Entrepreneurial

Mobile gaming firm MegaPhone seeks funding in a recession

September 9, 2009

MegaPhoneImagine being in the middle of Times Square in downtown New York and using your cell phone to play a video game on a giant screen against the throng gathered there. MegaPhone, a digital advertising company launched in 2006, does just that, providing its clients a unique way of interacting with consumers.

“I think all of us who work in the advertising industry have to ultimately admit to ourselves that people don’t like most advertising,” said co-founder Dan Albritton. “What we’re trying to do is to bring a genuinely fun experience and then you’re getting a little advertising wrapped inside of it.”

Albritton and partner Jury Hahn have created a software platform that allows anyone with a cell phone to call a number and play a video game against thousands of complete strangers on giant digital screens at concerts venues, sporting events, or in urban centers like Times Square.

Most of MegaPhone’s big wins on the client side have come in the sporting world. Adidas used their technology to run a “shooter” game at the 2008 NBA All-Star Game in New Orleans in which participants punched in a number on their cell phones and using an avatar controlled through their phones “shot” other players. Players were then sent their scores and an SMS asking if they wanted additional advertising. In another promotion, fans at a Philadelphia 76ers game made free throws by yelling “shoot” into their phones. The best scores were awarded with free tickets to upcoming games.

THE PITCH

Albritton said that most media companies that own outdoor screens sell advertising by telling potential clients their ads will be seen by X number of eyeballs. “That’s completely false,” he said. “Five million people may walk through Times Square every day, but when they look at your sign, that’s it. They look for a quarter of a second. What we provide is real metrics.”

Albritton said MegaPhone gives clients hard, tangible data regarding how long each mobile customer played the game, where and when they played it, and how many of them agreed to have additional ads sent to their phone or email.

“We’re doing for the out-of-home market what Google does for the online market: make everything trackable and essentially create a market for buying interactivity where previously there was none,” he said, adding his games get much higher opt-in rates than conventional SMS campaigns where viewers are directed to text a specific number into a cell phone to view an ad and potentially get a discount or win a prize.

Albritton’s main challenge is to keep the business afloat, which primarily means paying his nine-person staff, until the advertising economy picks up. To ride out the recession, Albritton is seeking additional bridge financing, or a Series B round, of “a couple million dollars” in venture capital.

TAKING IT TO THE EXPERTS

Zachary Shullman, managing partner of Cayuga Venture Fund in Ithaca, NY said he loved Albritton’s entrepreneurial spirit and imagined that many venture capital firms, especially in New York City, would want to meet with him, but that he “better be able to fully explain the business model and how it will make money and a profit.”

Shullman said that what MegaPhone is attempting to do amounts to a fundamental change in customer behavior which is “always scary for an investor,” as the customer may ultimately choose not to participate.

That being said, Shullman said he was interested enough in the MegaPhone platform to want to learn more about it. “If the software is proprietary and really protected and customers are currently – not two years from now – interested in buying minutes, then this would be a pretty interesting bet.”

Vineet Buch, an angel investor and former partner at BlueRun Ventures who specializes in mobile consumer services, was impressed by Albritton’s pitch and thought MegaPhone would attract interest from many early-stage investors.

“Out-of-home advertising is a large and (outside the U.S.) fast-growing market, and hasn’t seen much technological innovation beyond having people send SMSs based on a number they see on the billboard.”

Buch suggested MegaPhone aim high and start talking to some of the large corporations that own and operate outdoor digital signs, like CBS Outdoor. “That gives them easily scaled revenue,” said Buch, adding that “if they have to go door to door selling to small businesses, it’s very hard to scale.”

Wayne Corini, a tax partner at national accounting firm BDO Seidman and a financial advisor to numerous start-ups for more than 20 years, said it’s tougher than ever right now for new companies to get funded. “If these folks are newtimers they’re struggling to get money,” said Corini, who added most angel or venture capital investors are looking for “somebody in the stable who’s got a successful track record.”

Corini, who spent a quarter century in Silicon Valley and has 27 IPOs under his belt, said MegaPhone needs to find a way to leverage successful campaigns with big clients like Adidas and the NBA, in order to get bigger wins down the road.

“If I was talking to the founder at lunch right now I’d say who have you done business with and who do you know loves you?” said Corini, who added there’s no substitue for a household name. “You’ve got to find a way to milk that thing as best you can and come out of it with some sort of a testimonial.”

Do you agree with our experts? What do you think about MegaPhone’s business model and founder Dan Albritton’s attempt to raise $2 million in venture capital to help his start-up ride out the recession? Would you invest? Post your comments below:

(Top photo credit: People play a MegaPhone game in New Orleans, Louisiana in this undated handout photo. REUTERS/Handout/playmegaphone.com)

Comments
2 comments so far | RSS Comments RSS

Definitively a disruptive business (interactive enough to remind me of Minority Report), they will raise those $2M without a doubt.

 

Not enough data. What is their IP position, and who are their competitors. Are they a true first mover, or a me-too with an incremental improvement? There are plenty of other mobile gaming companies, plus companies providing advertising with metrics in mobile gaming.

Any licensing, either in or out? Who are their current investors, and why aren’t they putting up the bulk of the $2MM?

Posted by Jim | Report as abusive
 

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