20VC Niccolo De Masi on The Bursting Of The Tech Bubble and What It Takes To Be A Celebrity Partner with Glu Mobile

In the debut episode of "News Night with Nicolo" on the 20 Minute VC podcast, host Harry Stebbings and Nicolo de Masi, CEO of Glue Mobile, delve into the intricacies of the startup and venture capital landscape. They discuss the stark valuation differences between private and public markets, with de Masi highlighting the often overly optimistic valuation practices in the U.S. and the conservative nature of European and Asian markets. They also touch on the impending market correction, predicting increased consolidation within industries that have seen excessive growth and investment. De Masi emphasizes the importance of strategic capital raising, advising startups to secure enough funding to maintain strategic options and to focus on monetization early on. Additionally, they explore the potential of celebrity-endorsed mobile games, with de Masi detailing Glue Mobile's success with the Kardashian game and their strategy for selecting celebrity partners based on social following, engagement, and the right fit for game mechanics. The episode concludes with insights into the future of mobile gaming, VR/AR technologies, and the anticipated launches of new celebrity games.

• Harry Stebbings introduces the first episode of "News Night with Nicolo," featuring Nicolo De Masi, CEO of Glue Mobile.
• The show will be a monthly discussion on market situations, funding rounds, and insights into the startup world, particularly in Silicon Valley.
• The episode was recorded before the release of the "Watney rule for Startups" article by First Round Capital, which aligns with many ideas shared by Nicolo in the episode.
• Harry Stebbings also promotes the Sasta podcast, which he co-hosts with Jason Lemkin, focusing on Software as a Service (SaaS) topics.
• Matamart is thanked for providing data analysis for the show and Nick Frost from Thinker on Twitter is recommended for VC and startup articles.

"And today's show is gonna be a little different. It's gonna be a first, and it's the first ever episode of News Night with Nicolo."

This quote introduces the new format of the show, indicating a special focus on discussions with Nicolo De Masi.

"So a huge hand to Nicolo for that."

Harry Stebbings acknowledges Nicolo De Masi's insights, which align with the content of a significant industry article.

"Really, really appreciate that. And where else will we be without Matamart's data, to be quite frank."

The quote expresses gratitude for Matamart's data analysis contributions to the show.

• Nicolo De Masi discusses the differences in valuation approaches between U.S. venture capitalists and those in Europe and Asia.
• In the U.S., VC firms tend to hold portfolio companies at optimistic valuations, while in Europe and Asia, valuations are more conservative, with VCs writing up only a small percentage of successful companies.
• The public market does not allow for extreme valuations and trades based on more tangible metrics like discounted NPV and earnings projections.
• Nicolo observes a growing disjuncture between private and public valuations, especially in the last 7-8 years.
• He points out that private companies can maintain high valuations even when running low on cash, unlike public companies, which would see their value plummet.
• Nicolo predicts forced consolidation and a correction in private company valuations, with potential buying opportunities arising in the next 18 to 24 months.

"If you study the way venture portfolios are built, they would not be in business. If they didn't have the one Uber winner."

This quote highlights the venture capital model's reliance on a small number of highly successful investments to sustain the business.

"The public markets don't get to carry either extreme."

Nicolo De Masi explains that public markets operate within a more moderate valuation range compared to the extremes seen in private markets.

"Private company businesses will sit there and negotiate as if they've gone Runway all the way up to like the last 60 days."

The quote illustrates the disparity between private and public company valuations, particularly in situations where a company is running out of cash.

"You're going to see forced consolidation, you're going to see continued gas error being let out of valuations here."

Nicolo predicts a market correction in the valuation of private companies, with a shift towards more realistic figures.

• The conversation shifts to the catalysts for market realization that some business models are not sustainable.
• Nicolo mentions that many tech companies are initially overvalued, with inevitable corrections when growth rates do not meet the high expectations set by their valuations.
• He points out that all companies face challenges, including macroeconomic factors, competition, and changing consumer sentiments.
• Nicolo emphasizes that while many tech companies are good businesses, their valuations should reflect more realistic revenue multiples.

