Index-backed Hutch puts $5.5M in the tank to rev up its mobile gaming engines

UK-based indie free-to-play mobile games developer studio, Hutch, is gearing up to step on the gas and strap a bunch more players into its clutch of racing themed titles, fueled by a $5.5M Series A round of funding… The cash injection is co-led by Index Ventures and early stage London-based fund Backed VC.

Free-to-play mobile gaming is of course a ridiculously competitive space, which Hutch is cruising along in for now — with five titles in the app marketplace at present and a total of around 2.5 million DAUs (daily active users) at the last count.

A long ways off category giant Supercell, for sure, maker of smash hit mobile game Clash of Clans, which passed 100M DAUs across four titles last year. More in the ballpark of Social Point, just acquired by Take-Two Interactive for $276M, which pulls in around 50 million monthly actives across its six titles.

The total market size for the mobile gaming sector last year was estimated at around $40BN so there’s plenty to play for, even though only a very small minority of games makers typically get to carve up most of the takings.

Deloitte report predicted only about 200 mobile games companies would gross over $1 million in 2016 — out of tens of thousands trying. (“The immense number of mobile game titles renders many new titles invisible without substantial marketing spend,” the report further notes.)

Though it’s a tough space to stand out in, investors are likely betting on the chance of a healthy exit — given there are big games publishers with a need to strengthen their hand in mobile; an area that demands a different type of development. Leaner, driving new ideas faster to market, and being more responsive to how they’re being received.

Europe has also seen some sizable exits in mobile gaming in recent years. Most recently, as noted above, with Spain’s Social Point selling to a bigger studio. Finland-based Supercell also bagged $1.53BN for a 51 per cent stake (sold to Japan’s Softbank) back in 2013. While, last year, a majority stake in the same studio was sold to China’s Tencent for $8.6BN.

Others’ scale-up and exit successes offer few guarantees, of course, given how competitive the space and how skewed the distribution of spoils. But proven ability to execute, good metrics and a coherent strategy can, evidently, still get investors’ attention.

Hutch, a London- and Brighton-based studio, started out in 2011 after the founders became dissatisfied with the creative strictures of big games publisher life, and decided to set up their own — a familiar story in the games development space.

The team reckons there’s a specific gap on mobile for a standout racing games maker — hence its focus being fixed behind the wheel.

“Everything that we do, all the assets that we do, all the content we build, they kind of all relate to all the games that we’re building — so there’s lots of efficiencies there,” says CEO Shaun Rutland. “And the team are passionate about [racing games].

“But also the opportunity, we think, is that most traditional racing games have been very skilled. And very much about younger players that have these twitch skills that can press left and right at a nanosecond, so the opportunity that we can see is, if you look at Formula One, which is watched by over half a billion people every two weeks on TV, and you think ‘I wonder how many of those viewers would have smartphones in their pockets’ — which I imagine is pretty high. But the age range is so wide, how can you appeal to a 50-year-old as well as a 20-year-old?

This year you’ll see some games coming out from us that are very different, and probably unexpected. They’re considered racing games, but they’re made for all ages.

“So this year you’ll see some games coming out from us that are very different, and probably unexpected. They’re considered racing games, but they’re made for all ages. They’re made for all types of fans of racing. We’re really thinking it’s one of the first mobile-first racing games. That’s where our strategy is really coming into play this year, with these pure, new forms of racing games.”

The new funding will be used to try to size up what is now a profitable but small business into something a lot bigger. So it will mostly go on marketing efforts for the two new games Hutch has coming out this year. It’s also looking to grow the size of the team by 10 to 15 people over the next 12 months, says Rutland. And it has another two games lined up for 2018. It had previously raised around $1M in seed funding, back in 2014.

Rutland says the business has been revenue generating for five years — kicking things off with a paid game priced at a premium for the time ($3 vs the more typical $0.99), before switching to focus fully on free to play. It monetizes via a mix of ads (he says about a fifth of its revenue comes from video ads at present) and in-app purchases (time is often the mechanic there, e.g. offering less patient players the chance to pay to speed up aspects of the game).

Why the switch to 100 per cent f2p? “We just saw the long tail,” he says. “Unless you’ve got some really amazing organic attach rate — there are some paid games out there that just work. And they just keep getting installs. And that’s fine, that’s a valid business model for them. They don’t tend to get insane revenues from those sorts of businesses but they’re relatively simple businesses to run.

“What we wanted to do is put control into our hands in terms of our marketing, in terms of reaching consumers and building content in a different way, and a different way of thinking about free to play where we could really create a huge fan base and tap into that. And then keep releasing content — whether that be new games, or content for our current games.

“It was really a question around do we want to build a one-off product. Or do we want to build services. And I think services is far more exciting.”

“We feel pretty confident each game that we make will always be profitable,” he adds. “It’s a question of how much profit we can make, or how long we can service these games for.

“The trick is to get your game to market as quickly as possible, to really assess how well the game’s working and whether you can build on top of that game.”

A trick that the behemoths of the PC and console gaming space obviously aren’t so geared up for. So might an exit to a games publishing giant like EA, which has a bunch of racing franchises of its own, be an option for Hutch in future?

It’s one possible scenario, according to Rutland, but he also says the team is looking to forge links with brands outside the games industry. Indeed, its most recent racing title licenses the Hot Wheels IP from toy maker Mattel.

And the wider point about mobile gaming is its potential for massive mainstream reach — which means Hutch is hoping to push a very wide variety of buttons.

“We get lots of interesting discussions come up all the time,” says Rutland of a future exit strategy. “There’s lot of gaming big brands that would be interesting. There’s other options as well. Which is what I think mobile opens up to, given the size of the audiences that we’re dealing with. And the relationship that motorsports and racing has with big brands. So there’s all sorts of options for us.”

“Every year we’re doubling our revenues if not more. So we’re on the ascendency. We’re profitable. So we’re kind of just focused on this year or the next two games. We have investors so we have to see an exit at some point, but we’re not actively pursuing acquisition or anything like that,” he adds.

This post was updated after Hutch recategorized the funding as a Series A round