Linden Lab’s acquisition: sundry thoughts & speculation

via lawdonut.co.uk

It’s been a week since the news broken that Linden Lab is in the process of being acquired by new owners (see Linden Lab announces it is to be acquired, July 9th, 2020). Since then there has been a lot of  ranging from the entirely positive to the inevitable “we’re doomed! / the sky is falling!”

Some have raised concerns that neither J. Randall Waterfield nor Brad Oberwager have experience with running games companies. However, having hands-on experience in running the type of company in which you’re investing isn’t actually a prerequisite for funding / representing / guiding it. Rather, what’s important is having the ability to understand the company, appreciate its value proposition and being able to contribute to its continued growth; and both Mr. Oberwager and Mr. Waterfield appear to have these abilities. In particular, J. Randall Waterfield, as CEO of the Waterfield Group, comes from an environment where long-term investment in companies to ensure their growth is very much the raison d’etre.

Waterfield buys and builds well-run American businesses.
We prefer basic businesses with a few years of proven, conservative growth. We avoid companies that are growing too fast. We believe slow and steady makes the race… We strive to be a good partner to existing management, are passive with regards to general managerial issues, and work hard to help our CEOs and their families’ realize their vision.
Waterfield’s investment timeframe is forever. We work to grow book value at a reasonable pace with no exit in mind.

– from the About / Investment Criteria page of Waterfield

Now, to be clear, it’s not the Waterfield Group that is investing in Linden Research, but rather a venture between Mr. Waterfield and Mr. Oberwager; but given Mr. Waterfield’s pedigree with long-term investment, is hard not to see him taking the same approach in his other ventures.

Nor should the fact that Mr. Oberwager has sold off three of the businesses he’s built be seen as a negative. Building a company from the ground up is a different matter to investing in an established, profitable entity, and selling the former in order to repeat the cycle isn’t automatically indicative of a intent to buy-in to an existing company simply to sell it on without a longer-term commitment.

Which is not to say a buy-out like this isn’t without risk; with the best will in the world on the part of incoming investors to a company, things don’t always go as planned or turn out as hoped – but planning for failure isn’t generally how investors set about acquiring profitable companies.

A further point to remember is that acquiring a company isn’t something that happens overnight; it can actually take multiple months or even years to progress from an initial decision to sell, through reaching an agreement in principal, to that final closure.

Due Diligence means investors are rarely unaware of the business they are about to invest in

One big part of this process is due diligence, a process designed to make potential investors precisely aware of what they are getting themselves into – things that might alter the deal, such as revealing unwanted risks or unwelcome financial exposure that they might wish to see properly mitigated prior to proceeding further. This means that incoming investors are rarely coming into a company flying blind or are suddenly going to find themselves facing an unwelcome wake-up call that might leave them re-evaluating their desire to retain the company.

On a more interesting – to me at least – level is that given the length of time an acquisition can take – even if measured over months, rather than years – is how closely the decision to sell Sansar might have been tied to the decision to offer Linden Research up for acquisition.

Simply put and despite the effort already put into Sansar, it still has a long way to go before it is likely to establish a sold income-generating business model, and therefore represents a significant revenue sink hole of unknown depth. As such, it would make sense for the Lab to divest itself of Sansar prior to putting itself up for acquisition; doing to removes the uncertainty around that platform whilst leaving the company with a demonstratively profitable product (Second Life) and a second that is just starting to show its potential (Tilia Inc.). Depending on the time frames of the two events, the sale of Sansar might even have been a pre-requisite put in place by the new investors to limit potential risk raised through the due diligence process.

Following the acquisition announcement, there were questions asked through the forums, etc., on why would a profitable company be put up for sale, and statements (such as can be seen in comments on this blog) that you “don’t sell a profitable company”.

Well the fact is that profitable private companies are routinely sold for a variety of reasons, and none of them are “bad” or “negative”. For example, and leaving aside the point that the fact a company is profitable obviously makes it more attractive, a sale can be because the current owners wish to exit the company entirely to pursue other opportunities; or they may simply want reduce their overall holdings in the company as part of a general change in lifestyle, whilst leaving the company with the ability to continue operating successfully (and in the case of the latter, still have their experience / expertise available, should it be needed).

I’m not about to try to second guess what reasoning is at work in the case of Linden Research, but  I am curious as to the shape of the board once the acquisition has been finalised. Will it be just the two new investors (which seems likely), or will one or two of the remaining board remain?

Obviously, how things pan out will only become clear over time, but overall (and such is my nature as a “glass half full” person) I lean towards the feeling that the coming change for Linden Research will prove to be positive.

