I was phoning with a friend from the German games industry to catch up and share latest developments in the scene - and yes, gossip - when he told me troubling rumours about the TreasureHunt studio in Berlin. TreasureHunt made quite some local headlines, with a total investment north of 8 million Euro with the majority coming from the Gauselmann Group, a large gambling company also located in Germany.
So this definitely got me curious: How do you spend 8 million Euros in 4 years, what did they achieve, and what happened in the studio? Let's dig into every public info found (and add a little personal assumption from experience)!
Promising Beginnings
TreasureHunt was founded in 2013 by someone, who has worked as game mode designer and producer at EA, teaming up a serial entrepreneur and angel investor. Joining a little bit later was a CMO, who held leadership roles at well-established ad network providers, to complete the company leadership. This, on paper, really looks like a very solid case to invest in, by all means: 2014 was the time of really strong growth in mobile markets, they had local administrative knowledge, Berlin gave out grants and assistance left and right for trying to boost its startup culture more (via its own agency, Berlin Partners), the CMO had inside knowledge on how to navigate best with ad monetization and they had a CEO that worked his way from the ground up and seen or even designed firsthand games for this exciting platform.
So naturally, they attracted more investment - 2 million total, more or less - for seed funding, and started working on their first game, Boomie Blast: A 3D cute style hybrid of what us older folks still know as Atomic Bomberman, a bit of Super Mario World, in hundreds of handcrafted levels with nods to Tower Defense and Arcade games. Sounds good right?
Numbers don't lie
Except this is a first red flag. It is super ambitious: Except for the leadership trio, you would need a PM, a producer, 2-3 3D artists for all the game assets, 2 level designers, probably 2-3 programmers, a game systems designer, 2 UA managers and a marketing assets designer. That's 14 people game production staff minimum plus 3 in leadership, and you'd add to that an office manager, an HR manager, a junior role somewhere, to top it off at a good 20 people. Now keep in mind, the operative leadership has not been native to Berlin, a Germany for that matter, so they certainly dealt with some hires that turned out not to be the greatest fit for the company, for that time, and for that team. As such, the natural reaction - especially for leading people from established, successful companies - is to hire what they perceive as best in the market (read: people who came from recommendations in shared or other established, successful companies), and pay a premium to salary for attracting them to a newly founded startup.
Now you need to know that Germany is quite an expensive playground for employers: The staff has some sort of net amount in their head, and calculates backwards as to what they would require as gross salary to make a move. On top of this, employers have social contribution costs ranging somewhere around 35% of gross salary in addition to the 45% that makes gross a net salary. Or in absolute numbers: A senior developer today doesn't go home without 3500 Euro in the bank, monthly, which is a gross salary just short off 6500. Add to that the employer share of contributions and some admin overhead from office rent to coffee flatrate, you can expect a rough 10.000 Euro monthly PER employee, or a burn rate of 200.000 Euro monthly.
For the American, Silicon Valley-based readership with access to a lot of risk capital, that doesn't sound like much. But let's do some economics here: You have for the top line of mobile games a pay rate of 3%, and according to the 2018 Game Analytics report, an ARPPU of 21$ in the Arcade or Casual genre. That gives 60 Euro gross for every 100 players, which then are subject to the 30% platform 'fee' and Mister Taxman wants to have his VAT share too, so in reality you get down to 0.40 Euro per player. Add to that some ad revenue which certainly wasn't as high back then as it is now, and you have a very generous 0.50 ARPU. So you would need 700-800k revenue PER MONTH already for the burn rate, and that is without the Marketing costs! Add to that with standard RoI for your campaigns, you'd end up at 1.8m-2m monthly gross revenue monthly to make this scheme work.
Almost needless to say, it didn't. The above-mentioned troubles with hiring steal production time, the production time is not monetized, the CEO and his angel partner were probably scrambling to find follow-up investments to bridge the time until the product hits the market, and meanwhile crafting the usual message that it's the team and its culture to invest in, and not the product, and in the end it's all gonna be worth it. There's one ultimate truth: Numbers don't lie, and Boomie Blast was predictable to not being the saviour.
