Once Hot U.K. Startup Mind Candy Imperiled as Sales Plummet

  • Company needs to grow sales and renegotiate loan repayments
  • Moshi Monsters creator has struggled to create another hit

Moshi Monsters

Photographer: Dan Kitwood/Getty Images

Mind Candy, a company that was once the showpiece startup of the London tech scene and the creator of the children’s brand Moshi Monsters, will struggle to remain in business if it cannot expand revenue and renegotiate the repayment of a loan from one of its investors, the company and its auditors said Tuesday.

The company saw its revenue cut almost in half to 7.2 million pounds ($8.8 million) in 2015, according to its annual accounts filed with U.K. business registry Companies House Tuesday. Revenue had peaked at just under 47 million pounds in 2012.

The company pared its operating losses, in part by cutting a third of its staff, to 10.4 million pounds for the year. This was down from 14 million pounds in 2014. But it also saw its cash position erode from 9 million pounds to just under 4 million pounds over the same period.

Mind Candy, founded in 2004 by entrepreneur Michael Acton Smith, created the well-known Moshi Monsters brand but had trouble managing the transition from desktop to mobile gaming. It has also had difficulty creating another game to match the success Moshi Monsters saw from 2007 to 2012.

“It’s no surprise that Mind Candy has had a few challenging years,” Mind Candy’s Chief Executive Officer Ian Chambers said in a statement. "Over the past year, with the continued support of our investors and creditors, we have been focusing development on Petlandia and Moshi Monsters. We will be revealing more on both worlds in due course.”

Mobile gaming revenue -- which includes Mind Candy’s World of Warriors product, which it launched in 2014, and new game Petlandia -- grew 50 percent to 3 million pounds.

Given its burn rate, the company said that it must expand its revenue in order to stay in business or receive a further capital injection. It also said that it must renegotiate the repayment schedule for a 6.5 million pound loan it received in 2014 from TriplePoint Capital, a Silicon Valley venture firm that had invested in the business. Repayments on that loan were to begin this past summer, but Mind Candy negotiated an extension until January 2017. Now it says that if it cannot secure a further extension it may also be unable to stay in business.

In its filing Tuesday, the company said it has "good" relationship with TriplePoint and that "there is scope to further negotiate a new repayments schedule."

TriplePoint did not immediately responded to requests to comment for this story.

The possible cash crunch underscores "uncertainties which may cast significant doubt about the company’s ability to continue as a going concern," Mind Candy said.

Much of Mind Candy’s trouble comes from the decline in popularity for its core Moshi Monster’s brand. Moshi Monsters operates on a monthly subscription business model and also generates revenue from licensing. Mind Candy’s subscription revenue fell to 2.9 million pounds in 2015 from 5.7 million pounds in 2014, while licensing revenue declined to 855,000 pounds from almost 3 million pounds the year before.

The company acknowledges in its filings that "since 2012, we’ve seen a rapid softening of the web property in terms of users, engagement and revenue as consumers switch to new technologies." The company also said it was trying to relaunch Moshi Monsters this year. It said it has faced a problem with mobile gaming because most successful mobile games use "an in-app purchase" business model which the company said was inappropriate for product aimed at young children.

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