The old saying rings true: "Failure is an orphan but success has many parents."
In Silicon Valley, each day seemingly brings news of a funding round for another company. When my company, Kabam, recently raised $120 million at over a $1 billion valuation, the dollar figures were enough to turn heads even in this part of the world.
However, more important than the fundraise itself was the company we partnered with to raise it. We crafted a mutually beneficial investment and commercial partnership with Alibaba, which just completed an historic IPO. Just like Alibaba’s life as a public company, our relationship with them is just beginning, and will enable our expansion in China. Here’s how we made the deal happen, and here's what others looking to grow their business in China can learn from Kabam’s journey.
Steve Jobs famously borrowed from hockey great Wayne Gretzky when he talked about how Apple skates to where the puck is going to be, not where it has been. I like that analogy when evaluating potential partners.
Kabam makes great mobile games, but we know we need help in expanding our distribution in China and elsewhere in Asia where the gaming market is quite fragmented and market dynamics are significantly different than the United States. The opportunity for growth there is massive, as mobile games comprise the vast majority of spending on mobile devices, with revenue in Asia expected to reach $9 billion this year, more than the U.S. and Europe combined.
So who would best help our expansion efforts? We met with a number of companies that had strong existing gaming businesses and others who were early in their lifecycle of entering the market. One of the most interesting partners that we met with was in the latter category, but had all the pieces in place to become a serious game industry player in the future. Alibaba is known for e-commerce now but it is a company set on expanding into mobile gaming. By the time we met Alibaba, they had already laid the groundwork with systems like Alipay, the most popular payment option in China, and its acquisition of internet portals like UCWeb to make the expansion into games a success. We knew Kabam’s goals aligned with where Alibaba was going.
It’s important to know who are the big growth companies and envision your company as part of their future, but the question is: How do we, a small U.S.-based private company, get introduced? We needed assistance.
Know and Tell Your Story
We sought bankers with great market knowledge of China for assistance and introductions to Chinese companies. We chose Citibank and JPMorgan, who both have deep reach into China, knowledge of the region, business practices and corporate personalities.
We spent two solid weeks with our bankers crafting our story—the narrative we wanted to tell to interest companies to partner with Kabam. This manifested itself in a polished roadshow presentation that outlined the business strategy of Kabam, portrayed how Kabam is differentiated in the mobile games industry, dove deep into our financials, and introduced our strategy for China.
Truly knowing your story and audience is the key to success. When you confidently and clearly articulate what your company is about, and how your goals will align in a proposed partnership, you can create engaging dialogue quickly with key decision makers and significantly increase your chance of success.
Additionally, perfecting our story enabled others to reinforce it. Before the initial partner meetings, I embarked on an extensive media tour in China, Japan and South Korea to discuss Kabam’s recent successes, our continued global expansion and our strategy for the Asia region. Coverage on Bloomberg TV, The Wall Street Journal, Shanghai Daily and many others helped permeate our message into the region such that by the time we met our partners for the first time, they already were aware of Kabam.
Next up are meetings. And more meetings. For Western companies looking to China for large partnerships, it’s important to remember that deals move at a very different speed.
The first slowdown is the most obvious—language. Although I am conversant in Mandarin, I could only conduct business in English, and I depended heavily on our staff translator. Precise wording is already important for any negotiation or contract, and is even more so when translating into another language. Our translator is a Chinese national who studied English in Bath, England. She accompanies me to all of my Chinese meetings and media interviews. As a full-time Kabam staff member, she knows the company, our product language as well as the local idioms and nuances.
The second is the levels of meetings given how large the successful organizations are in Asia. The first meeting is like a job candidate screening; you’re meeting with first-line managers and your goal is to advance to the next level of key decision makers. Each meeting escalates with more senior executives and you don’t reach the discussion of term sheets until about three meetings—and several months—later.
The third slowdown is in the diligence. Because of more opaque business practices throughout Asia, experienced Chinese investors require a higher level of due diligence than U.S. companies. For example, whereas U.S. due diligence is satisfied with a review of the auditor’s report, many Chinese investors require a deep dive with forensic accounting.
Closing the deal took three times as long as it would have between two American companies. These wrinkles require a little more work, but are not insurmountable. The whole process for us started in February of this year, culminating in a worldwide announcement on August 1. The announcement went smoothly given all the potential hurdles along the way. For Kabam, this wasn’t just another fundraise, it was aligned with our strategy to propel our company globally while partnering with one of the world’s largest and greatest companies.
Source Kevin Chou