Mind Candy & Firebox: Michael Acton Smith

The Firebox founder Michael Smith on why his new company is set for great things


Michael Smith flew in from San Francisco last night fresh from mixing with Google chiefs Eric Schmidt and Marissa Meyer at the Web 2.0 summit, attending a chief executive officer conference organised by Accel, one of the venture capitalists (VCs) that’s just pumped $7m more into his new venture Mind Candy, and talks over a number of high-profi le deals, including, he lets slip, one with MySpace. But far from being jet-lagged, he’s positively energised.

“I don’t think there’s ever been a more exciting time to be an entrepreneur,” he enthuses. “Technology is turning traditional media on its head and nimble startups are running rings around giant corporations.

“You can create something and literally overnight cause a huge sensation – that’s never been possible before.”

Smith is only 32, but he’s a dot com veteran who, with gadget site Firebox, saw the investor frenzy we’re starting to witness again, the first time around. Rather than being sceptical, he’s back for more. And he’s back with a business that encapsulates what Web 2.0 is all about.

Tellingly, that’s actually quite difficult to pigeonhole. Mind Candy is a creator of what are being termed ARGs – alternative reality games. However, its first and presently only game, Perplex City, straddles numerous media, taking it beyond the realms of ARGs such as Second Life, which have been hitting the headlines. After several attempts, Smith describes Mind Candy is an interactive entertainment company.

Perplex City is a global treasure hunt – an idea Smith had toyed with for most of his adult, and certainly entrepreneurial, life. “As a kid I’d read a book, Masquerade by Kit Williamson, who buried treasure in the British countryside then wrote clues as to its whereabouts. It had a massive impact on me,” he says. “I wanted to do the same, sending the clues through every conceivable media, from podcasts, websites, mobile phones, actors, skywriting, anything you can name.”

Virtual worlds 

The uptake of virtual gaming, together with the critical mass of broadband and mobile usage, convinced Smith that he could finally build a business around the idea. “I didn’t want this to be a flash in the pan. I wanted to create something that would last for years,” he says.

The solution has been the creation of a virtual world and a complex story, fleshed out by detailed characters, dozens of websites, blogs and even tourist guides. The narrative is that someone has stolen a valuable treasure from Perplex City, taken it to Earth and buried it somewhere. Through a range of clues and puzzles, the users will unravel where it is buried, with one sleuth landing the £100,000 prize. Smith says the first hunt or ‘season’ is close to conclusion, but that the game will run episodically with a whole host of series’ in 2007.

From a business standpoint, it’s the concept not the game that matters. Smith believes Mind Candy is creating a new art form, combining traditional notions of fiction and drama with emerging technologies and unprecedented interaction. “We’re at a unique point in history where technology is allowing us new ways of telling stories and playing games,” he says.

Mind Candy has held a number of live events for Perplex City gamers, including a hunt in London which ended with a mole among the group jumping on a helicopter and flying off into the sunset, seconds after dispensing a new set of clues. “Those that were there said it was like starring in their own movie,” says Smith. “This is the next generation of Star Wars, Harry Potter and Lord of the Rings,and what we’ll be able to do will blow people’s minds.”

Monetising innovation

Smith’s wary of stargazing and, as a dot com entrepreneur who adhered to a traditional business model, he’s clear about revenue streams. From a standing start a little over a year ago and without any marketing spend, Perplex City has brought in retail revenue of approximately $7m from the sale of 400,000 puzzle cards priced at £2.50, starter packs at £20, and a recently-launched board game. Smith believes it’s just the start.

“We feel there is huge potential to develop Perplex City into a global puzzle brand,” he says. “We’ve a whole range of products ready for launch, from puzzles on your mobile, to video games, board games, books and, ultimately, films.”

Smith sees Mind Candy developing a host of more accessible products that will appeal to “any of the 60 million people that read The Da Vinci Code or watch 24, Lost or CSI“. And, as soon as February, he will release a new game targeted at children. Indeed, many of the puzzle cards – containing anything from Soduko challenges to cryptic teasers – are being snapped up by non-Perplex City players. Smith’s actually turning away revenues, too. Perplex City has caught the attention of a number of leading brands eyeing ARGs as advertising or vertical opportunities. While Smith admits he’s down the line with MySpace, for now, the focus is on developing Mind Candy’s own property. “It’s something we’re grappling with, but right now it’d be a mistake,” he asserts.

Indeed, Smith is clear on his objectives. “I haven’t raised $11m from some of the leading VCs in the world to build an ad agency. The value is in our own intellectual property.”

The latest instalment in October of $7m followed $3m raised last year and £1m of angel-seed funding. Investors clearly have faith in Smith. He thinks it’s a combination of his experiences with Firebox and proof Web 2.0 is more than just hype.

