"Not a fraud, but a superficial examination": a profile investor about the work of 110 Industries

The investment case of the Russian-British investment company 110 Industries came to us. It says that the company is involved in the emergence of games such as Hellblade, Hitman 2, Sekiro: Shadows Die Twice and Artifact. However, do not rush to applaud: this may not be true.

This material was based on information received from three independent persons who wished to remain anonymous. All of them are either investors or people close to them.

A new player in the market?

110 Industries has been around for more than two years, but it has only recently started getting into the news bulletins. One of the latest stories is the completion in December 2019 of the $1 million deal announced in the summer with The Untitled Venture.

Representatives of 110 Industries say that they are engaged in pre-production and publishing of action-packed AAA games from a third person. They see Capcom as their competitor. They say that it works with approximately the same budgets and teams.

That’s just 110 Industries does not have a single released project behind them. It is unknown to the participants of the domestic gaming market. In Russia, the company communicates, as a rule, only with non-core investors.

This makes you think: is this a very ambitious and highly professional team that skillfully attracts budgets, or is it just an attempt to make money on funds far from the industry, taking advantage of their ignorance?

Let’s try to figure it out.

The first infopod and the Kojima incident

For the first time, the existence of 110 Industries became known in July last year. It was then that information appeared that The Untitled Ventures was closing its own Caravan Fund gaming fund, integrating it into 110 Industries and going to “raise” sums up to $ 50 million for game development.

In the same month, 110 Industries attracted the attention of the gaming b2c community. On July 23, Hideo Kojima thanked director Ilya Naishuller on his Twitter page for a gift — a metal skull and a CD with songs by the Kino group. However, it immediately became clear that the gift was not from the director. The gift was sent by 110 Industries.

As the founder of the company stated a little later in an interview with Anton Logvinov, he decided to engage in “guerrilla marketing” and sent his favorite game designers a skull with suitable music.

Funny fact. The “favorite game designers” mentioned in the conversation with Logvinov have already turned into “people with whom we cooperate” in the comments for DTF.

Unsuccessful interview

In the domestic gaming business environment, 110 Industries was first talked about in August, when an interview with the company’s founder Sergey Kolobashkin and his business partner Anton Poletaev appeared on the pages of Rusbase. In it, they told how they were going to make money in the video game market.

In the profile community, the material caused confusion. The theses of the heroes were criticized by profile investors, developers, and just people who are well acquainted with the video game market.

Among the particularly controversial statements of partners:

Thesis: Large companies do not allow new companies to enter the AAA games market because they are afraid of competition.

No one is afraid of anyone. It’s just that the development of AAA games requires budgets comparable to Hollywood (including marketing), as well as expertise and time. At the same time, there are huge risks here.

Thesis: The AAA gaming market has not been developing for the last 40 years. Only the graphics change.

That’s not so. In each of the game genres, changes regularly occur at all levels, including the key — game design. Moreover, in general, new genres and trends appear on the market every two or three years.

Thesis: The issue of competition is relative, because about 300-400 games are released a year.

In 2018, more than 9,000 games were released on Steam alone. In general, the gaming market is considered highly competitive.

Personally, we were particularly shocked by the statement: “It is important to understand that we take on the most risky stage of financing — the pre-production stage, and we invite investors when the project is ready for production.”

As in any business, the most risky and difficult stage is production, that is, in relation to video games, development. And if 110 Industries tells investors that the riskiest stage is behind and only profit awaits them ahead, it, according to the editorial board, misleads them.

There are many more controversial statements in the interview. And against this background, the willingness of the speakers to guarantee investors 20% per annum is perceived as a strong exaggeration, to put it mildly.

At the same time, Sergey Kolobashkin positions himself as a profile specialist. He says he was involved in The Witcher 3: Wild Hunt, The Last of Us, Uncharted 4, Bloodborne, Sekiro: Shadows Die Twice, and also invested in Artifact, Hitman 2 and Raiders of the Broken Planet.

In general, the perplexity of the profile community is easily explained. However, the story was just beginning.

Footnote “About AAA games”

110 Industries claims to be entering the AAA games market. She also grabs participation in Bloodborne, Dark Souls, Hellblade and Hitman. But none of these games are up to AAA by industry standards.

As one of the experts explained to us, AAA titles in the gaming business of the USA and Europe are projects with a development budget of $ 100 million or more. This figure is given without taking into account marketing, which may not be less.

There really aren’t many such games on the market. These are Grand Theft Auto and Call of Duty level products. In the weeks of release, they pull over all sales.

