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De Masi recently launched a special purpose acquisition corporation (SPAC) on the New York Stock Exchange. In that transaction, investors put him in charge of a company with $200 million, and De Masi gets to decide what to acquire with all of that cash.
It’s a way of going public without all of the hassle. Investors put their money into a shell company, and the management of the company — De Masi and chief financial officer Harry You — will acquire one or more companies. De Masi said they will focus on the next big mobile app, something like TikTok or whatever they can find, and then try to grow it into something huge.
De Masi is still chairman of mobile game company Glu Mobile, which still operates Kim Kardashian: Hollywood, which broke open the celebrity mobile games market when it debuted in 2014. He then started signing up a number of A-list celebrities. Some games like Restaurant Dash with Gordon Ramsay did well, but others such as those for Britney Spears and Katy Perry bombed.
De Masi gave up the CEO title at Glu in 2016, and now he is diving into the SPAC, dMY Technology Group as CEO. You serves as chairman. De Masi spoke with GamesBeat in an interview last week, and here’s an edited transcript of our interview.
GamesBeat: Can you pick me up after leaving Glu and moving on from there, getting to where we are today?
Niccolo De Masi: I never left Glu in the sense that I’m still the chairman there. I was the executive chairman for three years. I’ve finished my 10-year anniversary at Glu. That was January 5. But I’ve been less operationally involved for the past month or two, and not the CEO for the past three years or so.
I’ve done two hardware businesses in the meantime, both in the mobile or IOT space. You’re aware of the saga with Andy Rubin for a year or two, and then I spent a year or two on the board of this business, Resideo Technologies, which was the spinoff from Honeywell Homes. I’ve done some interesting stuff, but I never stepped off the board at Glu, and I remain actively involved there. My heart and soul has always been in mobile, and it still is. That’s why I’m doing this mobile app SPAC.
GamesBeat: How did this dMY get started?
De Masi: I’ve been thinking about doing this, and you might find this incredible, since about 2007. I sold my first public company, a mobile music business in the U.K., in February 2007. That year I gave real thought to doing something like this. Obviously I went to Hands-On Mobile and went to Glu instead. But over the last 18 months, two years, I’ve been learning seriously about how to do this. That’s a mixture of talking to banks and talking to potential partners, and also refining my idea.
What we’ve come out with is unique. It’s uniquely operationally focused. What makes the difference from every other SPAC out there is that–you’ll find this funny, but unlike most SPAC ventures, I’m not a guy who used to do stuff. I’m a guy who’s doing stuff. I consider myself effectively–if not the inventor, a co-inventor of bring free-to-play as a business model to mobile devices in 2009-2011. Certainly on Android, and certainly with action games. Same with things like rewarded video, if you remember the days of Tapjoy and Flurry. We were right in the middle of all of that.
The reality is, my operating experience is recent and relevant. I’ve been holding off for the last two or three years from taking any independent board seats. The reason for that is I wanted to make sure that my universe of potential investments and SPAC partners was maximally broad. I’m looking to build a $10 billion business by starting with a $1 billion business, as opposed to–at Glu we started with a $30 million market cap, which was a great ride, but obviously we grew from there to a billion or so. This time around I want to go from $1 billion to $10 billion.
I’m looking to do it in gaming adjacencies. I’m not trying to do this in the game space, believe it or not. I think there’s a lot more competition in the game space than there is in the game-adjacent space.
GamesBeat: Why is SPAC the good way to do this? Are there other options besides doing SPAC, or is it the best deal in town for you?
De Masi: I’m probably the only person you’re going to talk to who’s been doing mobile stuff and public company stuff for almost 20 years. I’ve been doing mobile content since the days when the black and white Nokia snake game on your futurephone was cutting edge. Or the days when modified ringtones were cutting edge. The reality is, my first public company listed in November 2003. We’re here in 2020 and I’ve been through four public companies, a handful of private companies. I’ve been on the board of a run. When you think about my expertise, it’s the blend of public companies and the mobile ecosystem.
I could have gone to raise my own private equity fund or something like that. But there’s a lot more money in the private markets than there is in the public markets. I also think there’s been a complete paucity of public company formation. Not just in the past five years, but outside of gaming and dating, there’s really never been much that’s happened in the mobile app ecosystem. There’s been no public company formation.
The reality here is, in the last three years, a number of businesses that were too small have now reached the stage where they could be viable public companies, because they’re growing quickly. They were too small a few years ago, and a little bit comes down to the fact that two or three years ago — I feel there was a wave in Silicon Valley, before Slack and Spotify and Uber and Lyft. “The cool kids will stay private forever.” I think that’s changing now. I’ve had a lot of founders contact me about how they can do an unconventional IPO. I provide that effectively. I provide an unconventional IPO for people who want to do something between a quasi-direct listing and a traditional IPO. I also provide capital table cleanup for anybody who is worn out by having their A round investors misaligned or different aligned than their C round investors, which often happens.
Because my operating experience comes from free-to-play gaming, I’m particularly bullish on the ability to add value to companies that are from the gaming-adjacent space. If you’re in education or health and wellness, there’s a lot of apps out there that are sizable, but they don’t have the same monetization expertise. They don’t have the same distribution and marketing expertise that I have. Adding one plus one equals three pretty quickly, when you bring complementary expertise like that.
