Joystick Labs ends funding for new video game startups

Joystick Labs is the third Triangle business accelerator to pull plug

dranii@nc.rr.comOctober 22, 2012 

Joystick Labs is no longer funding new video game startups, making it the third Triangle business accelerator to pull the plug on efforts to help entrepreneurs convert good ideas into viable businesses.

John Austin, managing director of Durham-based Joystick, said the prevailing economics of the video game market – which have changed considerably since Joystick was launched in 2010 – requires more financing than Joystick and its investors could afford.

“It has become very difficult for an independent developer to get noticed,” Austin said. “For every ‘Angry Birds,’ there are literally tens of thousands of great companies not getting noticed.”

Ben Brooks, a partner with Raleigh venture capital firm Southern Capitol Investors, was dismayed by Joystick’s move given that seed capital is a scarce commodity.

“It think it’s a blow any time we lose resources,” Brooks said. “I think accelerators can be important to young, inexperienced entrepreneurs who haven’t been down the road.”

Still, Brooks said that although accelerators have been successful in places such as Silicon Valley and Colorado Springs, he believes their business model may be flawed. The problem, as he sees it, is that the best entrepreneurs tend to figure out the right path for moving forward on their own and don’t need the services accelerators offer.

Joystick was launched with high hopes in 2010 after raising more than $500,000 from N.C. Idea, a nonprofit that supports entrepreneurs, and angel investors.

Like other accelerators, Joystick helped start-ups get off the ground in exchange for a minority ownership stake in the business. What set Joystick apart is that it focused on only video game startups.

When it was launched, Joystick offered up to $18,000 in funding and access to free legal and accounting services. The startups also participated in a 12-week session where they worked with advisers to develop a game and a business strategy.

Austin said it’s too early to tell what sort of return on investment Joystick’s investors might receive and declined to say whether Joystick would be able to supply additional funding to the companies it has backed if they need it.

Joystick Labs followed on the heels of LaunchBox Digital, a business accelerator that set up shop in the Triangle in spring 2010. LaunchBox quietly exited the accelerator business last year.

Meanwhile, Groundwork Labs unveiled plans to operate a business accelerator last November but re-invented itself a few months later after Triangle StartUp Factory emerged on the scene. That leaves Triangle StartUp as the only Triangle business accelerator still funding and nurturing startups.

Groundwork is funded by N.C. Idea and Capitol Broadcasting, the owner of WRAL-TV and the American Tobacco Campus, and Austin also is managing director of Groundwork. He said the decision to exit the accelerator business by both Groundwork and Joystick was the result of individual circumstances rather than a rejection of the concept.

Groundwork, he added, decided it could better fulfill its mission of developing “the entrepreneurial ecosystem” in the Triangle by complementing Triangle StartUp rather than competing with it. “We don’t need two of these accelerators here,” he said.

Groundwork doesn’t provide funding but offers temporary office space and works with startups with an eye toward getting them to the next level – which could be getting into Triangle StartUp’s accelerator program. Of 23 startups Groundwork has worked with to date, two have been accepted by Triangle StartUp and five others have obtained grants of various types, Austin said.

Joystick funded a total of seven game companies in 2010 and 2011, Austin said. Three of those companies are still in business: Mighty Rabbit Studios, which is based in Holly Springs, and two companies on the West Coast.

“Those three are still doing well,” Austin said. “Given what typically happens with startups, we think that is a pretty good result.”

So far Mighty Rabbit has released one game of its own and has received three contracts to develop games for others.

Co-founder and CEO Josh Whitehurst said sales of its inaugural game, “Saturday Morning RPG,” haven’t been impressive so far. But the seven-employee company is optimistic the game will gather steam as it releases more episodes and makes it available for more devices. “Saturday Morning RPG” is an episodic game; the company has released two episodes so far – the first is free and the second costs $1.99 – and is working on follow-up episodes.

“We’re doing well with contract work, which is how I have managed to keep the doors open,” Whitehurst said.

Whitehurst said the seed funding from Joystick was essential.

“When we went to Joystick, all we had was an idea, a concept,” he said.

Triangle StartUp has features that distinguish it from many other accelerators, said Dave Neal, managing director.

For one thing, many accelerators attract only enough funding to work with a limited number of entrepreneurs over a relatively short period of time. But Triangle StartUp raised nearly $7 million, enough that it can accept entrepreneurs into two 12-week programs each year through 2015, Neal said.

Triangle StartUp also provides more funding than the other accelerators offered, said Joan Siefert Rose, president of CED, an entrepreneurial support group.

Companies receive $50,000 in seed capital upfront when they are accepted into Triangle StartUp’s 12-week program, and, upon completion, receive a loan convertible to equity ranging from $20,000 to $150,000.

“I think we have seen the model evolve,” Rose said.

Ranii: 919-829-4877

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