Investment cases

Later, a presentation (from source “A”), which was called “110 Industries, got into our hands. Investment cases”. It describes in detail exactly how and in which projects the company allegedly participated. Here they are:

Hellblade: Senua’s Sacrifice

She helped launch advertising campaigns, cover the game in the press (WSJ, Game Informer, etc.), and demonstrate games at E3.
She helped to conclude a temporary exclusive deal with Sony.
I invested $ 800 thousand in the project (9% of the total budget of the game).
I planned to become a publisher, but it didn’t work out, because “the terms of registration of the company were delayed.”

Hitman 2

Planned to publish the game, but “IO Interactive violated the terms of the agreement, interfered with product development, hid the ownership structure when selling WB (the game publisher).”
Invested $1 million, taking into account the attracted co-investments (0.9% of the total budget).

Sekiro: Shadows Die Twice

The previous structure of one of the founders was called West End Interactive (more on it later). She started the development of Vengeance is Mine together with FromSoftware while working on Bloodborne. A prototype was developed on the Bloodborne engine.
The partners of West End Interactive refused to support the project, which led to the sale of the project in favor of Activision, who did not receive consent to release the original game and remade the project into a new game — Sekiro: Shadows Die Twice.

Raiders of the Broken Planet

I invested $850 thousand of my own money (4.7% of the total budget).
It attracted another $5.35 million from Russian co-investors (29.4% of the total budget).
I pulled out of the deal because they decided to make the game completely online. Earned $12 million at the exit.

Artifact

Fully invested in the development of the project in the amount of $ 1.1 million (50% of the total budget).
I resold the Valve project because I was afraid of competition with Gwent from CD Projekt RED.

The document also contained a table indicating the budget of each game, the number of copies sold, revenue and other figures.

Reaction to cases from companies

We have contacted all these companies with a request to comment on the presentation. Activision declined to comment on the situation with Sekiro. IO Interactive and Ninja Theory have not responded to our request. But we managed to get information from the remaining developers.

In response to a request via email, MercurySteam, the developer of Raiders of the Broken Planet, stated that he had no idea what it was about.

In the same spirit, but with regard to Artifact, Valve also replied: “Probably, we are talking about some other project that has nothing to do with us.”

We received a similar statement from Richard Garfield, who was at the origins of Artifact: “I assure you, there was no external involvement.”

Reaction to the case from 110 Industries itself

Sergey Kolobashkin, the founder of 110 Industries, was the last person we planned to contact for comment, but he contacted us himself. This happened after we requested a comment from DDM.

DDM is an American agency that introduces industry participants to each other. 110 Industries is its official client. DDM did not comment on the request, but sent a letter to Kolobashkin, and he called one of the editors.

In a conversation with us, Sergey voiced the official position of the company. According to him, he sees the presentation for the first time (the editorial office has kept correspondence and a recording of a telephone conversation with Kolobashkin, in which he refuses to be involved in the document). Moreover, “the company denies the existence of the document that fell into the hands of App2Top.ru “.

Kolobashkin separately stressed that he denies the work of 110 Industries with Ninja Theory, the developer of Hellblade: Senua’s Sacrifice.

And here something does not add up.

First. Sergey wrote the following on his Facebook social network in early June: “You can all enjoy the games Hellblade: Senua’s Sacrifice, Sekiro: Shadows Die Twice, Bloodborne: The Old Hunters, Raiders of the Broken Planet, etc. You can be sure that everything would have been much worse there without me.”

Second. A person close to the investor (source “B”), who was pitched by 110 Industries, confirmed that the presentations were received from Kolobashkin.

The source assures that it was from Kolobashkin’s mail that investors received a presentation, one-on-one, that came to our disposal.

The third. The case of Hellblade: Senua’s Sacrifice is described in the second presentation, which we have already received from another source.

This puts 110 Industries in an ambiguous position. On the one hand, we have a presentation of the company (even a few, but more on that below), the words of a representative of a non-core investor, loud statements by the founder of the company regarding his participation in the fate of Hellblade: Senua’s Sacrifice. On the other hand, in a conversation with us, Kolobashkin denies everything.

Another presentation

Later we found out that 110 Industries has several presentations.

For example, there is an extensive document (from the source “In”). The cases from it partially overlap with the cases of the previous presentation.

The new document also specifies the projects that the company is going to work on and provides approximate calculations of the cost of their production.

Questions to art

Let’s focus first on the projects themselves, or rather, on the art to them. The first project is called Vengeance is Mine (according to the presentations, Sekiro grew out of it).