GamesBeat: As far as the amount of money here, I notice that some of these gaming companies are selling for very high prices. Storm8 sold for $300 million. That’s a little crazy for a 70-person company.
De Masi: Who bought that and what was the EBITDA, though? Supercell has only 300 people. Let’s remember that WhatsApp only had 20 or 30 or something crazy like that. People is never an indication. But I agree with you. There’s competition in the gaming space. That’s why I’m looking at the gaming adjacency sectors. There are known, actual buyers in a lot of cases. In a lot of these categories, they’re kind of quasi-hobbies, which makes sense in the app ecosystem, but they don’t have actual buyers. If they’re not going to IPO, what’s the path to liquidity?
GamesBeat: When you think of adjacency, what is the description of the kind of company there? Is it, say, analytics companies? There are things like esports technology companies out there.
De Masi: There’s a lot in the education space, a lot in the health and wellness space, a lot in fitness. Advertising models, there are still ad networks out there doing well. There’s a lot of marketplace. Look at Andreesen Horowitz’s marketplace top 100. There are probably a few dozen of those companies that would fit our criteria. There’s fintech as well. Let’s not leave them out.
GamesBeat: When you talk about starting at a billion, do you mean that? Or are you actually thinking about using the $200 million at hand, as opposed to going out and finding $1 billion to go buy something? What size of appetite do you have here?
De Masi: It’s a billion, plus or minus. We could do $1.5 billion. We could go as low as $600 or $800 million. But if you look at most SPAC IPOs like Draft Kings, Virgin Galactic, Dave Cote just did one, the former Honeywell CEO, they all tend to buy things that are five times or greater the cash they raised. That’s the rule of thumb. Five times 200 is about a billion. It has to be analogous in terms of the upfront liquidity versus what’s getting rolled, analogous to a good IPO. People don’t want to see all the money coming off the table, if that makes sense.
We have Goldman Sachs. You’ll be hard pressed to find other SPACs that have Goldman Sachs. Dave Cote was CEO of Honeywell and Goldman was there with his SPAC because he was also operationally relevant. They seem to like that at Goldman as a theme. Goldman Sachs research is much coveted. We have the ability to attract a nice-sized business here, because Goldman won’t normally do an IPO of a billion-dollar business. They’re looking for $3-4 billion market caps. It’s a pretty neat thing to be able to offer our potential target partners.
GamesBeat: Is anybody else operating in the same space? Someone who has another SPAC?
De Masi: We’re the first mobile app SPAC. We’re certainly the only mobile app SPAC you’re ever going to find by someone who’s run, I don’t know, two, three, four public companies in the mobile space. Lots of people have run private game and app things, but they don’t know how to run public companies. This is a pretty unique proposition in the marketplace, and that’s why Goldman took it on.
GamesBeat: As far as territories, are you starting in the U.S.? Are you going to look worldwide for opportunities?
De Masi: I’m focused on U.S.-domiciled businesses. We could do western Europe. But we’re not doing anything exotic. There’s more than enough opportunity for businesses that are probably not only U.S.-domiciled, but also majority U.S. revenue.
GamesBeat: Does this whole coronavirus situation affect anything here? We have a dip in the stock market again.
De Masi: Here’s the good news. When I look at my two public boards, Glu and dMY now, they’re both relatively — dMY is not down much at all, because it trades a little over cash. Glu is only down 20 cents. To be honest, I personally believe the reason for that is that both Glu and dMY benefit from my expertise having built public companies in the mobile ecosystem on the back of not only the dot-com recession, but also the “great recession” of 2008-2009.
One of the things you find is, just like — I’m sure you saw the headlines from the FT about how in China, coronavirus means that Tencent’s having a really good month, a good quarter. What I’ve always found is that these businesses do very well. I wouldn’t say they’re recession-proof, but they’re extremely recession-resistant. When people cut back spending on things, what they tend to do is they still preserve it for smaller-priced, high-value entertainment. Gaming has a very low cost per hour of entertainment. Same for pretty much every app out there. Everyone has a hobby. As Steve Jobs used to like to say, there’s an app for that. Every hobby has an app.
I’m bullish that we’re very well-positioned. If there’s a recession, if there’s a corona thing, I think this is one bit of the economy that does arguably best. Small microtransactional or ad-funded models. We’ve seen that bear out. Glu was entirely built on the back of the great recession. I’m very comfortable about that.
GamesBeat: It seems like there’s this effect in China right now, people staying home and playing games.
De Masi: Exactly. That’s what happens. In the great recession, people cancelled their vacation to Hawaii and their parents gave them 20 bucks to spend on mobile apps for the weekend. I’m very comfortable that we’re in a good position there.
Furthermore, I’d say that — I don’t know if you saw it, but our green shoe got exercised today. There’s always a 15 percent overallotment option. We’ve actually raised $230 million, not $200 million. That’s on the back of the fact that we were five times oversubscribed on Thursday and Friday. There was a lot of demand for this proposition. Having the cash in the bank, if things get challenging — having the money means we have a lot of leverage when it comes to who we’re partnering and negotiating with. If capital becomes scarce, I’ve already got the money.
GamesBeat: The flip side is that it doesn’t hurt if things in general become less expensive to buy.
De Masi: Exactly right. That’s what we did at Glu for so many years, as you’re well aware. We made more than a dozen acquisitions at Glu.