For the past year, some of the biggest names in technology have waged a bidding war for SocialDeck, a small Canadian game-apps maker whose founders were pretty much broke during the start-up's three-year lifespan. The company caught the eye of Research In Motion; and Zynga, creator of the massively popular Facebook game FarmVille, made an offer. But this past summer, Google came out on top, buying SocialDeck for between $10-million and $25-million (the exact amount is a closely guarded secret).
Engineers and long-time friends Anish Acharya and Jeson Patel hit the jackpot–and they got jobs with the search-engine giant to boot.
SocialDeck has carved out a niche in mobile social gaming–a field that barely existed a few years ago. But thanks to the explosive growth of the smart phone business, it has suddenly become one of the most important software markets in the world. It's vital to the corporate futures of everyone from Google to RIM, from Apple to Microsoft.
On the surface, it seems that SocialDeck has lived the dream of every hungry technology start-up. The Google deal was shaped by the networking of various players in the country's new tech epicentre, Waterloo, Ontario. But the way it went down illustrates not only what's right with the Canadian technology ecosystem; it also exposes what's wrong.
When Acharya and Patel launched their company, they looked south, not north–moving to San Francisco in the hopes of tapping in to the rich supply of talent and money that drives Silicon Valley's innovation engine. "We don't have a great culture of start-ups in Canada," Acharya says. "That's not to say there are no great startups, but they succeed in spite of the culture, not because of it."
About a year before founding SocialDeck, the young Canadian entrepreneurs were racing through the streets of Boston in a taxi, with Acharya eating sugar packets in the back seat. Their futures depended on Acharya's blood-sugar level. A meeting with Y Combinator, a big-name technology-start-up funding firm, was less than half an hour away, and their prototype–a diabetes management program that could graph a patient's blood-sugar readings–had stopped working.
The software had performed just fine back in Seattle, where Acharya and Patel had moved after graduating from the University of Waterloo–Patel worked at Microsoft, Acharya at Amazon. Like countless other projects before this one–a Facebook-based matchmaking program, an iTunes database analyzer, a YouTube for DJ music mixtapes–the diabetes software was something Patel and Acharya had created in their spare time, another shot at their dream of designing something from scratch and building their own company.
But now, with thousands of dollars in funding on the line, their latest creation was crashing. "I'm not diabetic, so usually my blood-sugar level is between 108 and 110," recalls Acharya. "But we'd taken the red-eye flight to Boston and I hadn't eaten anything for a long time."
That's how the two engineers first discovered their breakthrough product couldn't handle double-digit blood-sugar readings. With no time to fix the actual code, Acharya started boosting his own readings by gorging on sugar. "So we show up to this meeting and I'm pretty wired," he says.
They didn't get the funding from Y Combinator, but the pair left the Boston meeting determined that they wouldn't try to build the world's next big app in their spare time. Instead, they would quit their lucrative jobs with two of the biggest tech companies in the world and dedicate themselves to their vision. "My perspective was always to do something disruptive, to do something big," says Acharya.
Just a few months after their disastrous Boston pitch, Acharya and Patel did just that. In December, 2007, they quit their jobs and began brainstorming ideas. A new game running on the Facebook platform caught their eye. It was called Scrabulous–an obvious rip-off of the original Scrabble board game, but designed for multiple users to play online. Just about everyone on Facebook seemed to be playing the game, which had nothing in the way of fancy graphics or elaborate levels. Indeed, seemed to thrive almost entirely on the strength of its social appeal.
Acharya and Patel decided they would try to capture the same magic, but on a mobile phone. Thus was born SocialDeck, which aimed to create social games for smart phones. The premise was simple: Give users free, turn-based games that let them interact with their friends, and leverage the Facebook platform to access those friends. The concept seems like a no-brainer today, but when SocialDeck was founded–with far fewer smart phones on the market and the global recession just beginning–it was a risky proposition.
"We want to be at the intersection of social, mobile and gaming," says Patel. "We want to be the EA of the new world." He's talking about Electronic Arts, one of the largest video-game publishers in the world.
Patel and Acharya sit in a small meeting room at the Toronto offices of their new employer. Google's downtown location is on the sixth floor of the behemoth formerly known as the Toronto Life building, at Yonge and Dundas streets. Like many of Google's offices, this one is a mess of plywood and primary colours that looks like a cross between a kindergarten playpen and a modernist carpenter's workspace. An entire meeting room is occupied with an elaborate Rock Band video-game set-up, and, just past the lobby, a newly hired chef lays out the day's lunch. There are racks of free snacks and coolers full of drinks. It's a pretty nice place to work.
