[MUD-Dev] BIZ: MMP subscriber numbers

Christopher Allen ChristopherA at skotos.net
Wed Apr 2 12:53:26 New Zealand Daylight Time 2003

Lee Sheldon <lsheldo2 at tampabay.rr.com> wrote:

> I'm not up on these financial things.  Why would a successful
> company with a steady cash flow want or need VC money and all the
> strings, both creative and business management-wise, that usually
> come attached to it?

I depends on the exit strategy envisioned by the current
investors. As I understand it, in order to finance DaoC, Mythic
obtained financing from some private party, probably to the tune of
$5M - $10M. I've heard that this private party might be an
entertainment company.

For this party to invest in Mythic, they would want a return on
their investment. They either have preferred stock in the Mythic, a
loan plus warrants to buy stock at a low price, or both. I suspect
both. If both, they have probably already gotten their principal
back, but they have not recouped the risk they took. If they only
got preferred stock, they don't even have that.

Thus in order to get a decent return to investors, Mythic would
either have to promise a significant cash flow in the form of
dividends to the investors, or prepare to go public and thus make
their shares available for sale on the market, or to prepare
themselves for acquisition by a public company.

The problem with the dividends approach is that it costly to the
company and to the investors. It is costly because of the double
taxation (once on the profits to Mythic, and again on the profits to
the investors). In addition, paying dividends can be a severe hit on
cash flow and ability to finance growth.

Thus I suspect that they looked at all of this, and decided against
the dividends approach, and decided to either go public, or to
prepare themselves to be acquired.

In the case of acquisition, you have to look at who the buyers might
be, and if you want their stock, as typically after an acquistion
you can't sell the stock for some period of time. Of course, the
biggest possible buyers are Microsoft, EA, and Sony, and none are
doing particularly well stock wise (though you could argue that they
are all at their lows). The founders probably didn't like this
option as they'd have to "work for" someone else. The investors
probably didn't want to own stock in the possible acquiring

That leaves going public. Well, right now the climate for that is
not at all good. You'll need to wait out a few years, be actually
profitable (as opposed to dot-bomb days), and have revenues in the
100M range. DaoC is doing well, but doesn't have revenues in that
range. Thus they have to consider how to survive and grow to that

Then you have to decide if you can grow fast enough to go public in
time for your investors expectations. If you can't, you get more
investors so that you can develop and/or acquire new
product. Bringing in more investors also makes the existing
investors feel better about a few more years of risk as now the risk
is shared.

This is what I think Mythic has done. Given that there are 70+
MMPORGs on the way, they'll acquire one or two of the more promising
ones, integrate them into their own team, use their own already
paid-for infrastructure, and maybe do another Mythic developed
game. In two or three years when the IPO market is ready, they'll go

-- Christopher Allen

.. Christopher Allen                                 Skotos Tech Inc. ..
..                           1512 Walnut St., Berkeley, CA 94709-1513 ..
.. <http://www.skotos.net>           o510/647-2760x202  f510/647-2761 ..

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