The head of German mobile developer Fishlabs has explained some of the factors that led the studio to cut 25 staff and seek the German equivalent of Chapter 11 bankruptcy protection.
“Raising money is always a challenge, especially when you don't yet have a live game that shows great metrics - at least in a handful of countries,” he said.
“You might think success stories like Supercell have made it easier to raise money, but for some investors and even strategic partners the opposite is true.
“If you don't have a game that has the potential to generate $1 million a day, it is a tough call.”
Fishlabs is one of the most experienced mobile gaming companies in Germany and is responsible for premium iOS titles like Galaxy on Fire (which boasts an install base of 40 million players for the franchise) that have pushed the boundaries of smartphone development.
“With such a strong foundation, we had been able to expand continuously over the past five years with growing revenues and profits year-on-year,” said Schade.
“However, there have also been obstacles that slowed us down, such as the transition from premium to free-to-play and constantly keeping up with an ever-changing mobile market, which is dashing towards console quality at lightning speed.”
“Ultimately, we were no longer able to deal with these challenges without the aid of a significant investment.”
Despite these challenges, such a record would hopefully mean the company is high on investor's lists, but as it turns out the studio made business decisions early on that now limit its appeal.
“Our biggest challenge followed from the fact that we had given away too much equity in our Series A funding round back in 2007,” explained Schade.
“With the founders being down to 39 percent, getting new investors on board for a potential Series B round has been next to impossible. To make things worse, any stock option programs for the team would have been taken from that 39 percent as well.”
This is where bankruptcy comes in; though many see claims for such legal protection as the death-throes of a company, if successful a bankruptcy filing can give the company a fresh start – and that's just what Schade is gambling on.
“Going through chapter 11 puts us into a new situation where we can buy-out all our assets and restart with a new legal entity and a fresh, healthy capitalisation - including a reasonable stock option program for the team,” he said.
It might already be paying off, as the news of the company's predicament has drawn out some would-be rescuers.
Even so, Fishlabs is going to have to start fresh. Free-to-play is a different model than premium games, and the company will have to demonstrate it can adapt.
“Before we hire new talent again, we first have to prove that we can be successful within the free-to-play environment,” said Schade.
“It is much more difficult to be commercially successful with a free-to-play title than it is with a paid game, because you need a much bigger team working on the game design, backend, tracking and performance marketing.”
First, the company needs the cash to float such a team, and to ride out the cycle of iterations needed to see a free-to-play launch to success.
“You also need to have enough cash up your sleeve to go through several iterations because you have to optimize the game permanently after its initial launch,” Schade concluded.
“And last but not least, you also have to spend quite a few marketing dollars to make sure that more and more players find out about your game and sign up to your servers.”