20 VC Niccolo De Masi @ Glu Mobile on Private Market Valuations, Being A Public Market CEO & The Trends Of Mobile Gaming

In this episode of "20 Minutes VC," host Harry Stebbings interviews Nicolo de Masi, CEO of Glu Mobile, renowned for popular games like the Kim Kardashian and Kendall & Kylie Jenner games. De Masi shares insights from his extensive experience in mobile media, detailing his strategic transition of Glu Mobile from feature phone gaming to the lucrative smartphone market, emphasizing a free-to-play model and the creation of original IP. He discusses the challenges of public company turnarounds, the importance of transparency with stakeholders, and his approach to acquisitions and growth. Additionally, de Masi offers his perspective on the valuation disparities between public and private markets, predicting a correction and increased consolidation in the tech industry. He also touches on the role of economic strength in global power dynamics, the value of specialization, and the future of mobile entertainment.

• Nicolo de Masi is the CEO of Glue Mobile, a successful gaming company.
• Glue Mobile has produced hit games like the Kim Kardashian game and the Kendall and Kylie Jenner game.
• Nicolo has a history of leadership roles in mobile entertainment companies, including CEO positions at Hands On Mobile and Monster Mob Group plc.
• He is recognized for his straightforward and academic perspective on market analysis.

"Now for one, it's the first time we've welcomed a public market CEO onto the show. And joining us today is Nicolo de Masi, CEO at Glue Mobile, the gaming company behind the wildly successful Kim Kardashian game Deer Hunter, and of course the current number one in the App Store for games with the Kendall and Kylie Jenner game, just to name a few of their amazing portfolio."

"Nicolo cuts through all the bravado of current market analysis and simply tells it how it is in a refined thought through and academic perspective."

The quotes highlight Nicolo de Masi's unique position as a public market CEO in the gaming industry and his reputation for providing clear and insightful market analysis.

• Nicolo de Masi is a physicist by training and has worked in various industries including solar cells and investment banking.
• His career has been focused on the mobile media space for over twelve years.
• Nicolo started in the mobile music space, moving to mobile gaming as the industry evolved.
• He successfully led a public company turnaround with Monster Mob Group in the UK before joining Glue Mobile.

"So Glue is actually my second public company that I've turned around and run. Third mobile media company, second games company. So I'm originally a physicist... But the last twelve years have all been in the mobile media space, as I tend to refer to it."

The quote provides a summary of Nicolo de Masi's diverse professional background, emphasizing his experience in turning around public companies and his expertise in the mobile media space.

• Nicolo de Masi was hired to transition Glue Mobile from feature phone gaming to smartphone gaming.
• The transition involved moving from a paid business model to free-to-play and investing in original intellectual property (IP).
• Successful original IP games were developed during the platform transition, such as Gun Bros and Frontline Commando.
• Nicolo emphasizes the importance of looking forward and reengineering every function of the company to focus on future profitability.

"Get away from a paid business model of free to play and try and invest in as much original ip as you can. Because during a platform transition, you have this once in a generation opportunity to build games that are specifically tailored for the new hardware and that allows you to build original ip value."

The quote explains the strategic shift that Nicolo de Masi implemented at Glue Mobile, focusing on the free-to-play model and the creation of original IP during a critical time of platform transition.

• Nicolo had prior experience with public company turnarounds, which gave him confidence in taking on Glue Mobile.
• He views Glue as a late-stage startup that happens to be public, requiring a forward-looking approach.
• The strategy involves hiring experts in the new business model rather than retraining existing staff.
• Successful turnarounds depend on getting the overarching company strategy right, cutting costs, and maximizing the business being run off.

"We're all forward looking. We're all professional managers. In the long term, that actually is a strength for a business. There is no founders at Glue. The business was founded in 2001. I am technically the third CEO, although I'm kind of the refounding CEO, if you will."

The quote underscores the forward-looking management approach Nicolo de Masi believes is essential for the long-term strength of Glue Mobile, despite the challenges of being a public company without its original founders.

• Running off a legacy business can be more profitable than selling it, as it can fund new investments.
• Companies that have lasted over a century, like GE and Technicolor, are adept at transitioning through various platforms.
• Glue Mobile has evolved from simple games like Snake to sophisticated smartphone games, demonstrating the company's ability to adapt to technological advancements.

"It's usually, if not always, more profitable to run off your own legacy business than it is to try and sell it. Because if you sell it, you're going to get a discount to what the free cash flow is you can generate."

This quote highlights the strategic advantage of internally managing the transition away from a legacy business, which Nicolo de Masi sees as a key to Glue Mobile's ability to fund new ventures and adapt to changing market conditions.

