SaaS Interviews with CEOs, Startups, Founders
She Hit $12m in Revenue, Raised $5m in VC, Then Just Bought Out Investors, How?!
03 Dec 2020
Chapter 1: What challenges did Jessica face in the early years of Arkadium?
Truth of the matter is, it's like you don't always know what's going on inside a business and people don't write about the 99% that aren't necessarily having that success. And that success, from what I've found, can be very shallow and it can be very fleeting. Top line revenue does not equal a healthy, profitable, thriving, sustainable business.
Yeah.
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My guest today is Jessica Rovello. She is building a company called Arcadium, which provides interactive content to the world's most well-known brands and publishers like CNN. Jessica, you ready to take us to the top?
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Chapter 2: How did Arkadium evolve its revenue model over the years?
Um, and the gaming industry is, is, um, like many media industries, is very hit-driven. And what a lot of people who play games don't realize is it's really expensive. They think it's just some guy in their basement who's coding something. And games, I mean, even casual games that people play on their mobile phones can cost upwards of a million dollars for a studio to make, if not more.
And so if you have a string of those and you don't have an out-of-the-box hit, like 99% of them aren't necessarily making their money back. So To do that and be self-funded at the same time can be a very expensive prospect. So that was the first time we kind of started looking at, is this something that we should even consider?
And that kind of ended up with, we looked at various different options from selling to taking investment. And luckily at that point, we had already built a profitable business that was scaling. And so we were able to take investment on pretty good terms. We took a minority stake in the business.
How much did you sell?
We sold less than 20%.
Okay, that's pretty good. So less than 20%. And how much did you raise?
5 million.
Okay, got it. So you're looking at like a 20 million pre-money, something like that?
Yeah, it was somewhere in that range. And I mean, I think the other important thing is that outside of the cycle that the industry was going through was just kind of what we were thinking and feeling as entrepreneurs. And I say this because it kind of influences a lot of my thinking now and a lot of what I believe in as an entrepreneur now. And that was kind of that.
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Chapter 3: What factors led Jessica to raise $5 million in VC funding?
Right. They always had a crossword section. And I'm sure you can picture it in your mind or a Sudoku or a word jumble or something like that. We basically took that concept and brought it into digital in the early 2000s.
So a lot of these large news publications, whether it be a CNN or a LA Times or Washington Post, it's something that their readers are used to doing in print or have traditionally done in print. They're not going to create a game studio in-house, right? They don't have the desire to do that and they don't have the expertise to do that.
And so that's really where they turn to us and we provide them with kind of a turnkey gaming solution that they put in their game section of their digital property.
Yeah. Okay. Very good. And then last question on 2018, before we talk about how you maneuvered kind of buying out your investors, what did you break in 2018 in terms of total top line revenue?
2018, we were in the $15 million, just around 15.
Okay. And still about 10 to 20% EBITDA margin?
Yep.
That's great. Okay. So when did the discussion start festering inside of you and co-founders and early team members that we should maybe buy these guys out?
You know, I would say... that it was something that took place over time. And I think it was something, again, nothing's ever like black and white. There's nuance to every kind of decision that you make as a business person, as an entrepreneur. So I think two things were happening.
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Chapter 4: What was the experience of being profitable while scaling Arkadium?
It doesn't mean losing $6 million in a year. It can mean losing $10,000 in a year.
Okay. You think that is not, that is not, you told me that games costs sometimes a million to create. And you said you raised that 5 million to create new games to market. So you could easily solve the number by simply saying, if you feel like in 2014, you actually just didn't spend the money. That's fine too. I mean, that would be a, that's a great strategy as well.
So is that what happened here is you just, you put the 5 million in and you didn't spend the money.
There were a number of years that we had significant, uh, expense savings after we went through what we went through and having to transition the business. And that allowed us to just be smart with the cash and continue to reinvest it back either into the business or to save it up.
Yep. This was when you went through the kind of the political crisis, you had to cut your team in half, your fixed headcount expense.
Yeah, we cut significant, everything got cut in order to make sure that the business was in a safe place and get us back to the point where we were putting significant amounts of cash back onto the balance sheet. But we were never, ever, ever, we never ran the business in a place where we were burning significant amount of cash.
So just because I say burn, burn in my world is anything that is less than zero. It is not 10,000 a month. It's not a million dollars a year. It's not $10 million a year. It's hard to conceive because we're kind of surrounded by people who are burning billions of dollars a quarter. But like for my business at this scale, that's just never happened.
Yeah. By the way, I don't know if you listen to the show or not, but I can tell you there's no one that protects bootstrappers more than I do. Okay. I beat the hell out of people that come on and brag about what they burn. So I'm not trying to get you caught in a catch 22 here. What I'm trying to do is literally do the math so that other people can do what you did. Right.
So you just tell me if this is a true or false statement. Okay. I'm going to try and summarize as best I can. You raised, you raised 5 million in 2013. You sold about 20% of the company. a political thing happened where you had to drastically change the expense structure of your business in 2014 and 2015, i.e., you cut costs. In that year, maximum potential EBITDA to the bottom line was 20%.
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