GAMBLING ON A GAME
ANATOMY OF A DEAL APP DEVELOPER UPS THE ANTE IN ROUND TWO WITH AN IMPROVED USER EXPERIENCE
Each week, Financial Post contributor Mary Teresa Bitti revisits CBC’s previous week’s episode of Dragons’ Den. We capture what the cameras didn’t and in the process provide a case study for readers, zeroing in on what pitchers and dragons were thinking and what the challenges for the deal are going forward.
Dragons’ Den starts the new year by offering past pitchers a second chance to land a deal. Jeremy Zuckerman, Toronto- based founder of mobile gaming app developer, WINR Games, did just that. He originally appeared on the den in Season 10, when his $10 million valuation left him emptyhanded.
So what’s changed? In addition to a more modest — although still significant — ask, he has an improved user interface and a much larger, keen audience.
Jeremy Zuckerman was a management consultant before launching WINR Games in July 2014 with the objective of disrupting the lucrative world of gaming apps with his app, Big Time. In a nutshell, gamers can win cash playing free games on their phones.
The impetus for Zuckerman’s career leap was the IPO of King Digital, the developer of Candy Crush, at a $ 7 billion valuation. “They were making so much money off their users for a relatively simple game,” says Zuckerman. “I thought there must be some dollars in there for the users. Our revenue is generated via in- app advertisements and we share a portion of this with users.”
WINR Games now has 22 games. As users play any of them, they get multiple tickets. Each ticket is an automatic entry into an upcoming draw. “The more tickets you have the higher your chance of winning,” Zuckerman says. He likens the contest aspect of the game to a loyalty reward program that serves both to attract and retain gamers.
The tickets, in addition to being entries into the thrice- weekly draw, can also be collected and saved in a wallet — another new feature of the app — and redeemed for cash through PayPal. The app also has a referral code system whereby users can invite friends to join and earn cash.
“This way, users are more inclined to at least explore the other games we have,” says Zuckerman. “The cross- app currency, account and tickets move with you through each game.”
Another new development: In the past three months, Zuckerman and his team started putting out single- game apps, which are connected through the same contest and platform rather than having them all on the original Big Time app. Each new app shares the same original tagline: Play free games. Win real money.
The new single- game app strategy is driving organic growth. At the time of writing, there were more than one million downloads across all apps — and growing. This is up from 600,000 downloads when Zuckerman made his first pitch to the Dragons. “Every time we put out a new app, we have more shelf space at the app store, and we cross- promote between games.”
Zuckerman asked for $ 250,000 in exchange for a 5 per cent equity stake, effectively valuing t he startup at $ 5 million. For the six months previous to the pitch, revenue and the number of users had been growing at a rate of 50 per cent month over month. He also monetized the business and was on track to do $200,000 in sales.
He accepted an on-air offer from Michele Romanow, who asked for an eight per cent equity stake and said she believed that within two years they could grow the business to one million active daily users and revenue of $ 3,000 a day. The two are still in talks. Since taping the episode last spring, Zucker- man has focused on a new strategy. Rather than creating the games from scratch, he buys a game’s mechanics online for a few hundred dollars, customizes it and connects it to his platform. “There are more opportunities to have that one big success with this lowinvestment, portfolio approach.” The vision is to continue to grow by putting out single- game apps created using open- source mechanics. “As our revenue grows, our prize money will grow, too, which will drive engagement and retention.” The company is already cashflow positive.
Michele Romanow is excited about this deal and the entrepreneur, and feels positive it will close. “He stuck with it. Even though I didn’t understand gaming as well as other industries I’ve invested in, I like the entrepreneur and the work he’s put into how to approach this very competitive space. He convinced me to make the on- air deal and now I’m just finishing up due diligence; I’m happy with this deal.
He figured out how to develop games cheaper, he continues to diversify and to find cheap ways to acquire consumers. Now it’s about getting the flywheel going faster. More capital focused on marketing and user acquisition will help make that happen.”
John Cho, partner, KPMG Enterprise, likes the approach the entrepreneur is taking, both in terms of the contest aspect of the platform and its leveraging of open- source game mechanics to cut costs. That said, it’s a highly competitive space and the user base is transient. “It’s all about driving up the number of downloads, but also the number of active users and maintaining that momentum. This is critical. Are people playing the games, and how do you get and keep them? This comes down to the quality of the gaming experience. Are they fun, easy to play?”