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March 02, 2005

Indiagames and its investors

Business Standard has an interesting article which touches upon the relationship between Vishal Gondal, the founder of Indiagames (now 80% owned by China's Tom Online), and the company's VC backers, Infinity Ventures and IL&FS.

Some extracts:

How Gondal met with the VCs:
Hollywood is a long way from Chembur and might have remained so had Gondal not “bumped into some suits” from PricewaterhouseCoopers, the management consultancy, in 2000. The consultants offered to introduce him to new investors, and the result was seed funding of $750,000 from IL&FS Investment Managers and Infinity Ventures, both Mumbai-based private equity funds.

How the investment changed Gondal:
“For me, the arrival of investors was the most valuable MBA education anyone could have,” he said.

The clashes:
The investors were keen to develop Indiagames as a source of “advertorial” games, a business model that relied on online games designed around consumer brands. But that model did not survive the dotcom crash.

Gondal says the backers subsequently pushed the company towards designing and servicing online games for foreign customers. That made Indiagames an outsourcing arm and, in effect, hostage to overseas clients’ unrelenting demand for lower costs.

“Servicing gets you stuck at the bottom of the value chain and I didn’t want my customer capturing the rewards of my value additions,” Gondal says. He took his sceptical investors to gaming industry events to persuade them that the greatest opportunity lay in designing proprietary games, not servicing clients’ games.

“I wanted my investors to be part of a solution, not the problem,” he says. Fortunately, he won their allegiance to the new business model at a time when wireless services were growing fast, particularly in the mobile gaming market.

The bitter taste:
He recalls an unhappy period when his seed investors, who sold their equity to Tom Online, appointed an executive from a multi-national to manage Indiagames. It was not a successful relationship, he says.

The new challenge:
Now Gondal faces his biggest confrontation. Armed with a rich and well-connected Chinese partner, he is targeting gaming giants such as California’s Jamdat and France’s Gameloft.

“This is the real battle,” he says. Indiagames’s Chinese connection brings one immediate benefit: an investment of about $4 million for expansion. The company, which earned 86 per cent of its $1.2 million sales last year from Europe, will open offices in Los Angeles and London this year.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.