Linden Lab announces it is to be acquired

© and ®Linden Lab

On Tuesday, July 9th, 2020, linden Lab announced it is to be acquired by “an investment group led by Randy Waterfield and Brad Oberwager”.

The acquisition is currently pending approval by financial regulators in the U.S., due to the Lab’s subsidiary, Tilia Inc., which forms part and parcel of the acquisition.

The full statement on the matter, which can be read on the Lab’s corporate website, includes a statement from Linden Lab CEO, Ebbe Altberg:

We’re excited for this new chapter to begin. We see this as an opportunity to continue growth and expansion for Second Life and our money services business Tilia. We’re grateful for the ongoing support from our community, business partners and investors. Now more than ever, there is increased recognition of the value and utility of virtual worlds to bring people together for safe, shared, and social on-line experiences.

Once the acquisition is finalised, both Mr. Waterfield  and Mr. Oberwager will join the Lab’s Board of directors.

Bradford Oberwager has founded and/or run five tech/CPG companies—Jyve, Bare Snacks (acquired by PepsiCo), True & Good! Snacks, Acumins/more.com (acquired by HealthCentral), and Blue Tiger/Open Webs (acquired by CarParts).

J. Randall Waterfield is Chairman of The Board & Chief Executive Officer of Waterfield Group, one of the largest private financial organisations in the United State, and occupies board positions on a number of other companies and organisations.

J. Randall Waterfield (l) and Bradford Oberwager (via Waterfield.com and LinkedIn)

Also commenting on the acquisition, Brad Oberwager states:

Both the company and its virtual world community have a unique culture and creative energy that remain important to the long-term success of Second Life. There’s a bright future for both Second Life and Tilia and we’re excited to help fuel these growth opportunities.

With the news breaking on Twitter, Altberg responded to questions on what it means for Second Life with a simple “Continued Greatness!”

I reached out to linden Lab on finding out the news, but was informed the company has no further comment on the acquisition beyond the press release.

However, given that the acquisition will see Mr. Waterfield and Mr. Oberwager joining the board, I would anticipate that – given the nature of acquisitions – it is unlikely there will be any immediate visible changes to Linden Lab, Second Life or Tilia Inc., and, and the company will likely to continue to operate in a “business as usual” mode with regards to both Second Life operations and the community for the immediate future. That said, there will likely be a lot of speculation as to the future of SL, together with concerns / fears as to what the longer-term future might be.

While it is purely speculative on my part, I would hazard a guess that the acquisition will take into consideration the increased interest Second life has witnessed over the last year(ish), and particularly as a result of the SARS-CoV-2 pandemic, and will see in inflow of cash for the company that will allow it to (hopefully) meet its immediate goals with both Second Life and Tilia Inc., and allow both platforms to continue to be developed.

This is certainly the belief held by Linden Lab’s co-founder, Philip Rosedale, who now heads-up High Fidelity Inc. Also quoted in the press release, he states:

Since its inception 17 years ago, Second Life has been a pioneer in the concepts of virtual societies, land and economies. I’ve known Brad [Oberwager] for 14 years personally and professionally, and I’m confident he will bring his passion and proven strategies to help Linden Lab achieve new heights in distribution, scale, and quality while remaining true to the original vision, creativity, and community that makes Second Life unique and special.

Source:  Linden Research, Inc. to Be Acquired, Thursday, July 9th, 2020.

With thanks to Whirly Fizzle for the pointer.

A further look at Tilia and their new client, Upland

via Linden Lab / Tilia

In preparing my piece on Tilia Pay and the changes coming to US dollar transactions related to Second Life (see: Tilia Pay to handle all Second Life USD-related transactions), I had the opportunity to take a look at the updated website for Tilia Inc., Linden Lab’s wholly owned subsidiary.

For those who may not be familiar with it, Tilia Inc, was established by Linden Lab in 2014, and focused on payments and the compliance work associated with operating virtual economies, including Second Life and Sansar. And now, as shown within the updated Tilia website, it is to provide its services to its first client not to have a direct link to Linden Lab, the property trading game Upland.

For those unfamiliar with Upland (I was until I looked them up), available via browsers and on Android and iOS, it is a trading game in which players buy, develop, sell and / or trade virtual properties that are based on real-world addresses.

The Upland… mascot(?)

Currently focused on the city of San Francisco, Upland is built on the EOS blockchain protocol. It entered a closed beta in June 2019, which ran through until the end of that year. During that period, the company added their own virtual currency – UPX – in August of that year, which users could collect as a reward and in return for collecting properties.

At the start of 2020, the game entered an open beta available to any wishing to play it, and added the ability for users to purchase UPX using selected cryptocurrencies.