"I'm never surprised when this happens, because as I've always said to most tech ceos at IPO like, okay, you've gone out at five times revenue. If you were a betting man, do you think it's more likely that it's going to double from here or get cut in half?"

Nicolo shares his view that the overvaluation of tech companies at IPO is a common occurrence, and market corrections are to be expected.

"It's just so perfectly priced. Businesses can grow at 2030, 40, 5100 percent kegr. I mean, glue can grow. Glue has grown 100% in some years. But I would never sit here as a responsible long term CEO and say I will grow at 100% a year perpetually for the next 1020 years."

This quote emphasizes the unrealistic growth expectations set by high valuations and the importance of responsible long-term business planning.

• Companies are ultimately valued based on their ability to generate earnings and cash flow.
• Challenges arise when a company cannot produce sufficient cash or achieve expected top-line growth.
• The importance of realistic forecasting is highlighted, especially in the context of long-term company valuation.

"If you believe that eventually companies are worth what they can earn in earnings and cash flow, you're going to have a challenge."

This quote underscores the fundamental principle of company valuation tied to earnings and cash flow, emphasizing the difficulties that arise when these financial metrics are not met.

• Better venture capital firms have already ceased aggressively chasing investments due to market conditions.
• Top-tier VCs are likely reassessing and slowing down investments in certain areas, pulling out of specific sectors, and avoiding chasing valuations.
• The current market presents opportunities for well-capitalized portfolio companies to consolidate and acquire other businesses.
• Weaker businesses or those in difficult sectors should seek merger partners proactively, especially before financial resources run out.

"I think the better VCs have already stopped, right? So they're not chasing prices up."

This quote implies that savvy VCs are aware of market overheating and have stopped fueling high valuations by chasing investments, indicating a strategic pullback in response to market conditions.

• There will likely be significant consolidation in sectors that have been highly active in recent years, such as gaming and fintech.
• The speaker suggests that the natural cycle of capitalism involves consolidation following investment booms.
• Historical investment patterns, such as those in broadband, demonstrate that initial overcapacity is eventually met with increased demand.

"You will in game mean. I think you will in fintech, I think in a lot of sectors that have had... so there has to be consolidation."

This quote predicts consolidation in hot sectors like gaming and fintech, indicating a natural market correction following periods of rapid expansion and investment.

• Companies should raise enough capital to avoid needing additional funding and maintain strategic flexibility.
• CEOs should consider monetization strategies earlier, focusing on revenue models that can sustain the business in tougher markets.
• Relying on land grab strategies is riskier in the current environment, and businesses should aim for break-even or profitability without depending on future pricing power.

"I would like to say that you raise enough money to not need more money."

The quote advises companies to secure sufficient funding to avoid dependency on future capital raises, emphasizing the importance of financial self-sufficiency for strategic maneuvering.

• The gaming industry is highly competitive and will likely undergo consolidation.
• Glu Mobile takes a long-term view, focusing on value and leveraging their existing infrastructure for accretive acquisitions.
• The gaming industry's global nature requires companies to be adept at serving international markets and capitalizing on labor arbitrage.
• Future industry structure may consist of fewer but larger companies with strengths in key global markets.

"We take a long-term view. We're already in our 15th year, so we're a multi-cycle business."

This quote reflects Glu Mobile's strategic approach to the gaming industry, emphasizing their experience and long-term perspective in navigating market cycles and competitive landscapes.

• Mobile remains the primary focus for Glu Mobile due to the vast addressable market.
• The company is also considering the potential of VR and AR technologies.
• The global smartphone penetration presents an opportunity for expansion, with the aim to reach more devices through various platforms.

"Well, we think that mobile is still the place to play."

This quote indicates Glu Mobile's continued commitment to the mobile platform, based on its broad reach and potential for growth, despite emerging technologies like VR and AR.