In concept art, nothing resembles feudal Japan. However, concept art also has nothing to do with 110 Industries. Three of the five works were created by Nivanh Chanthara. He draws to order for games and comics, the exclusive rights to all his works for the mentioned media are for Eidos and Image Comics, respectively.

Two more were made by the St. Petersburg artist Arsen Asyrankulov. In the comments for App2Top.ru he stated that he had not given 110 Industries permission to use his works.

The next project is called Alien: Marathon. It is assumed that it will be made by order of 110 Industries for $ 30 million by the Japanese Platinum Games, famous for Nier: Automata and the Bayonetta series.

Here, when preparing concepts, they did even easier: they took works from comics. For example, one of them is a fragment of the cover for the first issue of Aliens: Dust to Dust. The author of the work is Gabriel Hadman.

The third project, according to the presentation, will be made by order of 110 Industries Finnish Remedy. They will give her $ 17 million for this and Last of Us screenwriter Bruce Straley (Bruce Straley).

There are no questions about concepts here. The works were taken from two artists (Klaus Wittmann and Nelson Tai), who love cyberpunk and do not publicly disclose for whom specifically they work.

UPDATE (from 01/25/2020): We received a response from Nelson on working with 110 Industries. He confirmed that he had done several jobs for the company as a freelancer.

Questions about numbers

Now let’s focus on the substantive part of the presentation.

We asked a profile expert, who personally invested more than $10 million in the development of Western console projects, to comment on the slides.

According to him, the calculations are made superficially and contain errors. For example:

not 30% is withheld from digital sales, but actually 35%, since VAT/VAT/sales tax should also be deducted from revenue and refunds should be taken into account;
not 50% is withheld from retail, but also 35%. However, there is a different problem: it is necessary to print discs, and this is expensive, since Sony charges a lot for printing them — $7-10 per copy (these costs are not spelled out in the economic model);
10% royalty to the developer is very small.

But the main problem, as our expert noted, is this: 110 Industries assumes that sales of any of their games will amount to more than 1 million copies. That’s a lot by today’s standards. But more importantly, no one can guarantee the final sales of video games.

“The authors of the presentation do not understand that in 80% of cases, sales in the best scenario go to zero — but rather to minus. If the market were different, there would be much more of such smart and rich people,” the expert stressed.

He also drew attention to how funds are planned to be used at the first stage of work (we are talking about using the initial $ 1.7 million for parallel development and promotion of 1-3 projects).

The payment to developers is only 25%. 11% delays pre—production, another 11% — advertising, 8.5% goes to operating, and the remaining 45% – to participate in events, create teasers, “travel” and a press conference.

It is also unclear what role 110 Industries is going to take on in the projects being prepared in its bowels. In a press release dated December 2019, the company is also named, among other things, as a publisher, but publishing costs are not included in the financial presentation models. In the modern world, the consolidated marketing budget of large projects often exceeds the cost of the development itself, and it is not entirely clear why 110 Industries decided to exclude these costs. After all, if you take them into account, then the declared IRR becomes much lower.

To the question App2Top.ru whether the activities of 110 Industries could be a fraud, the expert expressed doubt: “It seems to me that this is a collection of money from the “oilmen”, but not a *** ovo, but, as they say, a superficial examination.”

Footnote “How 110 plans to work with developers”

Source “B”, thanks to whom we received investment cases, noted that he did not like the scheme according to which 110 Industries wants to work. The company plans to outsource the team and pay as the milestones are completed: made a feature — received a transfer.

According to the source, no normal company will sign up for this. Such an approach kills the iteration of development, which involves constant adjustment of plans. 110 Industries, in turn, does not take into account that it is impossible to take into account all the nuances when planning a game. For this reason, a good game manages to change significantly more than once or twice from a concept to a real product.

If the developer agrees to the terms of 110 Industries, he will be forced to pay out of pocket for each delay. Because of this, he will not care about the quality of the game. The main thing for the developer will be the formal execution of the technical task, and not the quality of the final product, because before receiving a tranche for completing the stage, the studio, in fact, credits its investor.

Who is behind 110 Industries?

The driving force and face of the company is Sergey Kolobashkin. In the same interview on Rusbase, he says that he earned his first capital as an investment banker in the energy industries. His LinkedIn profile does not contradict this.

Ten years ago, he worked for a year and a half in the Moscow office of SG CIB, the investment business of the French bank Société Générale. But there is a nuance. It does not indicate what he did from 2009 to 2014, when he founded the game company West End Interactive.