The partnership with Tilia means that from later in 2020, Upland will be adding the ability for users to trade their virtual properties (and, I understand, goods associated with those properties) for fiat money (this is, US dollar values), through the Upland marketplace and to cash-out those US dollars, with Tilia Pay being the mechanism by which they do so.

In add the use of fiat money is seen as providing a further layer of value to the game, as Upland’s co-founder Dirk Lueth explained to VentureBeat’s Dean Takahashi in an article that went to press while I was drafting this piece:

By using fiat currency, Upland can stay in compliance with money transmission regulations in the U.S. And in this way, players can actually own the digital goods and properties they buy in Upland … If the game ever shuts down, the players will theoretically be able to take their property and move it elsewhere, in contrast to other games where players don’t really own the objects that they build or trade.

It is Tilia’s ability to provide services fully in compliance with U.S. regulatory requirements, including anti-money laundering, sanctions monitoring, and fraud prevention that could well make it a popular potential partner among companies offering their users to buy / sell virtual goods, as it provides said companies with the ability for their users (and themselves ) to profit in real terms from such virtual transactions.

I’d actually first speculated on the potential for Tilia being used by companies other than the Lab itself back in November 2015. It was was a subject I returned to again in July 2019, again referencing comments made to me in 2015 by the Lab’s former Director of Global Communications, Peter Gray:

Peter’s [2015] statement struck me as interesting in that its structure seemed to suggest that supporting Second Life and Sansar (then still “Project Sansar”) was part of, but also separate to, the overall goal of presenting Tilia as an entity focused on providing a robust payments and compliance system for operating (and managing) virtual economies to third parties.

– This blog, July 2019

More recently, Lab CEO Ebbe Altberg made it clear we would be seeing a growing client list for Tilia at a couple of public events, include the 2020 VWBPE Above The Book session in commenting about Sansar’s future, he also referenced Tilia.

We’re partners with them [Wookey Project Corp] because they’re using Tilia for payments / payouts just like Second Life is doing, and Tilia will have more and more customers over time. We have several of them lined up to be integrated to get those payment services.

– Ebbe Altberg, March 2020

As such, it will be interesting to see who else opts to leverage Tilia / Tilia Pay in support of their platform / game / product in the coming months / year.

In terms of Tilia itself, the website offers a view of the management team – perhaps the first since Vick Forcella helped me with digging into the early days of the company as a Linden Lab subsidiary in November 2015.  Back then, Tilia’s management team was pretty broad, encompassing multiple members of the Lab’s management team, and a small board of three.

Today, the management team is down to three people – Aston Waldman (the Lab’s CFO), Emily Stonehouse (the Lab’s Chief Compliance Officer) and Ray Johnson (the Lab’s VP of Engineering). Aston Waldman is also a member of Tilia’s board, alongside of Kelly Conway (Linden Lab’s former General Council), and fintech compliance and product leader Ben Duranske (the only “non-Linden”, so to speak).

The Tilia Management team and board. Top: Aston Waldman (Tilia CEO and board member as well as Linden Lab’s CFO); Emily Stonehouse (Chief Compliance Officer at Tilia Inc and LL); Ray Johnson (VP Engineering for LL and Tilia) – the management team. Bottom: board members Kelly Conway and Ben Duranske

Also included on the site are a couple of press articles that cover the threat of money laundering through on-line games, helping to further explain the value of services such as those provided by Tilia, and both of which make for interesting reading.

I’ll continue to report on Tilia as news becomes available.

Related Links

 

Second Life: Tilia Pay to handle all USD-related transactions

via Linden Lab

In July 2019, Tilia Incorporated, a wholly owned subsidiary of Linden Lab, officially took over the management of activities such as processing credit out of second Life (that is, withdrawing funds as US dollar balances the platform), and and US dollar balances held by Second Life users (see: Tilia has officially launched operations with Second Life*, August 2019).

Now, in an expansion of Tilia’s role with Second Life, Linden Lab has announced that as from Monday, May 26th, Tilia Inc, via its Tilia Pay platform, will be managing all US dollar transactions related to Second Life, including those involving conversion of funds to other currencies.

This means that, as from Monday, May 26th, anyone:

  • Making a payment through one of their indicated payment methods – credit card, debit card, PayPal, or Skrill (as indicated on their Second Life account), such as purchasing Linden dollars
  • Adding a new payment method to their Second Life account

Will be consenting to the Tilia Terms of Service and Privacy Policy.

The change is being driven to both comply with regulatory requirements across a number of U.S. states and to leverage he enhanced fraud and money laundering safeguards that Tilia Pay provides.