• Nicolo de Masi compares the handset market to the car market, emphasizing diversity.
• There are various models due to different aesthetic preferences, utility needs, and price points.
• Igloo bet on both Android and iOS platforms, not just iPhone.
• Silicon Valley had a misconception that the future would be dominated by iOS, similar to Windows in the PC market.

"Handsets are both a mixture of fashion plus utility, and as a result of that, when I started igloo, we bet on the Android platform in conjunction with the iOS platform."

Nicolo de Masi explains the rationale behind Igloo's decision to support both major mobile platforms, anticipating a diverse market rather than a single dominant player like in the PC market.

• Transparency and a strict quarterly calendar are crucial for business success.
• Nicolo de Masi values transparency with employees and investors.
• Regular board meetings and updates help maintain focus and momentum.

"But you can do it if you're public, if you're transparent and you use transparency as your friend, you have no chance of really turning around a business if you try and hide from your employees and your investors the fundamental metrics that matter."

Nicolo de Masi emphasizes the importance of transparency in business operations, especially in relation to turning around a company's fortunes.

"By the time we come up to the next quarter, we need to have done this. We're halfway through the quarter. I have a board meeting every quarter, and I have an interim board update call every six weeks."

He details the structured approach to business management, highlighting the significance of the quarterly calendar in driving company progress and accountability.

• Public company CEOs often lack experience.
• The shift in tech IPOs has allowed CEOs to retain more control.
• Transparency in difficult times can lead to quicker recovery.
• Transparency is valued by employees and is essential for talent retention.

"Prior to the Google sort of generation of tech ipos that sort of were allowed able to get away with sort of the dual class stock structure."

Nicolo de Masi discusses the evolution of tech IPOs and how newer structures have changed the role and control of CEOs in public companies.

"And what I have found across both my public companies last decade is if you're transparent in the bad moments, yes, you might be punished, so to speak, more quickly than you would be if you try and sort of window dress."

He shares his experience that transparency during challenging times can lead to faster recovery, as it builds trust and aligns expectations with reality.

• Silicon Valley has historically overvalued new businesses over incumbents.
• The region's center of gravity has shifted towards San Francisco.
• Tax incentives and geographic positioning make San Francisco a hub.
• Nicolo de Masi suggests that private markets may face a downturn.

"Nicola, when do you think it'll be that small new upstart businesses will not be viewed and valued in Silicon Valley as worth much more than the existing incumbents?"

Nicolo de Masi reflects on the persistent trend in Silicon Valley where new startups are often valued higher than established companies, a trend that has been ongoing for decades.

"I mean, ever since the original Silicon Valley was semiconductor driven. Sixty s, seventy s. And that was where the innovation was."

He provides historical context for Silicon Valley's valuation tendencies, tracing back to its roots in the semiconductor industry.

"I do think they've gotten well ahead of themselves."

Nicolo de Masi opines that private markets may have become excessively optimistic in their valuations, hinting at a potential correction or downturn.

• Public markets are perceived to be overvalued, with the S&P 500 trading at 16 times earnings versus the historical average of 12.
• Private companies often have no earnings and spend more money for each dollar of revenue than they generate, relying on growth to justify their valuations.
• A trend toward the end of growth at any cost is emerging, with increasing skepticism about high valuations in private markets.
• There is an expectation of a slow deflation of overvalued private companies, termed "unicorn" companies, which may become "zombie corns."

"The S and P, the K Shiller index maybe were 20 30% overvalued because the S and P 500 is trading at 16 times earnings on average, and typically adjusted it to normally twelve." "The number of private businesses that are losing more money for every dollar of revenue than they generate revenue."

These quotes highlight the valuation concerns in both public and private markets, with the public market's S&P 500 index trading at a higher multiple than historical norms and private companies spending excessively without generating profits.

• Private companies are facing challenges due to market conditions, including down rounds and difficulties in achieving liquidity events.
• Venture capitalists are demanding greater liquidation preferences, effectively devaluing previous investment rounds.
• There's an anticipation of forced consolidation and mergers among private companies to maintain valuations.
• Employees are likely to be the losers in this scenario, as they hold common shares, not preferred ones.
• The public market is expected to adjust, with a potential resurgence after the private market compression.

"A lot of effective mortgaging of cap tables is going to happen by virtue of the fact that people vcs are demanding greater and greater liquidation preferences or effective valuation adjustments subject to future liquidity events." "Over the next two or three years in particular, you will start to see forced consolidation in some cases."

These quotes discuss the mechanisms through which private companies are adjusting to market pressures, such as increased demands from VCs and the potential for consolidation, and the negative impact on employees who hold common shares.

• Glue is using its cash reserves and public status to consolidate undervalued assets in the gaming industry.
• The company does not have dedicated departments for business development or corporate development.
• Glue's strategy involves waiting for inbound opportunities of distressed or compellingly priced assets.
• The company has made several acquisitions of businesses that raised venture capital but failed to succeed independently.
• Glue's approach to acquisitions includes leveraging its support functions and avoiding duplicating infrastructure costs.

