Ilkka Paananen says the best way to make money in mobile gaming is to stop thinking about it. Think about fun instead. Fighting a mild case of ﬂu and jet lag from a San Francisco ﬂight back home to Helsinki, Paananen says companies that place revenue above fun (we’re talking to you, Zynga) will ultimately fail. “It really is that simple—just design something great, something that users love,” says the 34-year-old.
Paananen is CEO of Supercell, a startup that has had astonishing growth almost overnight. It has only two titles in Apple’s App Store—a tower defence game called Clash of Clans and a social-farming game called Hay Day—but it grossed $100 million last year and $179 million in the ﬁrst quarter of 2013. Supercell netted $104 million in the quarter, after expenses and Apple’s 30 percent cut.
With daily revenue now at $2.4 million, Supercell is already at a run-rate of more than $800 million for 2013 and could reach $1 billion. That would make it more than twice the size of Electronic Arts’ mobile games division, which has 900-plus iOS apps. Supercell now attracts 8.5 million daily players who play an average of 10 times per day.
These stats attracted a $130 million ﬁnancing round in February led by Index Ventures, which invested $52.5 million, along with Institutional Venture Partners and Atomico. All shareholders, including Accel Partners (an earlier investor), sold 16.7 percent of their holdings to the newcomers, pegging the company value at $770 million. So much cash can ﬂood the engine of a little company, and will make a VC-worthy return far more difficult.
Paananen admits the round was more an opportunity to give shareholders a “thank-you” payout and to shrug off any pressure to go public. At the very least, it will pay for much-needed space. There’s an ever growing pile of shoes defrosting near the front door.
Index’s Neil Rimer, whose ﬁrm scored with Skype and Dropbox, is convinced Supercell may be as big a deal as any he has seen: “Once in a while you get the opportunity to invest in a studio that has some kind of proprietary technology or alternative take on the market—like a Pixar or a DreamWorks—where they can apply a different methodology and generate a stream of hits over a period of time.”
Most game studios have an autocratic executive producer green-lighting the work of designers and programmers. Supercell’s developers work in autonomous groups of ﬁve to seven. Each cell comes up with its own game ideas. They run them by Paananen (he can’t remember ever nixing a proposal), then develop those into a game. If the team likes it, the rest of the employees get to play. If they like it, the game gets tested in Canada’s iTunes App Store. If it’s a hit there, it will be deemed ready for global release. This staged approach has killed off four games so far, with each a cause for celebration. Employees crack open champagne to toast their failure. “We really want to celebrate...the learning that comes out of the failure,” says Paananen.
He and co-founder Mikko Kodisoja sold their maiden startup Sumea in 2004 for $6 million in cash and another $12 million in stock to Digital Chocolate and stayed for six years before venturing out with three colleagues to start Supercell. “It felt that we had to build something from scratch again.”