Chobolabs: One Exit and Many Lessons On Doing a VC Backed Gaming Business
Deyan Vitanov and Petar Dobrev, the founders of US-Bulgarian game developer Chobolabs, have recently closed an important deal. After raising nearly $10M in the past seven years and growing the players base of their title Mayhem to more than 1M, in April the entrepreneurs finalized the merger of their company with the US-Japanese Game Closure. For the next two years, the two founders will join the team of the new company and in the meantime look for opportunities to bring together the old team of Chobos.
This is a story of creating a venturable gaming business and the terms and conditions that come with it, and about recognizing the moment for the next big thing.
“At the end of 2017, even though we were developing quite well and have increased the key metrics 16x, had players, and were featured at some of the most important conferences in the sector, we were not growing at the pace we needed to. So, we started looking for opportunities to get out of the situation,” explains us Deyan Vitanov.
After conversations with six potential buyers, the founders decided to go with Michael Carter, one of their first advisors, and his company Game Closure. As part of the deal Vitanov, Dobrev and their investors receive equity from the new company which gives them the perspective to multiply their returns between two and five times in the next years. “When you are raising Series A, like in our case, investors would expect at least 10x, if not 100x, return. As we realized this was not going to happen soon, we chose another strategy,” tells us Vitanov.
A matter of strategy and numbers
Chobolabs was started in 2012, as Vitanov’s third and second common with Dobrev venture, with the vision to create an eSport for mobile devices. First, they built the game engine and the infrastructure that would allow real-time gaming on smartphones and tablets. At the time they raised their first significant round of investment (around $1.3M in 2014), the genre of the game was not too specified. Their title Mayhem came a bit later and was designed as a real-time multiplayer shooter game.
“In 2015, as we were already developing the game, we made a bet. The choice was between developing a strategy and a shooter game, both markets were estimated at around $100M at the time. We decided to do a shooter game. As it turned out, however, in the next years the strategy market grew to $3B, while the shooter was lagging behind at around $200M,” recalls Vitanov. Interesting enough, the trends on the PC gaming market have been going in the exact opposite direction, the founders say.
The company with its traditional gaming business model – purchases within the game, despite reaching 1M download at a point, was not able to reach the positive unit economics (more revenue per installation than invested to attract the player – ed. n). And organic growth through viral campaigns, competitions, and influencers was limited. “Our revenues allowed us to run a great lifestyle business but having VCs on board doesn’t really resonate with this model,” smiles Vitanov. Having around 20 competitors at the space such as Brawl Stars and seeing where the market is going, the founders decided to switch the strategy.
One of the key points of the current deal is actually the technological platform of Chobolabs. In the next two years, Petar Dobrev has the mission to make all future titles of the buyer, run on the developed by his team in Sofia platform. Vitanov, on the other hand, joins the leadership team and will act as general manager for North America of Game Closure, a platform for mobile messenger games, that has attracted $50M+ of funding since its inception in 2011 and has partnered with Japanese mobile space giant Rakuten in 2015.
The awaited reunion and the new horizons
What’s the next big thing would be a logical question for the two founders who have just made an exit with an opportunity for a good return in the near future. Vitanov and Dobrev still have no unicorn plans, but they want to bring together their team again. After several attempts and failures to find the right partners, co-founders and team members in the first years, they finally managed to put together the dream team of Chobos. Between 2016 and 2017 there were close to 30 people working on the vision to create the next mobile eSport. As the game changed, the founders had to scale down the team and this was probably their hardest decision.
“If you ask us what we want to do next, the answer is simple: to use the connection in the Valley to bring the team together again around cool projects. There’s tremendous talent in Bulgaria, and I don’t mean only technical, and those people could do wonders,” says Vitanov.
Whether there’s something big around the corner, or Vitanov and Dobrev will continue doing what they are good at – developing businesses and selling them with no big fanfaronade, remains to be seen. But one thing is clear, next time you play something in Facebook messenger or Snapchat, there’s a high chance it’s running on a platform made in Bulgaria.
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