Disney India, which already owned more than half of Indiagames, announced plans recently to acquire a further 30% in the company. So how does this measure up?
VCCircle has done an analysis of the likely valuation and returns to shareholders. It certainly bodes well for the Indian entrepreneurship and early-stage investment ecosystem that a long-standing player has gone through an M&A process successfully, achieving a good-sized valuation with a global player as the buyer. Terrific.
However.
Cisco and Adobe, two of the company's investors, doubling their money in over six years? And unrealised at that. That's really not much of a return. It also isn't something for the management team to be particularly proud of. The investment hasn't gone to zero for sure, but it ain't no hit either and shouldn't be pitched as one.
Two caveats. One: I am taking VCCircle's numbers at face value here. Who knows, the investors might get a sweetener or two to up their returns. Even so, I don't expect this can help too much. And two: if we separate the investment returns from the company's own needs, I think this transaction makes eminent sense for the company. No arguments there.
Note that I don't foresee my firm investing in the gaming or content business because we (meaning, I) don't think we have any particular expertise at picking games or other content that will prove to be winners. I'm making a generic observation here about return requirements in the VC business.
Also, VC is certainly a "hit business" as Luke Johnson says, meaning "disproportionate rewards accrue to the most successful participants, while a substantial majority earn peanuts". The ratio of successes to so-so investments and failures is generally highly skewed. One way to mitigate the risk of investing in, er, non-hits is to focus on stuff you know. I certainly am more comfortable assessing technology businesses than I am predicting the tastes of the average gamer.
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