“It’s always hard, but investors are taking risks again,” he says. “For years it was close to impossible for anything web related. At Firebox we found it difficult to even get credit from suppliers.”

Moving on

Smith remains involved in Firebox, but no longer on a day-to-day basis. His business card reads CEO, but Smith quips “non-exec and founder that meddles” is more appropriate. He’s involved in its expansion strategy, but is removed from operations.

“I’ll always love Firebox, but Mind Candy is where 99% of my time is now,” he clarifies.

It’s a clear comfort to Smith that Firebox is firing on all cylinders under the stewardship of co-founder Tom Boardman and Christian Robinson, who joined as managing director in 2004. “Christian’s much better at the nuts and bolts than I am,” he admits.

Firebox will turn over £10m this year and has been profitable since 2002. It’s established a wholesale distribution arm and was named 13th in The Sunday Times’ Fast Track 100. Its recent US launch attracted so much interest that marketing had to be culled for fear of not being able to keep up – it remains the focus for 2007, though.

“There’s no real competition and it’s an extraordinary opportunity,” says Smith. “I can see us doing £50m over there.”

The roll-out will require funding or a partner. New Media Spark already has equity, so it’s likely Firebox will look to debt, but Smith admits an exit is closer than ever. “It’s a venture-backed business, so that absolutely has to be in our plans,” he says. “We’ve been approached and we’re up for conversations.”

Learning from experience 

Smith says Firebox has opened doors for him while setting up Mind Candy, but it’s the less publicised darker days that he’s learnt from most. “I’m very careful with cash now,” he says. “It was a mistake we made at Firebox. We got sucked into the ‘get big quick’ mantra, opening offi ces in Sweden, hiring too many people on excessive salaries and, basically, we almost went bust.

“By the skin of our teeth we pulled it back, but I never want that again. This time we’ve raised a lot of cash, have a slow burn rate and a lot of time to make this work.” Mind Candy is recruiting heavily now, but it’s notable he’s got this far with 18 staff.

You can tell it’s a strain for Smith to hold himself back, though. After all, he’s waited for the world to catch-up. “From March 2000 to, basically, 2005, there was incredible negativity, but that happens with any disruptive technology,” he bemoans. “Investors get carried away, then there’s consolidation and companies go out of business before people realise what the technology can really do. That’s where we are now.”

Web 2.0, right? It’s a tag that doesn’t seem to satisfy Smith’s excitement. “It’s clichéd and hyped, but it’s great that there is a label so people can talk about the resurgence,” he says.

Smith intends to move to the US eventually. What he’s seen in the past two weeks has convinced him that Web 2.0 is being driven from San Francisco, and despite some “exciting new companies” and “very smart European VCs”, the UK still has a way to go to catch up.

Second chance tuesday 

That said, Smith’s doing his bit. Along with Judith Clegg, founder of global entrepreneur network The Glasshouse and with the blessing of its originator Julie Meyer, he’s revived First Tuesday, the legendary networking event that introduced dot com’s seminal successes – and fl ops. It’s also where Firebox secured its fi rst £500,000 of funding.

“It’s a cheeky homage to the fi rst one, which I was a massive fan of,” says Smith. Unlike the original, which took a 2% commission of investments generated and was sold for an astronomical £33m, the new version is funded by sponsorship.

Mingling with the new set is the motivation for Smith. “Netvibes – I’m obsessed with it,” he says. “Flickr, all the social networking sites, LinkedIn, all the blogs and rss feeds, Boing-boing, Valleywag, TechCrunch, Digg, Technorati…” He stops himself, but admits he could easily continue.

Big or über big?

If you haven’t heard of all the sites in Smith’s list, it’s difficult to tell if it’s you that’s behind or him that’s ahead. But that’s what is so bewildering about Web 2.0. Just how did MySpace attract 128m users and sell to News International for a cool $580m out of, well, nowhere? And why did Murdoch buy it?

As the rest of us ponder how and why, Smith’s quick to backup Bebo founder Michael Birch’s assertion that Murdoch actually got “the deal of century”, and adds that Google’s £1.65bn acquisition of YouTube is also a steal.

“People knock Murdoch, but it’s one of smartest things he’s done. The deal they did with Google, $900m of advertising over three years, has recouped what they spent and the value is only just starting to emerge. People couldn’t see the value in YouTube either, but Google is smart enough to monetise the hell out of that in the next few years.”

So is Smith eyeing a fat pay day with Mind Candy? “We always need one eye on future exits,” he admits, but says it’s way too early to sell. For him, Mind Candy’s in an envious position. “I think we can get to tens of millions of people,” he says, “and I couldn’t wish to be involved in a company with such a number of healthy bets.”

COMPANY PROFILE

Name: Michael Smith

Age: 32

Company: Mind Candy

Proposition: An interactive entertainment company

Founded: 2003

Staff: 18

Turnover: Undisclosed

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