The important things to note here are:

  • All Second Life users should be familiar with the Tilia Pay Terms of Service (and Not just those who have either a US dollar balance associated with their account and / or cash-out money from SL).
  • Users will not be explicitly asked to confirm their agreement with the Tilia ToS / Privacy Policy. Rather, when paying with a payment method (e.g. credit card) or adding a new payment method to an account, a users will see text stating that by proceeding with the transaction, they are agreeing to both the ToS and Privacy Policy.
  • This move does not:
    • Introduce any new fees.
    • Require users to submit any additional information to Tilia Incorporated or Linden Lab.
    • Change how L$ transactions are conducted in the Viewer or in the Marketplace.

Readers are asked to read the Lab’s official blog post on the change for further information relating to it. In addition, questions or concerns should be directed to the forum thread on the matter – questions cannot be officially answered through this blog.

Related Links

Sansar’s sale and Tilia Inc: Ebbe Altberg reveals more on both

Speaking at the Above the Book session at the 2020 Virtual Worlds Brest Practices in Education conference on March 26th, and again during the Lab Gab episode 19 segment that aired on Friday, March 27th, Linden Lab CEO Ebbe Altberg revealed more about the about the sale of Sansar and the future of that platform. Also during the VWBPE session, he revealed something of the future path for Tilia Inc, the Lab’s subsidiary company.

The following is an amalgam of his comments during both sessions, complete with a quotes, audio extracts from the VWBPE Above the Book session, references to source material and supporting links.

Sansar’s Sale

Summary

The decision to sell Sansar came, at least in part, from the recognition that as a platform, it lay at a very different stage of its evolution compared to Second Life, requiring different investment and resourcing¹.

With the decision made, the Sansar team were apparently given the freedom to attempt to raise money / seek interested parties in order to keep the platform going (hence, perhaps, Ebbe Altberg’s February 12th comment that the former Sansar team were involved in discussions concerning the platform’s future – see the quote in Sansar: lay-offs, rumours, and confusion, February 12th, 2020)².

As it is, with the sale of Sansar, some 30 members of the team have (so far?) received offers to join Wookey Project Corp, and as of the March 27th Lab Gab session, “a bunch of them” are back to work¹. In support of this, I noted in a recent blog post that Sansar’s Community Manager, Galileo, appears to already be part of the Wookey Sansar team, having posted the Sansar blog post referenced below. Further, both Sheri Bryant and Julia Munck, formerly Sansar’s General Manager and Sansar’s VP of Product respectively at Linden Lab, have departed the company – presumably to join Wookey Project Corp.

It appears that the focus for the platform will potentially remain on it being a platform for large scale virtual events in the music / entertainment sectors, and that both desktop and VR support will be continued – although obviously, strategy and direction are now the remit of Sansar’s new owners.

Linden Lab will remain a “partner”, inasmuch as Tilia will continue to be used for Sanasr Dollar transactions and fiat money payouts (see more on Tilia below)¹ ².

Ebbe’s Comments – VWBPE Above the Book

To make the long story short about Sansar, we at Linden Lab decided to sell it and to give the team the chance to go raise funds and go it alone. I think it’s easier for them to go raise money as a separate stand-alone company rather than as a part of Linden Lab. Second Life is a very established, profitable, product and we kind-of had a start-up inside of an established, profitable company. And it was actually easier for them, I think, to raise money as a standalone, rather than as a part of Linden Lab.

So … the staff that worked on Sansar are all getting offers by the new entity to come back and start working on Sansar again, and I think they’ve started this week, so I’m super happy that the product and the technology and the team all get a chance to continue … and it makes it easier for Linden Lab and Sansar to both succeed, I think, going forward. I’m happy for the way things ended up in the end.

References

  1. Lab Gab – 0:40-3:00.
  2. VWBPE 2020 Above the Book – 49:55-51:47.

Additional Links

Tilia Comments

We are all likely familiar with Tilia Inc., Linden Lab’s subsidiary that handles all micro-transactions and payments /payouts related to Linden Dollars and Sansar Dollars, and which manages the Lab’s compliance with regulations relating to its role as a Money Transmitter / Money Services Business (MSB).

Tilia officially launched on Thursday August 1st, 2019, having been formally introduced to SL users in July 2019 – although as I noted at the time, SL and Sansar users may have had some awareness of its existence as the Tilia Inc., logo had been on both the SL and Sansar web pages related to L$ and S$ account purchases and Sansar account management for some time. For my part, I’d been speculating about the company since November 2015, and did so again in July 2019, when I noted that Tilia appeared to be geared towards providing its services to other companies.