"With our $180,000,000 of cash and our public currency, we're turning into a potential consolidator of decently priced assets." "We scour the market, but we wait for inbounds of compellingly priced assets."

These quotes explain Glue's strategic position as a consolidator in the gaming market, using its financial resources and public status to acquire assets at favorable prices and how the company sources these opportunities.

• Glue's turnaround strategy involves integrating acquired companies into its existing operations to save costs and leverage centralized functions.
• The company aims to avoid duplicating infrastructure costs by using centralized business intelligence, analytics, sales, marketing, and general administration.
• Glue has had success with this strategy, as demonstrated by the acquisition and turnaround of PlayFirst, now one of its most profitable studios.

"We don't want to duplicate infrastructure costs. We have centralized business intelligence, analytics, we have centralized sales and marketing, centralized GNA." "PlayFirst is one of our most profitable studios today."

These quotes describe Glue's operational strategy for turning around acquired companies by integrating them into its existing infrastructure to reduce costs and improve profitability, with PlayFirst as a successful case study.

• The ease of ordering and receiving services at home has increased due to a variety of sharing apps.
• Many startups won't survive, but the successful ones will need to transition to real businesses.
• Public markets force companies to adopt realistic business practices more quickly than private markets.
• By 2020, private markets are expected to be more disciplined, especially in currently hot sectors.
• Overvalued sectors will have to align valuations with reality, leading to consolidation.
• Darwinian nature of Silicon Valley leads to rapid shifts from success to failure.
• The consolidation is often forced by venture capitalists (VCs) who withhold funding, leading to staff and resource rationalization.
• Capital and talent then move to the next promising sector.

"It's great to live in San Francisco and take advantage of venture backed, subsidized services in the meantime. But eventually these industries all consolidate, right? And they have to become real businesses."

This quote emphasizes the temporary advantage of using subsidized services from startups in San Francisco, but points out the inevitability of market consolidation and the need for startups to mature into sustainable businesses.

"And public companies simply force that realism much faster than private ones have at the moment."

This quote suggests that public companies have to adhere to stricter financial discipline and realistic business practices compared to private companies, due to the nature of public markets and regulatory requirements.

"Easy up, easy down, and inevitably there's consolidation that gets forced by virtue of vcs starving companies of funding, and that then forces consolidation."

Nicolo de Masi explains the harsh reality of startup dynamics in Silicon Valley, where companies can rise and fall quickly, and VCs play a significant role in determining their fate through funding decisions.

• Nicolo de Masi's favorite book is "The Rise and Fall of the Great Powers" by Paul Kennedy.
• The book explores how economic strength has historically driven military power and influenced global power shifts.
• The themes from the book are relevant across various fields, including business, government, military, and philanthropy.
• Economic strength is a key driver in Silicon Valley and in business cycles.

"Paul Kennedy wrote this great book that he's probably in his fifth edition of now that is fundamentally sort of followed. Looking at romans through today, how has economic strength driven fundamental military strength, and how has that governed the cycles of power shifts across the globe?"

Nicolo de Masi credits Paul Kennedy's book for its in-depth analysis of the relationship between economic and military strength throughout history, and its influence on global power dynamics.

• Focusing on a niche where one can be the best is more valuable than being average in a larger market.
• Nicolo de Masi has strategically focused on the mobile entertainment industry for over a decade.
• He believes in the growing trend of mobile computing power and the free-to-play business model as key to success.
• Sticking to one's core expertise often yields better long-term results than frequently changing focus.

"Sticking to something that you can be the best in the world at usually leads to more value being accreted for yourself as well as your business."

Nicolo de Masi highlights the importance of specialization and being the best in a specific area, which he believes leads to greater value creation for both individuals and businesses.

• The most challenging aspect of being a CEO is managing expectations, both in public and private companies.
• Public company CEOs must provide precise guidance on expected performance.
• Managing expectations helps align short-term actions with long-term goals.
• Effective expectation management can be used as a tool for attracting talent and setting business tempo.

"The single hardest element is always managing expectations doing that well is the most important thing, I think, for every business leader."

Nicolo de Masi identifies expectation management as a critical skill for business leaders, emphasizing its importance in bridging short-term actions with long-term objectives.

• Nicolo de Masi expresses his willingness to return to the show in the future.
• Harry Stebbings thanks Nicolo de Masi for sharing his insights and experiences with Glu.
• A thank you is also extended to Sharon Weinbart for facilitating the interview.
• The show promotes its newsletter for updates and future episodes.

"Look forward to coming back, Harry sometime."

Nicolo de Masi concludes the interview by expressing his openness to future discussions, indicating an ongoing dialogue about the industry and his company's journey.