital. I only know this stuff because Maigh made me read the book Stealing Time, which was a great read.
Back to today.... via Jeff Nolan, Wall Street Journal reports that a couple hundred million $US has recently flooded into the mobile phone video game industry. In the article, various CEO's are saying things like,
"It's like the cannons got quickly moved over and sighted on this little segment of the world and started unloading," says Greg Ballard, chief executive officer of cellphone game maker Sorrent.
A lot of companies raise money like this and the consolidation process begins. "We've been told to spend the money on acquisitions." .... Yes, a very large number of tiny companies are about to get bought out here. Get ready for an aquisition binge - that's already in progress!
Will history repeat itself here? Who is going to swoop in and capitalize on this next round of fat-funded start-ups? Companies aren't just looking for products to acquire.... they're mainly looking for people. My advice, readers --- Get together with all of your recently graduated and unemployed college buddies (I'm one of them) and start a mobile gaming company. You don't actually have to make any sort of software. You will, however, need to speak the lingo, issue fake press releases, do "market testing," and have a nice-looking website. Oh, and a girl answering your phones.
"Never mind the game - just give us coder meat!" the mobile software companies collectively yelled.
BTW, You can bet your honest-earned dollar that the kid who skipped college to start a BREW development company with all his friends in 2001 is sitting pretty right now..... E-mail me if you know their company URL, I forget his name but he's probably about 21 now. I feel like they were starting somewhere in the North East or Midwest USA in 2001.
...... Apologies for pretending to sound like I know what I'm typing about with international affairs and internet industries. My excuse is that I'm getting lasik surgery tomorrow. Jeff Nolan over at SAPVe- whoops, I mean jeffnolan.typepad.com - points to this backlash piece on paidContent. It is so well-worded that I'm quoting the whole thing tonight. I'm on a bad blogging binge!
Keep in mind, most of these are me-too companies, with some hit titles and no guarantees of future hits. Also, mobile operators still have a huge share of the power in determining the fate of these companies. That is why the companies think they need scale...if we're big, the telcos won't push us around, the thinking goes. Plus we need an assembly line of hits in the rather fickle mobile gaming market, goes another line of thinking. That's the same kool-aid VCs are drinking from as well.
As WSJ puts it clearly, the mobile-game investments show a renewed willingness by venture financiers to back companies that aren't built on a unique technology but rather are trying to grab a share of a fast-growing market. A similar approach spun out of control in the late 1990s.