I first ruminated on Tilia being a means for Linden Lab to offer virtual economy solutions in July 2019, as a result of the (fairly obvious!) clue on the Tilia home page

Whilst speaking at the VWBPE Above the Book event, Ebbe indicated that with the sale of Sansar, Wookey Project Corp is effectively Linden Lab’s first customer for Tilia’s services, as the latter will continue to provide payment / payout capabilities for those using Sansar and the Sansar Dollar.

In addition, he also indicated more customers for Tilia are on the way:

We’re partners with them [Wookey Project Corp] because they’re using Tilia for payments / payouts just like Second Life is doing, and Tilia will have more and more customers over time. We have several of them lined-up to be integrated to get those payment services.

No specific details on which companies are planning to use  Tilia, I’ll hopefully have more as they are announced.

Linden Lab confirm the sale of Sansar to Wookey Project Corp – updated

Courtesy of Wookey Project Corp

On March 21st, and following rumours and conversations on the Sansar Discord server, I reported on Linden Lab having sold Sansar to Wookey Projects Inc (now referred to as Wookey Project Corp).  At the time, there was no confirmation from either Linden Lab or Wookey Projects on the matter (although I can note that since that post, I’ve had a brief conversational exchange with Wookey’s interim CEO, and hope to have more in the future).

On Tuesday, March 24th, Linden Lab, in response to assorted enquires issued a press release confirming the sale, which reads in part:

Linden Lab has had some inquiries from the public and media about the current happenings of Sansar. We are very excited to witness the unfolding of Sansar getting a fresh opportunity to thrive under the ownership of Wookey Project Corp., a San Francisco-based technology company that has assumed all operations without any interruption to operations or the Sansar community.

We are proud to have given birth to this amazing platform for creativity and live events, and encourage our community to continue the process of supporting Sansar as it shifts to new ownership. We’ve assembled a quick FAQ to address key inquiries about this transition.

Among other things, the release also makes clear that:

  • Wookey Project Corp. assumes all operations and management of Sansar, and Linden Lab is no longer involved with the platform.
  • The deal does not include or affect the ownership, management and operation of either Second Life and Tilia Inc., which continue under Linden Lab’s sole ownership.
  • However, Tilia Inc., has been contracted by Wookey Projects Corp as a third party service provider to perform certain back office functions for Sansar, including the issuance and redemption of Sansar’s in-game virtual tokens.
  • Wookey’s aim for Sansar is to “continue to evolve [it] as the premier platform for live events and entertainment including (but not limited to) support for VR, while Second Life is positioned as the Internet’s leading user-created virtual world platform.

Further to the announcement, a familiar face at Sansar – Galileo, the community manager there – issued a Sansar blog post that also provided a further official confirmation, reading in part:

Meet the new Sansar. Recently we were presented with an exciting opportunity: strike out on our own as a new entity, under new management with a focus on premier virtual events. We knew we needed to keep together our team and our vision, and the incredible community we’d built over the years.

Lucky for us, there was a company out there just as ambitious and passionate about virtual events as we were – a team that is nurturing and expanding our platform to new heights, deploying capital and expertise in a time full of opportunities for virtual communities around the globe. This week, we’re thrilled to join their family officially. Join us in saying hello to our new owners, Wookey Project Corp.! 

Galileo’s post also makes it clear that Wookey intends to continue building Sansar as a platform, stating:

What does this mean for you? More of the amazing events you know and love! More cosplay karaoke, more zero-gravity game nights, more of the massive interstellar shows that Sansar’s known for – thousands joining from anywhere in the world for one-of-a-kind live performances. You can also expect more features for meeting, socializing and hanging out with friends from around the world. Possibly even more ways to experience Sansar across different devices (more on this in weeks to come!). Nothing will change in your day-to-day.

In these challenging times, we know just how important it is to stay connected. That’s why we’ll be working hard these next few weeks to bring people together with new shows and surprises. Meet-and-greets and live performances from some of music’s biggest names. Virtual versions of the festivals you thought were cancelled or postponed. It’ll be the most fun you ever had staying home!

I recommend both the press release and Galileo’s post for further information, and I will likely resume coverage of Sansar in these pages in the near future.

Those interested can also catch-up on my own look at Wookey here: Sansar: looking at the apparent new owner – Wookey Projects Inc.

Update: Sheri Bryant (formerly Linden Lab’s General Manager for Sansar) and Julia Munck (formerly VP of Product for Sansar) both appear to have departed Linden Lab in the course of the last week. Whether they have moved across to join Wookey or not has not been confirmed – but such a move would appear to make sense for both Sheri and Julia and for Wookey Project Corp.