When Midasplayer.com co-founders Toby Rowland and Riccardo Zacconi began the search for cash in 2003, they encountered the following: "People were actually laughing down the phone when we said, 'Yes, it's an Internet start-up in the games area.' A lot of people would not take my call... It was very, very difficult to raise funds."
Zacconi and Rowland, both experienced dot-com entrepreneurs, had experienced their fair share of reality during the dot-com bust. For example, Rowland secured a 3 million pound investment in a record eight days for his natural foods website Clickmango.com, and then quickly had to swallow the sobering affects of bankruptcy when he shut down the venture in 2000. Yet, through high-level industry contacts, Rowland and Zacconi were introduced to angel investor, Klaus Hommels. Hommels was convinced that they were a strong team and that Midasplayer.com was a good idea.
Simply put, the concept of Midasplayer.com is an online, skill-based games website. Players compete against one another in digital games that do not have an element of chance such as billiards or chess. The Midasplayer team believes that its advantage over other competitors (mostly U.S. companies) lies in its ability to offer the website in multiple languages and currencies. Thus, a Swede can play against an Italian and both would be playing in their native tongues. To heighten their advantage, Midasplayer.com was seeking distribution through major portals such as AOL, Freenet, MSN and Yahoo! to broaden their reach and attract more players.
A Perfect Match?
Hommels, a former AOL and Freenet executive with a Ph.D. in Finance, is known in Europe as one of the foremost angel investors for Internet businesses. The typical role of an angel investor is to inject equity funds into a business to help it with cash in its early stages and get it to the next round of financing - typically, with a venture capitalist (VC). Some angels offer a lot more than cash as they play an active role in seeking advantageous deals for the fledgling company. Hommels' approach is exactly that. His two main ingredients in his investment approach are leveraging his board-level contacts in the high-tech industry and focusing solely on software and platform business models. Hommels eschews any business model that involves logistics, as in his words, "logistics absolutely kill a start-up." Hommels then seeks "plug-ins" between his investments and larger portals to reach broader audiences.
So, at the outset, Midasplayer.com and Hommels sound like the perfect match, right? Midasplayer has the seasoned team and a good idea and all they need is distribution. Hommels can help out with the distribution by working with the team to sell the concept to the portals. However, there are still some key questions. Namely, is this enough to make the deal financially worthwhile for Hommels? Should he invest? If so, how much should Hommels invest and what portion of the company should he get in return for his investment?
These challenging questions are exactly what the case reader needs to contemplate. In addition to analysing the team and business concept, readers must figure out a way to value Midasplayer.com. With no operating history and scant industry comparables, how can this be done? What would be a reasonable share of the company to expect in return for an investment?
The case study describes how Hommels approaches his investments along the seven steps of angels described in the books, "Winning Angels: The Seven Fundamentals of Angel Investing" by David Amis and Professor Howard Stevenson, and the German-language edition "Winning Angels: Sieben Bausteine für ein erfolgreiches Risiko-Investment" by Heinrich von Liechtenstein, David Amis and Howard Stevenson.