Daniel Blomquist 19 December 2018

The Beginning of a New
Journey

A few hours ago, it was announced that Zynga (NASDAQ: ZNGA) has acquired 80% of the Creandum fund's portfolio company Small Giant Games valuing the company at $700 million. This is one of the largest M&A deals ever in the mobile gaming space, and marks a new milestone in a remarkable 4-year journey that Creandum has been fortunate to be a part of since the very early days when the Creandum fund led the first VC round in the company.

I first heard about Small Giant Games at the annual IGDA event in Helsinki where I was having a beer with Osma Ahvenlampi, a seasoned tech executive who has been involved in several successful Finnish tech teams and companies. Notably, Osma had been the CTO of Sulake, the company behind the legendary Habbo Hotel (think Roblox on the web 10 years ago) which during the mid-2000's was one of Europe's hottest internet properties. Osma introduced me to another ex-CTO from Sulake, Markus Halttunen who had just started a new mobile games company with four co-founders. Markus and I chatted briefly at the event and then decided to follow up with a lunch a few weeks later. Eventually that conversation led to me also meeting up with the then-investor, soon Small Giant Games CEO Timo Soininen who previously had been CEO of Sulake for several years.

At the time, the team at Small Giant was working on a new type of endless runner game that eventually was released as Oddwings Escapes. When I saw the prototype game, I was amazed by the game physics and the stunning visuals of the game - it was simply one of the most beautiful mobile games I had seen. And although we knew that endless runner games had inherent problems in terms of longer-term retention and monetization, it was clear that the Small Giant team had something special.

More importantly, what got us really excited was that the team both had a track record of developing highly engaging game experiences at scale (hundred of million of users' scale) combined with very strong company building experience. The combination of being able to both build successful games AND a successful games company is something we always look for when evaluating game companies.

Fast forward a couple of months during which our team played Oddwings Escape furiously, the Creandum fund decided to lead the company's seed round to allow the team to release the game and have runway to develop several additional titles.

In games, it is very rare that a game becomes a big hit and it's even more rare to pull it off on the first go. That is why Creandum typically doesn't back a team only based on the game that they are currently working on, but the potential of that the team at some point will get all the pieces right. This is exactly what happened with Small Giant. Oddwings Escape never made it big, but the learnings from this game (and their second game Rope Racers), proved invaluable when they developed their third game: Empires & Puzzles.

And the rest is history.

If you look at independent studios over the last couple of years, Small Giant Games is today one of the very few that have made it into the top-ten grossing charts globally (and most importantly in both the US Apple App Store and Google Play) with hundreds of million of dollars in revenue run-rate. It is an achievement nothing short of amazing, and this position has been achieved in 18 months from launching Empires & Puzzles with very limited external funding.

So what have been some of the key takeaways that have allowed this small team to build one of the most successful mobile games companies of the last 10 years?

  • A culture of Sisu The team at Small Giant works incredibly hard and keep pushing what is possible for a small team to achieve. Everyone is acting as owners of the company (because they are) and they are a great manifestation of the Finnish word Sisu which basically means never give up. After not finding success with the two first games, the team just rolled up their sleeves, quickly analyzed what would be needed to get a top-grossing hit and never looked back. The team is incredibly open to learning, has no prestige and just gets shit done.

  • Hire well and never compromise on quality of people The quality of the people that Timo, Markus, Otto and the team brings on-board are absolutely top-notch. The recruiting process is exceptionally thorough and the team spends a lot of time on recruiting making sure that only A-players that are able to be highly effective are brought on board. This allows the team to have an amazing efficiency resulting in a team of less than 40 people making euro nine-digit revenue.

  • Identify an untapped market opportunity When Tim Lönnqvist joined the team as head of game design, the first thing he and the team did was to really analyse the market. Based on that, they identified an untapped opportunity of using a well-proven, very accessible game mechanic (the match-3 used in for example King's Candy Crush) but combining it with a much deeper game play more similar to mid-core games. As a result, Small Giant pioneered and is today the leading studio in a new genre of accessible mid-core RPG-games, which have a familiar game mechanic to casual games, but a much richer gaming experience which allows for gamers turning their favourite game into a hobby. Interestingly enough, Empires & Puzzles have more than 40% female gamers in a traditionally male-orientated game genre.

  • Release early, measure data obsessively and act on it Empires & Puzzles was released 5 months after prototyping in order to quickly get feedback from the players on key metrics including retention. These metrics were already at that early stage very promising and once the team saw that the initial data looked promising they continued to iterate on the game and constantly improve all relevant game metrics. The alternative cost of continuing with a game for too long is just massive and if the game doesn't have good enough retention metrics even if it's early, likely it will never get it - it's just so hard to fix a broken game so often it is better to start again.

What's Next?

The Small Giant is working on some exciting new stuff and Empires & Puzzles continues to grow massively while still having a lot of untapped potential. The synergies with Zynga are obvious, Small Giant will bring both strong growth and profitability through a world-class game and IP which will complement and expand the Zynga portfolio. In return, Small Giant will gain access to multi-million daily active users that might be ready to pick up a new game and expand their casual game favourites to a deeper game experience.

When we're now getting off this rocket ship, I can only extend a deep thank you to the whole team at Small Giant for an extraordinary journey and wish you good luck on the continued path ahead.

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