Cupcakes can be expensive.
Brazilian casual games startup Cupcake Entertainment yesterday announced a one million dollar deal with Playlab, one of the largest independent mobile game developers and publishers in Southeast Asia. Cupcake said the money will be used to finance user acquisition and to grow its games further. The company attributes its success to the reinvestment of its revenue into its three games, Letters of Gold, Words of Gold and Numbers of Gold.
Cupcake’s CEO João Vítor de Souza said, “Cupcake Entertainment’s goal is to be the #1 casual brain puzzle company in the world and the biggest games company in Brazil. This deal will get us there faster.”
While $1 million in what amounts to seed funding is nothing to sneeze at, the circumstances are also worth observing. Playlab is the merger of two Southeast Asia mobile game companies, Pocket Playlab and Anino Games, into one corporate entity. The company claims that its games have been downloaded more than 22 million times across the world, while its most famous title, Juice Cubes, was published in partnership with Rovio and was one of Rovio’s top grossing titles.
Playlab received $5 million in Series B funding from Monk’s Hill Ventures in October 2015. Funding like that tends to be swallowed up quickly, but according to a statement from Cupcake, both companies have been in talks since they met at GameFounders in 2015, where the Cupcake team was mentored by Jakob Lykkegaard Pedersen, Playlab’s CEO. This means that Playlab spent a year being convinced to commit 20% of its cash to another startup. Why?
Pedersen claims that they “have been following the team closely due to their passion for the community and finally found a good way to help.” However, altruism is a rarity in business. What’s more likely is that Playlab has run into what the Cisco dilemma, where the company is still able to generate cash, but is no longer as capable of producing hits on its own. To compensate, the company invests in startups that still have an innovative drive, providing mentorship and money as the startup grows. The investor then waits for the right opportunity, if ever, to acquire the smaller firm to maintain its growth.
Cupcake claims that it has seen growth of 45% a month over the past 18 months and that it has tripled its revenue since last September. The company is determined to continue its aggressive user acquisition, so those numbers in combination with the company’s attitude may have convinced Playlab to put its money where Cupcake’s mouth is. The size of the investment and Playlab’s own finances suggest they believe they are betting on a winner, but with new mobile games competing for consumer attention every day, that remains to be seen. It’s entirely possible this bet may end up sinking both companies.