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Opinion: Rovio $1.2B Valuation Push Ruffles Some Feathers

Opinion: Rovio $1.2B Valuation Push Ruffles Some Feathers

August 16, 2011 | By Chris Morris

[Is Rovio's Angry Birds really more valuable than Grand Theft Auto? Gamasutra editor-at-large Chris Morris argues that Rovio's recent push for a $1.2 billion valuation is "somewhat ridiculous."]

The absurdities of today's venture capital market " and of investors hoping to ride those coattails to wealth " are multiplying at a staggering rate.

And the reported recent push by Angry Birds developer Rovio to seek funds that would value the company at $1.2 billion could indicate the bubble that has been building for some time in the tech space is reaching a dangerous size.

Before I get too deep into this, let me be clear: I don't fault Rovio in any way for trying to secure these funds (assuming in the first place that the reports are, in fact, true).

The company has done a masterful job of building its crown jewel app into a marketing empire. And that lures investors like bees to honey. The company would be foolish to not expand its warchest.

But that doesn't mean the investment will deliver the returns everyone hopes.

At $1.2 billion, Rovio would have a valuation that tops THQ (which, admittedly, isn't the bright star it once was), Ubisoft and Take-Two. And while there's an undeniable thrill in flinging perturbed fowl at well-bunkered pigs, to declare the franchise more valuable than Grand Theft Auto - or Saints Row and Assassin's Creed combined " is somewhat ridiculous.

Angry Birds is a terrific game. It is, in fact, the flag-bearer for the app gaming movement. It's also a merchandising bonanza. But even loyal fans have to acknowledge that the game's kind of a one-trick pony " an incredibly talented pony, mind you, but still one that has yet to show a lot of variety.

Rovio " and its rumored potential investors " seem to forget that the law of gravity applies to hit video games as well. Eventually, everything looses some of its appeal and consumers move on to the next hot thing.

The developer is certainly not afraid to talk itself up. Two months ago, Rovio's VP of franchise development Ville Heijari boasted that if it were to be bought today, the studio would be worth "north of PopCap," which was bought for $750 million in June.

That reeked a bit of hubris. PopCap spent years developing one of the industry's most solid track records, was well diversified and had an IP catalog filled with games that were just as loved as Angry Birds - though they hadn't been marketed on such an aggressive level.

Maybe the confidence comes from the Angry Birds fever that's still going. Maybe it's because the game has been courted by Hollywood studios. (If so: Remember, guys, there's an adaptation of Asteroid in development as well. But don't look for Atari's market cap to skyrocket anytime soon.)

Rovio has already received $42 million in funding this year " from the same VCs who helped fund Skype and Facebook. They obviously have had a chance to see the company's roadmap as well as the financials.

Out here, we're not privy to that sort of information. Should the company follow-through on its hinted IPO in the coming years, we'll get a clearer look behind the curtain.

What's worrisome in the meantime is the company seems to be putting all of its eggs in the Angry Birds basket. And we saw how well that worked out for the birds.

As I keep hearing about Rovio's ever-escalating valuation, though, I find myself thinking back to the words of Steve Blank, a serial entrepreneur and one of the 10 most influential people in Silicon Valley.

In a blog post looking at the growing bubble, he noted that while the rules have changed some since the last bubble (during the dot-com days), some trends remain the same.

"Unlike the last bubble, this bubble’s first wave of IPO’s will be companies showing 'real' revenue, profits and customers in massive numbers - think Facebook, Zynga, Twitter, LinkedIn, Groupon, etc.," he said. "But like all bubbles, these initial IPO’s will attract companies with less stellar financials, the quality IPO pipeline will diminish rapidly, and the bubble will pop."

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