A breakthrough game emerges from the Shadows…

Today, I am really excited to finally announce a first investment for Index Ventures in mobile gaming. Along with a great syndicate of two new firms, London Venture Partners and Initial Capital, we are investing $2.5m in Grey Area, the Company behind the next big mobile gaming phenomenon - Shadow Cities. (Press Release & Techcrunch)

One of the great things you get working in VC is the chance to see products at beta and alpha stages. Perhaps once a year you catch a glimpse of something that you feel signals a new direction for an industry or a breakthrough experience for consumers. I remember feeling this way when I first saw Skype, Spotify and the Playfish games. You get the same sense of opening a small window to the future when you first see Shadow Cities. Although still in beta, the game is unlike anything consumers will have seen before both visually and in terms of its location based game mechanic. This hasn’t been just an impulsive investment based on the games creative appeal. There were are plenty of other things which make the investment case compelling:

• Exploding market – The iPhone and Android ecosystems have transformed and democratised mobile gaming. I have written in the past about how fragmentation and the operator channel made the whole mobile app business a nightmare. This is no longer the case, entrepreneurs can access vast audiences by being creative around marketing rather than using the traditional brute force approaches.
• The right monetization model – We have seen with existing investments in Stardoll, Moshi Monsters and Playfish as well as other companies such as Gameforge and Zygna that free-to-play with in-game purchase is probably the most lucrative business model in gaming currently. In-game purchases were rolled out by Apple last year and now a few  of the “Top Grossing” titles in the iPhone appstore  charts are free-to-play games. I would predict that over the next year that the majority of mobile gaming revenues will shift to free-to-play games.
• Positive early traction. One of the challenges with finding investments in this sector is that there are literally hundreds / thousands of developers writing for iPhone and Android. Those with substantial traction and monetisation tend to be valued stratospherically. Finding something which was early but was already showing its potential was what we were looking for. Shadow Cities fitted this criteria precisely. The early beta data from Finland showed very promising metrics around both engagement and monetisation. The app fairly quickly became the Top Grossing game in Finland soon after launch. Now just the rest of the world to conquer …
• Great team – Just four people when we first met, but already achieved a lot in a short timeframe and on a shoestring budget. If you want to see how effective entrepreneusr will be once they have money, see how much they can achieve without financing – that is always the best pointer.

I can’t wait for the forthcoming global launch and hope to cross swords with many of you in the game! Game trailer below…