Monday, May 21, 2012

38 Bitches*

Anyone who was a member of the 2004 Red Sox – which won the team’s first World Series in, oh, 86 years – pretty much has the status of god (or at least demi-god) in these parts.

The most mythic member of that storied team may well have been Curt Schilling, who in a display of teeth-gritting heroism, strode into one battle with a barely stitched up foot wound that seeped out into The Bloody Sock that became emblematic of the belief-turned-to-fact that, this time around, Our Boys (= Our Region) would not be denied.

Unlike so many sports figures who, when they hang up their jocks, become motivational speakers, pitchmen, or sports commentators, Schilling started a video game company. Originally named after Fenway Park’s outfield wall, the Green Monster, the company was rebranded as 38 Studios, a salute to its “founder, chairman, and executive visionary.” (Schilling wore the number 38.)

He had massive ambitions. The company promised each of its original 37 employees a bonus of $1 million if 38 Studios reached $1 billion in value, a huge stretch for a start-up.

This $1 billion gave me a bit of a chuckle. Many years ago, I joined an early stage software company with the ambition to become “the next billion-dollar software company,” Microsoft being the first, I do believe. When we were acquired, a decade later, we were, after many ups and downs, roughly a $7 million software company. Needless to say, I did not make a million from that acquisition.

Put, hey, if Pinterest is supposedly worth $1.5 billion for letting people virtually pin pictures on a wall, why wouldn’t yet another fantasy game with sword-swinging avatars be worth that and a bag of chips?

Schilling, however, struck out with the venture capital community, which felt he was:

a) looking for too much money;
b) not willing to relinquish a big enough stake;
c) “would require quite a bit of ‘babysitting’”

So Schilling then looked to the Commonwealth of Massachusetts to underwrite his operation, promising to create a whole bunch of interesting, high-paid, high-tech jobs and provide a wonderful boost to our fair economy.

Despite out near-universal love for all things Red Sox, Massachusetts balked at the offer. Some folks felt that this was because Schilling is a rather outspoken Republican in a state where Republicans are somewhat scarce. But it may well have been the Commonwealth keeping in mind their earlier ventures into venture capitalism with companies promising “good jobs” and which had not paid off. (The infamous Evergreen Solar went bankrupt, but not before it had off-shored most/all of those “good jobs” to China.)

But poor little Rhode Island, with an economy nowhere near as robust as that of its neighbor to the north but equally enamored of the Red Sox, decided to spot 38 Studios a $75 million loan if they’d re-locate from Maynard (once home of Digital Equipment – remember them?), Massachusetts, to their state.

And away they went…

It’s not as if they’ve done nothing:

Schilling’s company released its first effort earlier this year, a role-playing video game called Kingdoms of Amalur: Reckoning. It was well-reviewed and has sold about 1 million copies at about $60 each, according to market research company VGChartz.

Still, it costs plenty to get a new game off the ground, and on the first of May, 38 Studios missed a $1.1 million payment to the state of Rhode Island and, last week, asked for more help so that they could make their payroll.

I’ve been-there-done-that on the not making payroll. Not surprisingly, this was when I was with the next billion dollar software company. While we never did end up missing payroll, we did have a couple of months where everyone took a 10% haircut, and we did have contingency plans on who would get paid what if we ran out of money. Fortunately, that never happened. In our early days, our wily CEO flew off somewhere and gulled another investor into dropping another million into our coffers; in the later days, when we were clean and sober, and running on our own, we always managed to sign a contract that would let us tap our credit line. What a way to live!

And now the buzzards, having spied The Bloody Sock, are circling 38 Studios. And the state of Rhode Island’s looking foolish, while the Commonwealth of Massachusetts is looking smart. (A note: this deal was done by RI’s prior governor. Lincoln Chaffee, the current guv, opposed, but is now stuck with, it.)

These days, we hear an awful lot about the merits of having someone with business experience in the West Wing.

Personally, I think this is total and utter hogwash. Not that government shouldn’t be run more efficiently, but running a government is not like running a business. Profit making is not/should not be the motive. You can’t fire the sick, elderly, disabled, and poor. The purpose of government is not to invent stupid, unnecessary “stuff” and con people into buying it. You can’t close down under-performing cities and towns. Etc.

By the same token, governments are ill-equipped to make decisions about vetting companies, and figuring out which ones will succeed and which ones won’t. That’s what investors are for. Not that they’re all that good at it either: most VC-backed companies don’t return a dime. So if the guys that are good a sniffing out the profits, who are good at getting rich, fail a lot of the time, how can we expect the government to pick the winners? And shouldn’t the VC having taken a pass on a company have told the solons of Rhode Island something?

There’s a lot that government can do to help companies succeed. It can fund schools and training programs that will produce employees with the requisite skills. It can invest in good infrastructure. It can set up incubator space, sand-boxes, where those with the big ideas can play around. In my world, it can even provide a bit of seed money here and there, or sponsor forums where startups can pitch to VC’s. But it really shouldn’t be investing $75M in a gaming company.

Rhode Island must be feeling like they got drilled in the head with a pitch.

I’m just thankful that Massachusetts decided not to play ball.

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Source of information/quotes in this post: Boston.com.

*38Pitches is Curt Schilling’s no-longer-active blog.

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1 Comments:

Anonymous Rick said...

Also, if I am not mistaken, Schilling is a typical hypocritical Republican who is against the government interfering with the market economy except when the interference goes into his own pocket.

As a libertarian I find that even more repellent than the Democrats, who at least are honest in their belief that is perfectly OK for politicians to give to their friends money they take from taxpayers.

12:07 PM  

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