If you lift the website of the no longer working West End Interactive from the archives, there is more information. There Sergey shares in detail what he did before joining game dev:

He was an independent consultant to Wegelin & Co. (Swiss bank, now bought by Raiffeisen Group);
He was an independent consultant for Property Vision Holdings Limited (a British financial company, closed in 2014);
He was an independent consultant for Boursorama (another Société Générale business, specializing in online banking and brokerage transactions, is also a media about finance);
founded East-West Investment Group and became its CEO and Creative Director. The company was positioned as an investment bureau.

Several remarkable facts are connected with this group.

The first fact. According to the extract of the Unified State Register of Legal Entities, EAST-WEST LLC was founded in 2013 in Russia. Kolobashkin became its CEO, but he was not the owner. The company was liquidated in 2016, and all this time Kolobashkin remained its head.

The second fact. In the summer of 2015, Kolobashkin reported in a press release that the East-West Investment Group team could raise pensions in Greece by 15%. It will feed a country in crisis. In comparison, guaranteed investors 20% per annum from AAA games already seem like a mere trifle.

And now let’s go back to the dates of the existence of EAST-WEST LLC. The fact is that they partially coincide with the dates of operation of Kolobashkin’s West End Interactive gaming company. In other words, Sergey promised to save the Greeks and at the same time made games.

So what is West End Interactive?

This is the studio from which Sergey’s gaming career began. In the comments for App2Top.ru He noted that Nina Kristensen helped him enter the market. This is the founder of the Ninja Theory mentioned above more than once.

In one of his Facebook posts, he writes about it this way: “When you crumple in your hands a check with the first earnings from the sale of a video game, you start to think about what you did with your life all these years until you came to the half-witted English, who didn’t have enough money for a game about a half-witted a Celtic woman.”

In the same manner, on a social network, he shares the story of meeting Bernie Stolar, once a big industrial figure. In the 90s, Stollar headed Atari for several years, then was vice president of Sony when the first PlayStation was launched in the USA, and in the mid-90s he was responsible for the release of the Dreamcast at Sega of America.

“By the time I was walking around Paris and met Bernie Stolar, I knew absolutely all the main players, all the metrics, all the products. I don’t know what I hit him with, but after a couple of months we worked together.”

Kolobashkin, when communicating, generally freely sprinkles the names of Western gaming top managers. It seems that he is really on a short leg with many market participants. He likes to reinforce these words with joint photos with gaming celebrities. There aren’t many of them, but most of them are from the same party.

But yes, according to LinkedIn, Sergey, together with Stollar, in 2014-2017, really worked at the West End Interactive registered in New York. The company positioned itself at once as an investment firm, as a publisher, and as an intellectual property developer.

West End Interactive had plans. She wanted to release the horror Rattrapante, the spy action Wanted Dead (the one that Remedy must now do) and the role-playing action Vengeance is Mine (according to the presentation for investors, it was he who became the main one for Sekiro). But the stars did not converge.

Why none of the games did not reach the release, Sergey does not tell. In the same interview with Rusbase, he mentions that he had a conflict with partners who did not like that he started participating in the “structural financing of products”.

At the same time, Stollar left the company.

After that, Kolobashkin, according to his own words, took part in the work of Secret 6. It is a large outsourcing studio with offices in San Francisco, the Philippines and Madrid. According to one of the presentations, he (or someone else from 110 Industries) was even one of its co-owners.

So is it still a deception or not?

Unfortunately, we cannot give an exact answer to this question, since we do not have all the information. Now we certainly know the following:

110 Industries is negotiating with non-core investors in Russia. Stated goal: to raise money for the development of 1-3 video games.
110 Industries sends presentations to potential investors. They indicate that she was involved in the creation of the world’s western blockbusters (from Uncharted 4 to Sekiro).
CEO of 110 Industries Sergey Kolobashkin in an interview with Rusbase, as well as on his Facebook page, talks about his participation in the creation of world hits (at least at the investor level). Some of the developers of these hits do not confirm this information in response to a request from the editors.
In conversation with App2Top.ru Kolobashkin denies working with Ninja Theory (the company flashes in all presentations), and also states that he sees a presentation with investment cases for the first time.
Sources close to the investors with whom 110 Industries communicated say the opposite. According to them, this is the presentation they received from Sergey.
Previously, the CEO of 110 Industries had already launched a similar business — West End Interactive, which was closed after three years of operation. Not a single project under the brand of this company was released.
Simultaneously with West End Interactive, Kolobashkin headed the Russian East-West Investment Group. It was positioned as an international investment bureau.
The only thing that can now be found online about East-West Investment is a strange press release, according to which the fund’s team can increase the pension of Greek residents by 15%.

While writing the material, we additionally talked with several relevant Russian investment experts. Most of them expressed cautious skepticism about 110 Industries.