A new poster boy for the European start-up scene, Kristian Segerstråle tells GrowthBusiness how as a 33-year-old he is only getting started after the sale of his social gaming company Playfish for an initial $275 million.
As Kristian Segerstråle prepares to deliver his keynote speech at the European Leaders “Countdown to Exit” event, he ponders his performance.
He asks whether he should don a lycra suit and express it all through the medium of interpretative dance. It’s typical of his playful style, but to imagine that he doesn’t take business seriously would be a serious mistake.
At the age of 33, Segerstråle is co-founder of two successful companies, the first of which was floated on NASDAQ while the second, Playfish, was sold to games publisher Electronic Arts (EA) for an initial $275 million (£173 million), plus a retention bonus of $25 million and a further $100 million of potential earn-out payments.
Playfish had received just $21 million of funding, mostly from Accel Partners and Index Ventures, which Segerstråle says the company hardly used. The two investors were recognised at Business XL’s Investor AllStars awards, in which the Playfish sale won the Exit of the Year gong.
Yet Segerstråle shies away from the language favoured by investors. ‘As an entrepreneur, I naturally hate the word “exits”. Exits are what investors talk about. I’ve always preferred looking at M&A and financing as being a means to an end,’ he declares.
Finland-born Segerstråle, who continues to lead Playfish from inside EA, believes the problem with European entrepreneurs is that they simply don’t ‘dream big enough’. That wasn’t his problem.
His first company, Macrospace (now Glu Mobile) aimed to ‘put a game in everyone’s pocket’ via mobile phones, while Playfish aimed to ‘turn a $50 billion industry on its head’ by offering gaming as a service rather than a product.
Using the power and reach of Facebook, Playfish makes gaming a social, interactive experience that people pay for as they become hooked.
‘The product itself is a lot less valuable than the community around the product,’ says Segerstråle. ‘We’ve got 50 million players who love us and play us every month.’
Segerstråle was obsessed with games from the age of about three.
‘I was fiercely competitive with my brother,’ he says. ‘We were playing the same games, either against each other or both of us playing a co-operative game. I used to love gaming arcades too – that was more of a social thing where you were shooting aliens and it was almost like you were on stage in front of your friends.’
Academically gifted, Segerstråle studied economics at Cambridge University.
‘Everybody else went from Cambridge to do a proper job – consultancy, banking, working in newspapers, whatever. I joined a small start-up. About one year into that, I fairly arrogantly decided that there’s room for someone who does this properly, as opposed to writing pretty PowerPoints for investors.’
That led to the founding of Macrospace in 2000, whose aim of putting a game in everyone’s pocket was an ambitious one at a time when ‘no-one could download anything on their mobile phone’.
While other start-ups struggled to attract funding or to deal with the fallout of the dotcom crash, Macrospace eschewed the VC route.
Between 2001 and 2004 the company saw rapid and profitable growth, says Segerstråle, and then underwent a series of mergers that led to the initial public offering (IPO) of Glu Mobile in 2007.
Playfish was founded in the same year by Segerstråle along with Sebastien de Halleux, Sami Lababidi and Shukri Shammas, all of whom had worked with him at Macrospace. They, together with a number of business angels, stumped up $3 million in seed funding.
‘We were very lucky,’ Segerstråle concedes. ‘We had the right team and the right idea at the right time. A lot of things went our way – and a lot of hard work was involved.’
There was no lack of ambition. ‘We wanted to be as social as Facebook, as audacious as Nintendo, as committed to total quality as Pixar,’ says Segerstråle.
The comparison with Nintendo is revealing. Segerstråle is a great admirer of the Nintendo Wii, which through its social element opened up the console gaming market to millions of new customers. In the same way, Playfish is more about the interaction than the game itself, removing the need to develop ever more complex and sophisticated products with an ever decreasing shelf life.
In fact, Segerstråle compares the gaming industry to a prehistoric landscape populated by corporate ‘dinosaurs’, with Playfish pictured as the asteroid that wipes them out.
While he’s adept at creating what he calls ‘culture, myth and lore’ around the company, there’s a bit of a gap in the story when it comes to sales and profits.
‘We have never discussed financials,’ says Segerstråle, who adds that the company was profitable at the time of its acquisition by EA.
Surprisingly, the strategy for monetising Playfish was not set in stone from the outset.
‘We knew we had a number of options. We saw that in-game advertising was growing, and then there was the good old subscription model,’ says Segerstråle. ‘But we were focused on community – delighting our players first, worrying about revenues second.’
That may sound cavalier, but Segerstråle insists, ‘If something is completely proven, it’s no longer a start-up. There is a lot of money out there willing to bet on a good gamble, but you have to understand what the gamble is. If you are just going after things you believe are safe, you end up running the sandwich shop on the corner.’
There’s no sign that Segerstråle’s free-wheeling approach to business was at all disturbing to his VC backers. Accel and Index were, he says, ‘amazing investors’ who supported him at every stage.
‘I would like to take credit for running the recruitment process for those investors, who gave us a board that could be pitted against any other board out there,’ he observes.
Segerstråle presents himself as a maverick – someone who feels most comfortable fighting the ‘dinosaurs’ of his industry. So wasn’t he worried that the acquisition by EA would cause a throwback in the company’s evolution?
‘That was my first thought when we started conversations with them,’ he admits.
‘But EA Mobile has gone from not understanding [mobile games] to dominating the landscape. I know, because we competed with them furiously for five or six years.’
That nimbleness is matched by the company’s online operations, Segerstråle adds, leading to broad discussions over franchising between Playfish and EA Interactive that eventually grew into merger talks.
He adds more light-heartedly, ‘EA may be a dinosaur but it is committed to becoming a mammal real quick. We’re having a lot of fun trying to reverse-takeover the whole company.’
Segerstråle is committed to a two-year earn-out at EA which concludes at the end of 2011. He says no staff have left Playfish as a result of the acquisition, and its headcount has doubled to about 300.
Meanwhile, he has been left to run the business in his own style, staying true to the company’s original culture – although he jokes that his PowerPoint skills have had to improve fast.
‘That was the deal. I told them I will be valuable to you if I continue as I am. Set me free, and I shall deliver.’
Fired with his own success, Segerstråle believes that now is the time for entrepreneurs with grand plans and monster ambition.
‘New start-ups are enormously capital efficient. If you have a laptop, you can access the greatest supercomputers in the world through the cloud. You don’t need as much money as you did six or seven years ago, when you had to think about your own data centre, web server, and so on – all this stuff today is totally run-of-the-mill.’
In fact, it’s skills, not money, that Segerstråle feels are lacking in Europe.
‘What we miss more than capital is people who have done it before, and not just as entrepreneurs but guys who have built stuff – the kind of person who’s been a product manager at Google, worked at Facebook and seen what success looks like.’