What Supercell's $180M credit facility to Metacore signals to the wider mobile gaming ecosystem

Last week, @Metacore Games reported it had raised a $180M (€150M) credit facility from Supercell, one of their main equity investors. What does this signal to the wider mobile gaming ecosystem, and why is it a huge deal?

1. It sends a strong signal to founders that using VC funding is not the right way to fund user acquisition. In his post, Metacore CEO @Mika Tammenkoski notes that climbing up to the top of the charts is a capital intensive business but he is smart enough to want to do this via debt rather than equity.
2. Why debt not equity? Look at the risk profile of the investment into UA on a unit economics basis. The capital is clearly going to be deployed on UA efforts to get Merge Mansion up to the top of the charts. They already have a wealth of data to project LTVs on their game, and therefore their UA spend is sufficiently de-risked to be funded by debt. Capital efficiency is the key concept here and something founders should focus more on in their planning.
3. LTV durations are long for this emerging genre, and Metacore is thinking BIG. Developers normally try to seek ever-larger credit lines from Facebook, Google, etc to enable them to keep spending. Ad networks offer short-term credit facilities to keep developers spending on their platforms, but are not in the business of taking the long-term LTV risk on the game - it's just not their business. This is where many bump up against this recurring hurdle trying to get credit facilities extended and having their ad spend artificially capped. Metacore is smart enough to externally fund their continued spend to achieve their growth ambitions.

There has been some lively debate on LinkedIn on the topic. At the end of the day, it’s important to focus on the unit economics of UA which is ultimately what the debt is financing. Compare the cost of capital versus ROI on ad spend over the lifetime of a user gives a predictable spend pattern and it’s pretty simple to model. If you don’t get a positive return on investment on the UA (after pricing in the cost of servicing the debt), don’t draw the credit line and buy ads. Pretty simple when you strip it right back.

It's great to see a wider acceptance of debt funding become mainstream in mobile gaming. The studios who will win the UA game and create the sort of franchise that Metacore is setting out to achieve are those who can understand and model their LTV potential and finance their growth appropriately, not just being reliant on short-term credit facilities provided by Facebook and Google.

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