Patel and Acharya speak with a sort of guarded intensity that hints not only at a mountain of drive and ambition but also a sense of humour about the engineering lifestyle they have embraced ever since they started going online some time around the sixth grade.
In a way, Patel's comparison of SocialDeck (with its three-man management team, including CEO Dan Servos) to Electronic Arts (with 8,000 employees worldwide) is not as far-fetched as it seems. In the past 15 years, especially following the tech-bubble collapse a decade ago, the process of starting a technology firm has undergone a fundamental overhaul. A traditional hardware company, such as a microprocessor firm, might have required tens or hundreds of millions of dollars in funding. Even the process of creating robust software for a desktop computer might have cost its creators well into the seven figures.
But the rise of high-powered mobile devices has slashed those costs dramatically. Today, a couple of application developers can turn around a decent piece of software for a BlackBerry or an iPhone in a weekend. Not only are many of the software coding tools free to developers, but the methods of distribution are readily available: The average app is approved and uploaded to the iPhone or BlackBerry app stores in a matter of days, sometimes hours.
The end result? A tech start-up that may have called for $2-million in funding a decade ago can get the same mileage out of $200,000 today.
That new reality has created two classes of tech companies: small, nimble start-ups such as SocialDeck, and traditional titans–the Microsofts, Intels and Electronic Arts of the world. More often than not, it is the goal of entrepreneurs in the smaller class to have their companies become, or get bought by, firms in the bigger class.
But that's easier said than done, and, it seems, more likely to happen in the United States than in Canada. While the U.S. boasts the most important tech hub in the world, Canada has few big names outside RIM. "In California, you can see and hear examples [of companies receiving funding]" says Patel. "You start seeing examples of what's possible, and everybody knows everybody."
Not only did California contain countless angel investors on the prowl for early-stage companies they could finance, it seemed to the two young entrepreneurs to be full of other hungry Canadians looking for their big break. So when Patel and Acharya left their jobs in Seattle for a loft in San Francisco in early 2008 (with a few months' stay in Toronto in between), they believed they were entering the best incubation chamber in the world for a small tech start-up.
Their thinking was right. Their timing couldn't have been worse.
the prototype for Shake & Spell was completed in the summer of 2008. Although the programming concepts behind the game were complex, the game itself was simple, designed to be played on an iPhone, a BlackBerry or on Facebook–it was essentially a virtual game of Boggle.
Its creators, who had funded the entire project with their own money and were running low on funds, hoped the concept of connected mobile gaming would appeal to venture funds and angel investors in California. But the completion of SocialDeck's first product just happened to coincide with the global economic downturn. Everywhere the two engineers went, nobody was feeling particularly generous. "The timing wasn't great," says Acharya. "Everyone was keeping their capital. The risk appetite wasn't there."
By September, 2008, Acharya and Patel were back in Toronto. They finally released Shake & Spell to the public at the end of the year. The duo had tried to drum up attention for their company by networking and appearing at some of the events in the Canadian tech community. In April, 2008, they attended DemoCamp Toronto, an event where small companies make pitches to potential investors. But they were still without funding. Acharya was about a week away from selling his sole asset, a $10,000 Honda Civic, when an injection of cash essentially saved the fledgling company.
Ironically, the fund that wrote SocialDeck its first cheque–and helped turn it into the company Google eventually bought–is affiliated with one of Google's arch-rivals in the mobile space: RIM. In keeping with the new mantra of doing more with less, the BlackBerry Partners Fund, which invests in companies doing interesting things on mobile platforms (particularly the BlackBerry), put about $500,000 into SocialDeck. "Acharya and Patel were looking at social gaming from a mobile perspective, on multiple platforms, in the wireless and wireline worlds," says the fund's co-manager, John Albright. "There's no solution that does that other than their solution."
The investment–which paid off handsomely for the fund thanks to the Google acquisition–helped SocialDeck launch three more games. By the end of 2009, it had racked up one million mobile downloads in a single year.
It was during that year that Acharya and Patel went to hear a seasoned tech entrepreneur, Steve Woods, speak in Waterloo. A veteran of the dot-com boom who had already run two companies and worked at some of the biggest names in technology, Woods had taken over as head of Google's Waterloo campus.
