Fun and Games for Kevin Comolli

Kevin Comolli is a rarity in venture capital these days. For one thing, he’s one of the few European VCs who actually produced a big exit last year, helping to sell portfolio company Playfish for up to $400 million. For another, Comolli came to VC from the buyouts world, rather than the more typical route of working his way up as a startup founder.

Trained as an engineer, Comolli spent the first 14 years of his career at Fanuc, a Japanese robotics company, which took him to Japan, the United States and then Europe. Itching to invest in companies, he left Fanuc for Goldman Sachs International.

“I enjoyed it, but not within Goldman,” Comolli says. “Private equity in banks is fraught with conflicts.”

He then tried his hand at buyouts at Doughty Hanson in London, which he enjoyed, “but I wanted to get back to my tech roots,” he says.

That’s when Jim Breyer of Accel Partners came along with the perfect offer at just the right time. The two knew each other from their days as classmates at Harvard Business School. Breyer wanted to know if Comolli was interested in opening Accel’s first international office, Accel London.

Ten years later and investing out of his third fund, Comolli says he still enjoys being a venture capitalist. “I love being surrounded by all that innovation,” he says. “And I love the Accel platform—all these guys are into the globalization of the business. We’re not just talking the talk; we’re walking the walk.”

A perfect example is the Playfish deal. Kristian Segerstrale, CEO of the social gaming company, had many firms to choose from when he was looking for venture capital. But he chose only two: Accel and Index Ventures. Segerstrale says he wanted Accel because of its presence in both London and the San Francisco Bay Area, plus its Facebook connection, and he wanted Index because of its international presence.

“When you’re outside the West Coast, you’re forced to think of the global market from Day One,” Segerstrale says.

Comolli led the deal for Accel and Ben Holmes led for Index. Their stay with Playfish was far shorter than they imagined. In less than two years, the company exploded in popularity—adding 10 million users in less than 10 months, Harper says—which led to its acquisition last November by Electronic Arts.

Not only was Playfish one of the largest venture-backed exits of last year (for both the European and U.S. markets), but it also produced a hefty return for Accel and Index, which had each invested $8.5 million in the company. EA agreed to pay $400 million, which includes $100 million if Playfish meets certain milestones.

Segerstrale was happy with the exit and had a positive experience working with Comolli, who he says is “refreshing in his total openness and willingness to be aggressive in backing new things.”

Holmes also had nothing but good things to say about Comolli. “He’s the gentleman of the VC industry in Europe,” the Index partner says. “I’d not worked with him prior to this, and I’m a relatively junior partner at Index, but he never made that an issue, from day one.”

VCJ contributor Deborah Gage recently spoke with Comolli about Playfish, recent changes in Accel’s London office and about the European venture scene in general. Comolli had just returned from the World Economic Forum in Davos, Switzerland, where Playfish was named one of 26 worldwide “Technology Pioneers,” startups whose technology is expected to have “a critical impact on the future of business and society.”

Q: What first attracted you to Playfish?

A: Accel has ‘prepared mind’ initiatives—areas that we think are right for generating good returns. We in Accel London are very interested in the gaming space, and there’s been a lot of innovation coming out of Europe, partly because the penetration of consoles is much less than in the U.S., which was sticking to the old models—the EAs and Activisions moving disks and boxes around in trucks, selling to customers and they don’t know who [those customers] are.

Q: Is the gaming market in Europe very different than in the United States?

A: Europe was liberated from all that. There was no penetration of consoles, so the movement to online and to another channel for delivering games was wide open. We’d invested in Gameforge in Germany—the largest gaming asset on the Internet. They have a series of titles, casual MMOGs [massively multiplayer online games], where you play for free and do in-game micro transactions—for example, people pay a euro for virtual rocket fuel or a sword—and there was tremendous growth. They have 75 million players and are extraordinarily profitable.

Q: Sounds like Playfish was a good fit, then.

A: We met Kristian [Segerstrale, CEO of Playfish] after investing in Gameforge. We all believed in the power of the Facebook platform and the social graph, and we certainly bought into Kristian’s view that games are emotional and that people enjoy playing games with real-world friends, people they know. Games bring out emotion and compassion, and that makes them both more enjoyable and gets people to stick around. It’s proving out.

Q: Is there anything else you liked about Playfish?

A: Playfish’s games are fun, not heavy duty, and I’m proud of the guys that there are no shooter games like some of their competitors. Also, they’ve never employed aggressive marketing tactics—spamming and scamming—to attract an audience and monetize. I would say Playfish took the moral high ground in sticking to high quality games that people enjoy spreading virally.

Q: What did you find most challenging about the Playfish deal?

A: The company was scaling at such a pace that their back office infrastructure was challenged. There are not many people in world who’ve seen that kind of growth and can build a back office infrastructure to accommodate it. I put them in touch with the guy in charge of that at Facebook, a guy who used to be at Accel—Jeff Rothschild, the founder of Veritas. He’s seen the movie and was very helpful in getting them tips on how to scale. [Holmes, meanwhile, had a similar assessment of Playfish’s challenges. He says he passed on contacts at two Index portfolio companies: RightScale, a dashboard for Amazon’s cloud computing platform, which Playfish used, and Boku, a mobile payment engine for online games.]

Q: Social gaming is still a new space. How do you see it developing?

