London, Ont., mobile game maker Big Viking Games has announced it received $21.75-million in debt financing in 2016, and hopes to raise almost $60-million more in equity financing to expand in the coming years.
Founded in 2011, Big Viking avoided equity financing until now, relying instead on debt financing and revenues from its lineup of social games such as YoWorld (formerly Zynga's YoVille).
Royal Bank of Canada and Export Development Canada (EDC) joined together to raise $18-million as part of the deal.
"This is super unique for RBC," said Big Viking Games chief executive officer and co-founder Albert Lai. "There are very few tier 1 banks that are investing in high-growth tech companies."
Big Viking said it is profitable with a 55-per-cent compound annual growth rate on revenue.
In April, an analysis by Newzoo predicted that mobile games designed for tablets or smartphones will for the first time capture the largest share of the market – 37 per cent with $36.9-billion (U.S.) in revenue – surpassing the revenues earned by PC games (estimated at $31.9-billion) and consoles (estimated at $29-billion).
The mobile game market is an incredibly crowded and expensive one. An analysis by Deloitte found about 800,000 mobile games in app stores, which means enormous marketing spending is necessary to attract audiences, many of whom will play for free as the dominant mode of playing is so-called "freemium" where players pay small amounts to unlock game features. As such, Deloitte concluded: "We expect about 80 per cent of mobile games revenue in the top 1,000 titles to be earned by the top 20 publishers in each region."
And in mature markets, the number of app downloads is going down: over the summer Nomura published a report that showed that 15 of the biggest app publishers in the U.S. saw downloads slip about 20 per cent from a year earlier.
Mr. Lai points to two new factors in the mobile market that could break the app logjam, which his company has spent millions of dollars in R&D preparing for: improvements in mobile browser performance and the ability to do one-click purchases connected to a phone's payment system inside open web pages.
The latest versions of the Android and Apple mobile operating systems now allow the browser to access a smartphone's graphics processor. "We are able to render 3D graphics – and you can render 2D graphics with the 3D hardware – so anywhere you can deliver a URL you can play a native rich game, a game that looks identical to an app," Mr. Lai says. That means the open Web, or social networks and messenger services, can now link directly to rich games that don't require the user to download them. That potentially breaks games out of the app store monopoly.
The second innovation – an open standard for one-click buying on Chrome, Safari and Mozilla browsers – puts websites on the same footing as apps that allow users to use the phone's micropayment system. It also lowers the cut that game developers have to give to the app store providers.
"If you compete in the app store, it's a zero sum game… that's why we spent five years creating new channels," Mr. Lai says. Big Viking hasn't published any HTML5 games that exploit these twin features yet, but the company has a number of titles under development.
The size of Big Viking's deal puts it among the top-20 venture funding deals in Canadian tech, according to the Canadian Venture Capital Association. In the first half of 2016, more than $1.5-billion (Canadian) was invested in 255 venture capital deals, which is more dollars for fewer deals compared with the first half of 2015, which saw $1.1-billion raised in 272 deals. About 50 per cent of the money raised in 2016 went to so-called "late stage" rounds of investing, the kind of deal intended for companies that are beginning to expand their market reach and increase revenues quickly.
On Tuesday, Waterloo-based employee training software company Axonify announced a similar stage deal, raising $36-million. The biggest venture funding of 2016 was Kitchener, Ont.'s Thalmic Labs' injection of $158-million to expand its wearable technology portfolio.
Mr. Lai says Big Viking will be adding 200 people to its 100-person team, and will soon be on the lookout for acquisitions that add either technology or valuable game intellectual property. "We can be on the aggressive side and be acquiring," he says.
Editor's note: An earlier version of this story incorrectly said Big Viking Games hoped to raise another $40-million in coming years. In fact, the company hopes to raise another $60-million. Also, $21.75-million in debt financing was raised, not equity financing as was previously stated.