Opportunity is a gamble
However, sometimes opportunity come from different angles, and if you can grab it, the party goes on. Equipped with all the experience of a failed first product, from team cohesion and more accurate ability assessment to better understanding of strengths applicable to a still booming market, the team found another actor that had other motives: The Gauselmann Group, Germany's oldest and biggest gambling company. The makers of slot machines could lend their knowledge about more snackable sized game modes, and have partnered before with former Bigpoint CEO Heiko Hubertz to develop a casino app for mobile devices. The Merkur24 app was not good, not terrible to quote the infamous Chernobyl dialogue, so Gauselmann certainly understood risks to some extent but also the chances and lessons from a game launch that is behind expectations.
I certainly believe that Gauselmann had a different motive to invest, however: Half a year before, they applied for membership in Germany's BIU (now rebranded as 'game' after a merger), the lobby group for game production and publishing companies, and got rejected after an outcry of its established members who deemed gambling as unethical and potentially detrimental to their efforts for political clout that should result in tax breaks and government grants for development on par with other countries. Those lobby group goals however would mean a lot of benefits for the Gauselmann Group too whose own gambling lobby group was not very successful in breaking some of the tight regulations on gambling, so more diversity and political access would definitely have helped. Alas, they got rejected and half a year later, a 5.4m Euro investment was announced just one day before the release of TreasureHunts second title, Pet Paradise. Make of it what you will but timing aligns with burn rate on TreasureHunts side, and Gauselmann had all sorts of motives to get on board through this gaming business as a backdoor.
Writings on the wall
Now let's look at Pet Paradise: A bubble shooter, more cute, more colorful, more accessible, way easier in production, and proven in popularity. It is clearly visible that TreasureHunt has learned to curb the ambition and focus on the core strengths of the team that are high quality production and ad monetization. However, the market has progressed between their first and second release, the competition is more fierce, marketing budgets needed are bigger, and everyone scrambles to tap into the casual audience that King and Zynga have created.
And that was their downfall. The game itself is really good, but the 2017 and 2018 market is not about having a perfect game, but about being able to capture an audience. And here, TreasureHunt failed completely, not even reaching half a million installs on Google Play, and likely not much more either on iOS with the global launch featuring being their biggest achievement in both downloads and revenue - and those have yielded much less results than I know from both the last 2 games I have marketed which combined don't even reach half the amount of investment that TreasureHunt has attracted and failed to convert.
The end of the story is quickly told: Most staff has abandoned the company already according to LinkedIn, the publishing rights have been sold to Azerion, the Israeli media company that currently is very active on the M&A market in Europe, and has recently acquired Spil Games in the Netherlands.
There is of course some bewilderment what happened in between the release in Summer 2017 and the ceasing of operations in January 2019, and how the heck you would sink another 5m but that can only be speculated about: previous debts from a too-high burn rate, exits of angels, a third product in development that has not manifested, we will probably not know. We know however that the board member for New Media at Gauselmann is not in the company anymore and that seat has been incorporated into another role, they have a new board member for Finance assuming his seat shortly before the deal signing member, and seemingly the Gauselmann Group has not resumed to invest into any other mobile games company ever since.
Conclusions
Why did I write all this, what is there to learn (from my perspective)?
→ Big names don't (necessarily) make big games - arguably best staff is found in low budget companies where creative hustling and role fluidity is needed.
→ Start making games for the market of the future, not for the current market. I know personally of 8 mobile shooters in development right now, and that is Russia/Eastern Europe only.
→ Network and check what others are doing, and then execute plans fast, not perfect. Iterate with live data, not with your assumption of player motivation.
→ Marketing is king over game design and monetization, and will dictate your dev budget. If you can attract x users for y money at z RoI, the difference is your budget. It's as simple as that, and you can predict this relatively accurate.