• Nicolo De Masi discusses the potential of VR and AR in the gaming industry, highlighting the experience and expertise present at Glu.
• The affordability of VR equipment such as the Oculus Samsung Gear is praised, especially when considering the mass-market approach versus more expensive setups.
• De Masi predicts hardcore PC gamers will adopt VR in the near future and foresees profitability in VR gaming by 2017.
• Mobile VR is considered to have the real promise for the future, extending the mobile gaming experience.
• The conversation indicates a belief that AR will not surpass gaming as the primary application for immersive technologies.

"There's a lot of people at glue, actually, that have worked on VR for some cases a decade or two decades."

This quote establishes Glu's depth of experience in VR, suggesting a strong foundation for future developments in VR gaming.

"I am much more bullish on the $99 mass market approach than I am of the $1,000 kit."

De Masi expresses a preference for affordable VR solutions that can reach a wider audience, indicating a strategic focus on accessibility in VR gaming.

"I think there will be hardcore pc gamers that take to VR in the next two years, and I think there'll start to be actual money made there in 2017."

The quote suggests an anticipation of VR gaming's commercial success and adoption by dedicated gamers within a short timeframe.

• Nicolo De Masi discusses the utility of AR in enterprise applications, such as GE's remote engineering diagnostics.
• He believes gaming will be the dominant application for VR due to its immersive nature, while AR will have more utility-based uses.
• De Masi recounts Glu's experience with Google Glass and the anticipation of its market potential, which did not fully materialize.
• The conversation touches on the convergence of AR and VR technologies, particularly through the use of smartphones as primary devices.

"But the gaming experience works well. And I would call that normally VR because it's an immersive experience."

De Masi clarifies his view on VR as primarily an entertainment medium, well-suited for gaming due to its immersive qualities.

"We built the first Google Glass game in 2013... It was a game called Felista, and we thought Glass was going to come out and we thought it would ship."

This quote provides historical context for Glu's early involvement in AR gaming and their expectations for the technology's adoption.

"I think the most exciting intersection is going to be two or three Moore's law cycles away when VR and AR, using your phone as the primary device will be an option for the mass market."

De Masi predicts a future where the convergence of VR and AR technologies with smartphones will create mass-market appeal.

• Nicolo De Masi explains Glu's strategy in developing mobile games centered around celebrities, leveraging their social media following and engagement.
• The success of the Kim Kardashian game is cited, and the upcoming release of Kylie Jenner's game is discussed.
• The importance of selecting celebrities with a large and growing social media presence is emphasized.
• De Masi notes the different demographics targeted by celebrity games and anticipates the impact of these demographics on customer acquisition and retention.

"We immediately started scouring the market for who we thought could be an up and coming celebrity, as well as a compelling partner for us to build the next generation of, let's call them celebrity games."

The quote reveals Glu's proactive approach to identifying and capitalizing on emerging celebrities for their mobile gaming portfolio.

"Our Kim game went out on June 22, 2014, did very, very well and still does very, very well."

This quote highlights the ongoing success of the Kim Kardashian game, indicating the potential for longevity in celebrity-themed mobile games.

"Kylie and Kendall together have something like 150 or 60 million social followers, and they've got engagement that is very much on par with Kim's different demographic, though."

De Masi discusses the social media reach of Kylie and Kendall Jenner, emphasizing the importance of engagement and demographic considerations in the success of celebrity games.

• The conversation anticipates the expansion of Glu's celebrity gaming sector with upcoming releases featuring Britney Spears, Nicki Minaj, and Taylor Swift.
• De Masi discusses the potential for celebrity games to become the biggest earner among Glu's four genres.
• There is a discussion about the role celebrities play in promoting their games and the criteria used in Glu's celebrity selection process.
• The importance of a celebrity's social media presence and the fit of the game mechanic to the celebrity's brand are highlighted.

"So it'll be a big year for us with celebrity games, and that's, of course, just a quarter of our portfolio."

De Masi expresses optimism about the future of Glu's celebrity games, indicating a significant portion of their business strategy.

"It wouldn't surprise me if it's our biggest earner amongst the four genres we've got."