After the talk, the two engineers introduced themselves to Woods, and they had him try out some of their games. A year later, Acharya and Patel would find themselves working for him.
Steve Woods still remembers how America Online ruined his company.
In 1998, Woods and a group of partners founded Quack.com, a tool that allowed users to access various services and information using voice commands. The computer scientist, who'd earned a master's and a PhD from the University of Waterloo, quickly caught the attention of AOL. The company bought Quack.com in 2000, just a year after its purchase of Web browser giant Netscape Communications Corp.
By the time Woods joined AOL, he says, "Things were on the path to disaster. I was there two years–I was reorganized seven times, I was a VP of a bunch of different things."
His experiences at AOL–not only the way his product was reshaped (Quack has since been turned into a search tool for Apple's iPad tablet) but also the torment of watching as Netscape slowly faded away–have altered the way he views acquisitions today. "I was brought into Google to be an entrepreneurial advocate, to help drive some innovation, to help champion ideas and get them bought into across the company," he says.
A big part of his job at Google is to look around for potential acquisition targets–the company, on average, makes anywhere from 10 to 20 corporate purchases a year, the majority of which tend to go unnoticed. But when he met SocialDeck's founders in the summer of 2009, Woods didn't see a potential acquisition; he simply saw two bright engineers from his alma mater with a neat product on their hands. It wasn't until early 2010 that discussions between the two sides really began. And the initial impetus for those discussions didn't come from Woods or SocialDeck–it came from Mountain View, California.
Early this year, top brass at Google's Waterloo campus received word from headquarters that they would begin working on a new project–one that the company has yet to even disclose publicly. But it was clear that the new service Waterloo was being assigned to work on was focused on Google's growing interest in social networking. It has made several forays into the social Web as of late–including Wave and Buzz–but it has yet to capture the public's imagination the way Facebook, Twitter and other such sites have done.
This new project would try to do just that. It would bring together the experience of socializing, perhaps even gaming, and mobile platforms. "It became obvious it would involve the kind of experiences the SocialDeck guys had," Woods says.
Initially, the plan wasn't necessarily to buy SocialDeck outright. Woods says the company considered taking SocialDeck on as an early adopter of its new service, or perhaps helping to fund SocialDeck through Google Ventures, the company's venture capital arm. As talks progressed, however, it became clear the two sides had a lot in common. After discussions with various engineers and managers at Google whose work would be impacted by the acquisition, the company decided to make SocialDeck an offer.
Acharya and Patel remember the day in June when they heard the news. The two had just finished a meeting with a SocialDeck board member in the Yorkville neighbourhood of Toronto when they received a three-way call. Acharya walked to the other side of the street to avoid the echo from Patel's cellphone. Standing there on opposite sidewalks, the two heard the news: Google had just sent over a term sheet.
Although the information has never been made public before, there were other companies looking to buy SocialDeck. According to people familiar with the deal, game-maker Zynga put in an offer. RIM also showed some interest, but SocialDeck's brand of social-mobile apps wasn't as high on the company's priority list as it was on Google's. Google moved first.
"Anish and Jeson, they didn't immediately want to sell it–they had to think really hard," says John Albright. "But they haven't had money in two years. Next time, I think they won't sell so soon. I think they'll take more risks."
But while Albright says SocialDeck would likely have received several million dollars more from the fund over time had they not sold, he concedes that many small companies have little choice when a massive tech firm comes calling. "Now they've indicated they want to go into your space, and if they don't buy you, they will buy the next-best guy and they will compete directly with you."
Today, Acharya and Patel spend much of their time travelling between Waterloo, Toronto and Mountain View, learning the ins and outs of their new workplace. Google is the kind of company where engineers print out pages of programming manuals and stick them on the restroom walls above the urinals, and it often takes new employees months to learn exactly how the company likes its software coding to be done. The SocialDeck founders have been given amorphous "product manager" titles, and they will likely get to work on the kind of projects that interest them–Google employees are given 20 per cent of their work time to pursue independent projects.
But it remains the case that SocialDeck's leap from small Canadian start-up to Google property is akin to a basketball player's leap from high school to the NBA. In Canada, where resources are considerably more sparse than in the United States, an already difficult task is made even more so. "Canada is fairly radically underinvested," says Woods. "It's very difficult to raise money in Canada right now.
"Good ideas in Silicon Valley are funded in a way that's valuable to the entrepreneur," he adds. "In Canada, there's been some independent attempts to do that, but early start-up funding is almost non-existent."