Don't remortgage your house: Pollen VC's answer to delayed app store payments - MCV

Don't remortgage your house: Pollen VC's answer to delayed app store payments

New ‘velocity capital’ firm explains how devs can make the most of their money – before Apple or Google even release it
Author:
Publish date:
Pollen VC.jpg

Mobile games developers face a major problem: getting paid.

If you sell a game on iOS’ App Store, for example, it can take anywhere between 30 and 60 days for the money for that sale to come through from Apple. Google is slightly quicker, but there is still a delay.

Many games studios plug this funding gap with venture capital money – if available – or credit cards, although there are horror stories of indies and smaller devs remortgaging their houses in order to fund the ads and user acquisition strategies needed to build on a game’s launch.

This issue has been the sole driver behind the creation of a brand new company that positions itself not as a provider of venture capital, but of ‘velocity capital’: Pollen VC. And Pollen has forged an interesting solution to developers’ problems.

The firm offers to pay developers 95 per cent of revenues they are owed by Apple every seven days. Effectively, that means studios will be paid for the previous week’s sales – minus a small fee – while Pollen then collects the Apple payment when it’s ultimately made. The company promises there are no other hidden fees, aiming to keep this offer as transparent and open as possible.

Alternatively, it will take those sales and put 100 per cent of the money into any user acquisition strategies and ad networks the developer chooses – again, removing the need to wait for those revenues to arrive, by which point it is often too late to build on a successful launch.

Image placeholder title

PLUGGING THE FUNDING GAP

Develop caught up with CEO & co-founder Martin Macmillan (above right) to find out more about the firm’s services, which steam from Macmillan’s own experience during his time at an app development company in the music space.

“We had limited revenues coming through and I really needed to access that cash – partly to put into the business but also to accelerate the promotion of what we were doing as well,” he explains. “But we came up against a brick wall.

“I tried talking to some of the traditional invoice discounting firms, but they just couldn’t get their head around it because there wasn’t a physical piece of paper showing what was going to be paid and when. It led to this strange conversation where I’m showing a screenshot from iTunes Connect, saying Apple is going to pay this amount on this date, but they still couldn’t get their heads around it.

“There was a massive disconnect between the old ways of financial services and the app or digital economy. This was very frustrating to me.

“I’ve previously spent seven years working at UBS, a Swiss bank, trading in short term credit risk, so I’m a reformed banker turned tech guy. So when I was looking at this problem, it seemed crazy to me, because I thought we can just take a data feed from Apple – which is far better than a physical piece of paper or invoice – and then when Apple pay, they could pay directly back into us.

“That’s where the concept of Pollen VC was born: we could see the disconnect between old and new, and between our co-founders we had experiences that bridged both the old world and the new. So we had the wherewithal to fix it.”

I tried talking to traditional invoice discounting firms, but they just couldn’t get their head around it because there wasn’t a physical piece of paper showing what was going to be paid and when. There was a massive disconnect between the old ways of financial services and the app or digital economy.

Originally, the firm intended to focus on faster app store payments, eliminating the delay between making a sale and receiving revenues. But in speaking with multiple developers in a similar situation to Macmillan’s former company, Pollen VC happened upon a more promising solution: recycling the money into paid promotion.

“Let’s say you launch and get featured on the App Store; you go from nowhere to hundreds of thousands of downloads a day, maybe tens of thousands of dollars in revenue,” Macmillan says.

“But obviously that featured spot is gone within seven days, so unless you’re able to support that with a level of paid user acquisition, you’re just going to fall like a stone really quickly and squander that amazing chance that Apple has given you.

“We spoke to a bunch of different companies, who recognised that this was the best time to be doubling down on paid user acquisition – but when they went to some of the big ad networks, they wouldn’t give the studios a credit line because they were start-ups.

“These ad networks were turning away companies that were blowing up at the time, and in doing so they were leaving money on the table. The frustrated start-up’s game would drop like a stone when the feature ended and then 60 days later, they’d potentially get tens of thousands of dollars back – but they had already fallen right out of the charts and are effectively dead, because they couldn’t support it with paid UA.”

GAMES FUNDING GAMES

Such a scenario is typical for many indies, although Macmillan acknowledges that many now have money from venture capital investors as well. And while he says pouring VC money into user acquisition is “totally valid”, in his opinion it’s “actually a really inefficient way to deploy venture capital”. Instead, studios might be best served using the money from sales to fund UA – and that’s where Pollen’s alternative solution can help.

“Let’s say you did $1,000 dollars in sales; we could actually recycle that money and directly fund the advertising network on a next-day basis,” says Macmillan. “So if you do $1,000 dollars today, we could put $1,000 dollars tomorrow on your ad network of choice. That way you get into this really rapid recycling process.

“If you’ve got your metrics lined up where you know that you can acquire users on a profitable basis – that is, for every dollar you put into user acquisition, you’re getting more than a dollar out in lifetime value – then this can be a really powerful self-perpetuating model. Effectively, the game or app can be funding itself, rather than using venture capital, pre-paying the ad network on your credit card or employing the ‘hope and pray’ strategy that so many people seem to use, thinking they can launch and hope they’re the next Flappy Bird. For 99 per cent of apps, that just doesn’t happen.

“You’re going to have to support any kind of launch or major update with a level of paid user acquisition. But we’d spotted this funding gap where unless you can unlock the money from the sales you’re already making, you going to have to either use equity money or borrow money. One studio director told us he was going to re-mortgage his house to fund his user acquisition strategy, which struck us as absolutely nuts.”

Effectively, the game or app can be funding itself, rather than using venture capital, pre-paying the ad network on your credit card or employing the ‘hope and pray’ strategy that so many people seem to use.

Pollen VC is also planning to create a user acquisition advisory service. Many devs know that US is crucial to long-term success, but don’t know where to start. The VC firm hopes to offer an independent source of advice.

“We don’t care where you put the money,” Macmillan assures studios. “We’re never going to advise you to put it into a certain network, but we’d like to help educate devs in the concepts of how to measure lifetime value, the key trends around UA and when different sorts of campaigns are suitable, such as burst, sustain and so on.”

Macmillan adds that the problem of delayed payments is unlikely to go away. It’s built into the very architecture of Apple’s App Store and Google Play, and neither firm is likely to rebuild their entire system any time soon.

“It’s a problem for everyone,” he says. “No matter whether you’re doing a thousand dollars or a million dollars per month, you’re still getting paid on the same day. So for anyone who is either looking at launching anything new, or a major update, or any kind of growth trajectory, and looking to spend money to acquire users, then this is a problem. And in a way, they might not know it’s a problem because it’s always been this way.

“What we’ve done with Pollen VC is a neat solution to the problem, but it’s not the only solution. You can just take your venture capital money and throw that into advertising, or you can load up your credit cards. We’ve just done an alternative that I think fits for a lot of developers in a really effective way. If you’ve got your game effectively funding its own user acquisition, then you keep the rest of your money in the bank.”

You can find out more about Pollen VC at www.pollen.vc.

Related