It’s certainly an interesting scenario. Generally companies at that stage are doing okay - so you really have to think long and hard about justifying such a significant injection of capital. It can also be a very tricky process, which comes down to finding the right sort of investor that’s not looking at your current EBITDA multiple, but at what the capital injection could do for the business in the future.
And I think a lot of companies get stuck in this position, because it is a really is a difficult position. We have been going through a lot of that - considering our vision for the business and what we’re looking to achieve. We have been talking to investors and I’m not sure if we’re going to do it. We have some big plays on the organic side that might get us where we want to be anyway.
If you’re going down the licensing route, how do you create an appropriate compliance programme?
When we started Spin I knew that at some point down the line we had to be licensed. So we always conducted ourselves in a compliant manner and did all the things to ensure that if a regulator wanted to conduct a thorough examination of our business that we’d done our due diligence on our suppliers and employees, we had all the appropriate language in our contracts, and covered all the bases.
However, it’s not until the point at which you’re applying for your license do you need to put together a compliance programme. It’s definitely something that you need to be aware of from the day you start. You don’t want to get in investors that have dubious backgrounds or anything like that - you have to be very aware of these things from the outset. However, it’s only at the point at which you’re getting licensed that you really need to put everything
in place to become a fully licensed and regulated company.
Do tech companies from adjacent sectors find gaming’s compliance barriers too high?
A lot of companies simply: “don’t know what they don’t know.” At whatever point in the development cycle, you need to be developing with all the regulatory standards in mind. You need to have all the right reporting mechanisms, the right encryption modules so that people can’t access the random number generator; you need to use an RNG such as twister that’s regulator approved. A good example is that while a lot of companies went into the social space, they found that they couldn’t simply port over into real money gaming as it doesn’t have all the components that are required from a regulatory perspective. And that’s just on the technology side, as there are so many administrative elements that you’ve also got to be aware of. It’s not simple - you do need to have specific knowledge, otherwise you’re going to burn through a lot of cash and still not be able to break through that wall.
How do you negate the risks that investors pose to a startup business?
My objective has always been to ensure that we didn’t have to rely on the investors. I put initial seed money into the company and attempted to progress the business to cashflow positive as soon as I possible to negate that risk. If your runway is such that you need capital for a significant amount of time, and you just rely on one investor, it is definitely dangerous. My advice would be to have a contingency, always be out there talking to other potential investors and have others in your back pocket. It does depend on the cashflow requirements of the business over a period of time, but if your only lifeline is one investor and you’re aware that
factors could potentially change, then without question you’d want your fishing line in the water. Tere are other things that you can do contractually with investors too, such as agreeing an assignment in your contract that gives you six months of working capital whatever the change in circumstances. It’s better to make thing provisions in the front-end so that you can do to protect yourselves and negate the risk in the future.
From a blank sheet start-up, how do you build equity and recognition in the brand?
Our industry is fairly small in terms of the people that actually pay attention to what’s going on. We do a lot of press releases, and I know that sounds very simplistic, but you get a lot of really good exposure in the market when you’re announcing deals and when you’re going live in certain markets, releasing new games. I’ve always conducted a lot of interviews with trade magazines, and also find exposure on conference panels an effective marketing tool. Of course, the proof is in the pudding - you launch a startup, you create some traction, you communicate to the market, build momentum and continue to announce what you’re doing. You also need the key ingredients: great products, technology and IP, which adds a lot of value. I have a marketing background, and so I use those skills specific for our industry - and with Spin we’ve built strong brand recognition in the market in just a couple of years.
People are really watching and paying attention to what we are doing. It certainly helps if you have the opportunity to work on the manufacturing side first and gain individual exposure. People get to know you and what you’re capable of and they watch what you’re doing. Before you know you’re not out chasing the business, the phone starts ringing with people chasing you.
NEWSWIRE / INTERACTIVE /
247.COM P51
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