This quote predicts the potential for celebrity games to become the most profitable genre for Glu, reflecting the importance of this market segment.

"Our celebrity selection process, it's got kind of three or four layers of the filter. The first one is, do you have a big audience?"

De Masi outlines the criteria for selecting celebrities for Glu's games, emphasizing the importance of a large and engaged social media following for successful game promotion.

• Fans prioritize seeing successful outcomes over peripheral details like personal style.
• It's critical to align game mechanics with the genre and audience expectations.
• A recent James Bond game was too cerebral for its core demographic, which expected more action.

"People following us want to see the ball in the back of the net, not what cologne is he wearing? Does he have the right hair gel for the day?"

This quote emphasizes the importance of focusing on the main goals and interests of the audience rather than superficial elements.

"The mechanic genre fit is important."

This quote highlights the necessity of ensuring that the game mechanics are appropriate for the genre and meet audience expectations.

• Successful game development involves the celebrity's willingness to engage and promote the game.
• Regular communication and brainstorming with the celebrity are essential for game development.
• A celebrity's active promotion is crucial for the game's success.
• Sometimes, less famous celebrities who are willing to work harder are preferable.

"Does the celebrity want to do this? And will they roll with you, Kim, honestly, she and I exchange numerous emails a week."

The quote indicates the depth of engagement required between game developers and celebrities for a successful partnership.

"I would rather, in some cases, take someone as a little bit of a smaller celebrity who's going to work really hard as opposed to vice versa."

This quote suggests that the dedication of a celebrity to the project can be more valuable than their level of fame.

• Celebrities can earn significant income from successful games.
• The monetization of a celebrity's social following is a key aspect of the business model.
• There is a trend towards more direct-to-consumer content creation by celebrities.

"No, you can find your way into seven and then even eight figure earnings over the life of one of these."

This quote indicates that celebrity-endorsed games can be extremely lucrative for the celebrities involved.

"We're monetizing that for them."

The quote reveals the role of game developers in helping celebrities capitalize on their social media presence.

• The company is exploring partnerships with male and sports stars.
• Successful games require a good fit between the celebrity's brand and the game mechanics.
• Ensemble celebrity games are a new area of interest.

"We've been public about the fact that we're looking at male stars, we're looking at sports stars."

This quote reveals the company's strategic direction in seeking new celebrity partnerships.

"I've said before that I'd love someone like a Vin Diesel. Alan ol Messi one of these with a sort of 100 million male followers I think is interesting."

The quote expresses a specific interest in partnering with celebrities who have a large male following.

• Time management for a CEO is critical, with a focus on impactful activities.
• Recruiting exceptional team members is a top priority and offers a high return on investment.
• Private companies may have more flexibility to focus on team building without the pressure of quarterly earnings.

"If I had more hours in the day, I would spend more time on recruiting and people decisions."

This quote emphasizes the importance of dedicating time to finding and hiring the right people for the company.

"It's very hard to find the great ones. But when you find the great ones, they more than repay you the time it took."

The quote underscores the value of investing time in recruiting top talent.

• The CEO's role is multifaceted, involving strategy, acquisitions, and stakeholder management.
• A CEO should be present where they can make the greatest impact.
• Nicolo De Masi aspired to run a public company and enjoys the challenges it presents.

"I wanted to run a public company."

This quote reflects Nicolo De Masi's childhood ambition, which he has achieved.

"The emperor general needs to be wherever on the battlefield he can make the greatest impact at that moment."

The quote, referencing Napoleon, illustrates the strategic approach a CEO should take in their role.

• Focus on areas where you can excel and be the best in the world.
• Execution is more important than ideas; a well-executed average idea can outperform a poorly executed great idea.
• Hard work and a relentless drive for improvement are key to success.

"Figure out what you're going to be the best in the world with, get passionate about that and dedicate yourself to it because it will pay off well."

The quote advises entrepreneurs to identify their strengths and passionately commit to excelling in that area.

"I am from a school of thought that ideas are great, but talk is cheap."

This quote emphasizes the importance of action over discussion in achieving success.