Runescape News: Control of Jagex Shifts to New York City

Andrew Gower, the man who made Runescape, has severed his ties with the game. The Jagex founder has sold his remaining shares to the New York based equity firm, Insight Venture Partners. For the first time in its history, this places control of Britain's leading game company firmly onto American soil.

According to on-line gaming magazine Develop, the deal was completed 'at some stage' in 2011, but has only just become public knowledge. March 2011 financial records, deposited by Jagex at Companies House, reveal that the company is now valued at up to £240m. This placed Andrew Gower's one-third share at an estimated £75m.

Jagex CEO Mark Gerhard has been quick to respond to the report. He told Games Industry that more capital was needed, in order for Runescape to progress, but UK investors were 'painfully shy and risk adverse'. The company deliberated for a year to find the right equity firm before choosing Insight Venture Partners. The reason, he was quick to reassure players, was that there was no pressure to sell any shares. Jagex could take its time determining the right funders for its ethos.

It is known that Jagex were willing to pay £2.5m in expenses in order for the US firm to take control. Insight Venture Partners are not an unknown quantity. It has owned a 35% stake in Jagex Ltd since 2005. However this latest purchase means that it now holds the majority shares.

Andrew Gower resigned his position on the Jagex Ltd Board of Directors in December 2010. He is currently at the helm of a new business, Fen Research. He reportedly owns 90% of the company. Their website lists it as 'a new Cambridge based start-up, working on creating a ground breaking new product in the field of online games and user created content.'

It is a description which could equally have applied to Runescape ten years ago, implying that Jagex now have a rival on the British market.

It is the stuff of legend. Andrew Gower was a struggling student, desperate for money, when he was handed an opportunity to make some. The skills he learned would eventually lead to a fortune.

He told fans at the first Runefest that someone had offered him £500 to produce a JavaScript game for a website. He didn't know a thing about JavaScript, but he wasn't about to let so much money slip through his fingers! After a crash course in the coding, he delivered the goods and moved on to making his own platform.

The resulting multi-user domain (M.U.D.) that followed contributed greatly to his dissertation at the University of Cambridge. Friends liked to play it with him. They told other people and the community grew. The game expanded greatly. It would one day become one of the world's most successful Massively Multi-player On-line Role-playing Games (M.M.O.R.P.G.) - Runescape.

Andrew brought in first one brother, then another. Various family members were co-opted into designing characters and scenery. His mother famously cooked bacon, so Andrew could record the sound. It is still played whenever a Runescape player lights a fire. He founded a company to market his game and called it Jagex. It has variously been stated that Jagex stands for Java Gaming Experts or Just about the gaming experience.)

With a friend named Constant Tedder willing to insert some much needed capital, Jagex was free to develop Runescape into a profitable on-line game. It was a gamble that paid off. By 2009, when Andrew was still just 29 years old, he and his brother Paul owned a company that was valued at £110m. The Daily Telegraph placed them as the 11th richest entrepreneurs in Britain.

Yet just one year later, Andrew resigned from Jagex's Board of Directors. By November 2011, he was no longer even listed amongst the Runescape credits. He had already sold his remaining shares to the American equity firm Insight Venture Partners.

Insight Venture Partners was founded in 1995 as investors into up-and-coming businesses. Their main focus is upon software, internet or data-based companies. It has only recently branched out into providing capital for the expansion of established projects too.

Based in New York City, the venture capitalists have ploughed money into the likes of Twitter, Tumblr, Zumba and Fuze. A full list of its assets can be found in the company portfolio. Its most recent success story was helping expand the German bargain sales website, Daily Deals, to the point where it was acquired by Google Inc after only two years in business.

As an equity firm, Insight Venture Partners seeks to maintain a substantial, if not majority, share in any company into which it invests. Its primary focus is upon maximizing profits through a variety of strategies. This may involve introducing financial and marketing experts into the boardroom, or else using its own networks and other channels to promote its portfolio businesses.

Typically an equity firm will receive a management fee, as well as a percentage of any profits resulting from its investment.

This appears to have been the pattern in the relationship between Jagex and Insight Venture Partners. In 2005, the investors originally obtained 35% of the Jagex shares from Constant Tedder. As part of the terms, the equity firm's vice-president Alex Crisses and managing director Jeff Horing both joined Jagex's board of directors.

By February 2011, Jagex announced that Insight Venture Partners had invested more capital. This came at a time when two further equity firms, Raine and Spectrum, were also funding growth and taking their own places in the boardroom. Jagex CEO Mark Gerhard stated, 'I fully expect that the collective experience of the shareholder base will be highly advantageous as we embark on our next chapter of growth.'

None of the original three - Andrew Gower, Paul Gower and Constant Tedder - are on the Jagex board of directors now.

In the short term, it can be expected that Jagex will seek to assure gamers that it is business as usual.

Andrew Gower was a trusted figure from the outset, with all of the first Runescape players being his personal friends. Even when the player base touched the millions, the general feeling was still that Andrew had the best interests of the game at heart. Profits would always be ploughed back into creating a greater Runescape experience; harsh decisions were solely for making the game better.

The loss of this central figure is going to be a huge blow to Jagex's public relations efforts amongst its customers. With the money men in control, any future decision is going to be viewed in this context. The company has already received criticism for aggressive monetization in recent years. This is likely to escalate in the future.

Jagex have always been proud to offer a free to play portion of the game. Members subscribed merely to access larger areas, more skills and a wider array of in-game possessions. Yet free players have come under increasing pressure to purchase, with many aspects of their area containing the notice that this can only be unlocked by acquiring membership.

Ill-fated blatant marketing attempts, such as the introduction of Gnomecopters to survey member lands, had to be taken from the game due to player protest. Such strategies have now become more subtle by removing established features, such as listing on the hi-scores, which had previously always been part of the free game.

Even loyal members have been targeted by money-making schemes. Recently unique in-game items have been made available only to those purchasing their membership through the most expensive medium of game cards. Individuals who chose to pay monthly via standing order are not eligible to claim the items. Their membership came too cheaply.

However, the longer term benefits have the potential to pacify the players. More capital means greater investment in the game itself. Graphical reworkings have already altered the general look of Runescape, while more development could see a greater game experience. As long as Jagex can keep their players entertained and entranced, then they are more likely to forgive the overt profiteering and just keep on paying and playing.

What will make or break Jagex depends upon how well they balance content versus sales. Without Andrew Gower to inspire confidence, the new owners will have to work twice as hard.