TinyCo, the mobile gaming company that raised its own capital only three months ago, recently announced the TinyFund. TinyFund is a $5 million dollar pool of money for mobile game developers that will be granted $500,000 at a time through an application process. Any developer can apply and it doesn’t matter if the game is free or paid, finished or conceptual. Why would a relatively early stage start-up make this move and offer up hard-won cash to independent developers that are competing in their space? The way I view this is that TinyCo is using excess cash to invest strategically, with the goal of creating partners out of competitors and reaching more customers than they would be able to if they developed internally.
TinyCo raised $18m three months ago, and in that time they’ve had a number of successes. Their ability to get into the top apps list on iOS indicates that perhaps they don’t need as much cash as they raised, and therefore need to deploy it. Well, with the explosion of interest in mobile and social gaming, its probably fairly difficult to scale internal development efforts quickly. TinyCo also has valuable expertise in marketing mobile games and a customer list that would be an invaluable asset to other companies looking to get a jumpstart. With these assets, TinyCo has a lot to offer and should be leveraging them to get ahead. This combination of factors makes external development via partnership an attractive opportunity, and what better way could they do this then to open up an investment fund, recruit partners, and gain a ton of PR in the process? This approach allows to quickly deploy the cash, turn potential competitors into partners, and at the end of the grow more quickly then they would be able to otherwise. As I commented previously regarding Zynga, achieving scale before others can be a huge advantage.
There are tertiary benefits as well. Applicants for funding can be targets for hiring, acquisitions, or partnerships down the road. The fact that a start-up is able to launch this kind of fund makes TinyCo seem larger and more successful than they may actually be, and will benefit their reputation at the least. The applications they receive will also serve as competitive intelligence, giving them a preview of future competition and allowing them to position themselves beforehand.
Taking a step back, I find this kind of strategy to be an intriguing way of adapting a business model to take advantage of the current funding situation. This is an interesting model and I wouldn’t be surprised if we see it used elsewhere. The benefits TinyCo could extract from this fund seem to be worth the cost, and there is significant upside for them as well if one of their partners succeeds.
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