A: It’s very new and dynamic. Facebook will have to see the way game applications are traded on their site and how different payment methods evolve and how much they enforce spamming and scamming. There’s enough evidence that it is a category that is here to stay, although it appears to be in its infancy.

But it’s enlarging the whole gaming market. A lot of the gamers playing these Facebook games wouldn’t have called themselves gamers, yet here they are playing “Pet Society.” There’s still untapped potential—new genres and new ways the social graph can be used in the gaming context. I think Playfish is the tip of the iceberg and there’s a lot of learning to be done.

Q: What kind of exits do you expect to see in this space?

A: For social gaming, Playfish and Zynga stood out. Playdom [which raised $43 million after EA announced the Playfish acquisition] was launched on MySpace and is transitioning to Facebook, but I’m not current on their numbers. A lot of other smaller companies are up-and-coming, and some are developing interesting numbers, but there will definitely be more M&A than IPOs.

Q: Why don’t you anticipate many IPOs for this space?

A: You’ve got to be big and really durable to IPO. People have to be convinced. Can the public equity markets get their heads around the virtual purchase of a bouquet of flowers underpinning a business model, when the numbers are as interesting as Playfish and Zynga?

Q: Tell us about the changes in the London office, with Partners Kaj-Erik Relander and Simon Levene leaving the firm.

A: Simon left at the end of last year and Kaj-Erik phased out last year. I can’t comment on their departures, but they were amicable. They’re both immensely talented individuals. We’ve added Sonali De Rycker, who just had a baby, and Martin Gibson, who joined us several months ago. They came from Atlas. We’ve added up-and-coming young talent to the team, as well: Jeremiah Daly, who came from Summit, and Spencer Lazar, who came from Insight. We’re open to taking on two more investment professionals, and we’re in discussions with candidates. [Note: Neither Relander nor Levene responded to VCJ’s requests for comment.—Ed.]

Q: Accel London raised a $525 million fund (Accel London III) that closed just 15 months ago. Accel has said the fund will be deployed over three to four years in 30 to 35 new investments. What’s your investment strategy, and will it change with these new seed funds cropping up in Europe?

A: We do early stage, pre-revenue investment. Three quarters of our companies are pre-revenue and one quarter is in the venture growth stage, although they still have breakout potential. We do pure startups and seeds, as well, but our core business is a classic A round of financing in companies that have been bootstrapped for awhile—and we’re going to stick with it for the time being. Seed funds are a welcome addition to the venture ecosystem. They have our complete cooperation, and all interests are aligned in developing that ecosystem. It’s great to see how the ecosystem has grown.

Q: Let’s talk about your experience as a VC. What have you learned working in Europe?

A: I learn something every day. It’s not an epiphany. It goes back to my roots working for a Japanese company for many years. I believe in continuous, incremental improvement, and I’m surrounded by such a capable group of people in lots of different situations, that I can apply learning on a daily basis. I think it’s hundreds of little things. The story is the companies: They’re the heroes. All we can do is help increase the probability of their success.

Q: How important is it for you to be part of a global firm?

A: It helps the whole firm to have a global radar screen when we’re looking at new opportunities—not looking at competing companies in a geography, but backing the best company. Sharing thoughts throughout the firm in all locations is very helpful. …

The globalization of the industry is really happening, and it’s important for us to be global for two reasons: We think it produces superior returns to investors and a better product—more value-add to our portfolio companies and the entrepreneurial community. We have operations on three different continents and can support companies across the globe. You can reach out [when you work at Accel] to the most relevant person, regardless of which office they’re in.

Q: What’s the European market like for VCs compared to the U.S.? Did the same type of funding bubble develop in Europe as it did in the U.S. before the global recession?

A: The downturn affected exit markets if you had companies going public last year, but for deal flow and new investments, things are robust, and Playfish is a good indication. That deal closed in November. Playfish is an example of a very interesting company. We have some others in our portfolio that we would expect to exit this year with significant numbers. It’s important for Europe to show a track record of success. It’s important for Europe and the asset class and Accel.

Q: How else is Europe different for VC?

A: The market dynamics here are different. The number and volume of quality deal flow is less, but there are far fewer participants in the market. The market share gain is much different, but it works to our advantage. There are not that many venture firms here, and Accel is unique in offering a global platform. We like to see as many good deals as we can.

Q: So what are you looking at now?

A: I still remain very interested in the gaming space—next-generation game spaces. And I still like enterprise software when it’s more disruptive, either open source—I’m involved in Alfresco—or SaaS next-generation e-commerce. We have an investment in Russia, in buying club/sale models, KupiVIP, that has significant revenue already.

Q: Any other areas of interest?

A: I like vertical search— Kayak for travel and Check24 in Germany for personal financial products like car insurance and life insurance, and now they’re getting into utilities. Here in this market there’s next-generation financial technology, with London being a financial center and big banks like Goldman. I think the talent pool for technology is better here than in New York. Also there’s mobile. The dream of mobile applications and services is finally coming, and we’re invested. Rich [Wong, a partner in Accel’s U.S. office] and I work together on GetJar, a mobile app download site.

Q: How do you spend your free time?

A: I have a 2-1/2-year-old son and a daughter expected in five weeks. My family has been my hobby lately. I do enjoy travel, and the occasional golf game and exercising, but those are taking back seats. At night I read books of baby names.

Q: Can’t you do that over the Internet?

A: Yes, but I can set the book on my nightstand, and it’s something my wife and I can share.