Regarding Tenacious

[PatrickMeehan]

Greetings again, dear friends of Tenacious (and Tenacious detractors). This post has been a long time coming, and for that I apologize but, as I’ll explain in a bit, our options for dealing with things gracefully have been pretty limited.

You all know me as the Creative Director of The Spoils, guilty with Josh Lytle for its uniquely warped vision and inappropriate humor. But in addition to my important duties selecting evening wear for Sarcophyles and helping write penis jokes for the flavor text, I had the singular and dubious honor of serving Tenacious Games as its Chairman of the Board.

My position as Chairman gave me a front row seat for what’s turned out to be a pretty glorious train wreck. I think Scott did a heroic job of trying to make an increasingly unworkable situation work and trying to keep at least one wheel on the wagon at any given time. That said, the situation at Tenacious was probably too much even for a superman like Scott; in retrospect the amount of personal hardship Scott took on for the company seems almost ridiculous.

The reason I am writing now is to shed some light on what happened, why it happened and where we can go from here. I don’t have any good news for you, but I do hope that what I have to say can at least end the speculation.

Before the history, some important updates for you. Josh and I are no longer with Tenacious. We moved on back in February. I have retained my seat on the board. Scott alone continues to put in his time, but his role is now (and has been since early this year) to close things out.

All of us can now only hope to recover from a financially and personally devastating year of trying to turn things around.

The events of the last year have added a depressing irony to our choice of name. All of us who stayed on at Tenacious were trapped by a perfect storm of equally unpleasant choices to make and the constant hope that by choosing the least of all evils we could still prevail.

Here’s a condensed version of how things fell apart. This isn’t an apology, an excuse or a justification. It’s just how things shook out.

…

As you may know, startups raise money in a series of rounds. With each round the company gets more valuable because it invests the proceeds from the round into improving its business. This means that subsequent rounds dilute the shareholders of the company less and less for the same amount of money: it is more expensive to invest in a later round than the first. For this reason, any company has a strong incentive against overcapitalization in that accepting too much money in a round means that the company will be diluted needlessly. That same money could be raised on better terms later, or so the argument goes.

When we started the venture, we though that we’d need to raise approximately $2.4 million to execute our plan. There wasn’t a lot of room for error there – our projections showed a big cash crunch during launch, with very little in the way of a buffer.

Starting out, fundraising went extremely well. Too well, in fact. Scott was able to oversubscribe our initial round – on its face a Good Thing™. It means that there was so much interest in the round from investors that we agreed to take on more money (i.e. dilution) than initially planned.

We set out to use the capital we raised in first round only to produce the asset and lay the groundwork for launch. We sailed past that goal and over-delivered in a pretty big way. It may surprise you to learn that Open Beta wasn’t part of our original use of funds at all; we didn’t even think the first set would be ready until 2007. We never imagined we could go to market at the end of 2006 with not only 1st Edition Part 1 but pave the way by making hobby game history with Open Beta.

That initial success around fundraising and execution set us up for a fall. Instead of raising the full $2.4 million on less favorable terms in 2006, we decided to stop fundraising in the fall and instead plan for another round for the balance in early 2007 on more favorable terms. Things had been going so well that there was even talk that we might not need any more money: we could rest at $1.5 million, $1 million ahead of our initial budget.

The decision would also allow Scott to focus his energy on running the company during launch instead of spending all of his time fundraising. Fundraising can an exhausting full-time job for any CEO. Scott was already spread dangerously thin: I was in Singapore producing the assets, leaving Scott to head the Seattle office on his own.

When we finally stopped raising money in late 2006 at around $1.5 million, it seemed assured that we could easily obtain the balance of $1 million in the first two quarters of 2007 if we needed it. Open Beta had been a big success, there was good buzz and early indicators of traction in the market, and we had just oversubscribed two rounds of capital.

I’m sure you can all see where this is going.

The death blow to the company, followed by the disastrous decision that led us to where we are now, came in early 2007. The game had launched and was warmly received and we were well on track to deliver our next set more or less on schedule with an even higher level of production quality, but it did turn out that we’d need additional funding.

In January, we authorized a new round of $1 million and Scott turned his attention back to fundraising.

At this time the group that had acted as our lead investor came forward with an offer to lead the new round. By again taking the lead they would be the first investors in the round and would also negotiate the terms with us on behalf of the rest of the investors. To this end, they asked us for some special incentives. Nothing surprising, but enough that the structure of the deal remained open for discussion.

In spite of many assurances and everyone’s best efforts, negotiations with the lead began to drag on longer than anyone expected. Unfortunately, as the terms of the round remained under negotiation, it was not possible to accept money from other investors. Doing so would have ended negotiations (it is illegal to offer different terms in the same round) and we would have risked losing our lead altogether.

As each week went by the decision to cut and run became more tempting, but as money ran out the stakes grew higher. We were powerfully motivated to close the lead, in spite of the interest we had from many smaller investors. Small investors, of course, write small checks and can take many months to close. Closing the lead would immediately put us back in the black, kick the round into high gear and let our executives get back to running the company instead of fundraising.

While we had every reason to continue negotiations, this was precisely the wrong thing to do. The lead strung us along until April, at which point they unexpectedly pulled out. To give you an idea of how unexpected this was David Hoppe, Ed Liming, and I had each written checks for $30k apiece as personal loans to the company in anticipation of the lead coming in.

By the time our lead vanished, it was too late. We had run out of money. This cut off our manufacturing vendor meaning we couldn’t fulfill orders, putting our revenue on hold. Worst of all, we weren’t able to pay our staff. Meanwhile, many of the smaller investors that had been so interested had gone cold. Losing our lead didn’t send a reassuring message, and the financial chaos it caused us just seemed all the more damning.

Ironically, if Scott had told the lead to go pound sand back in February there’s a good chance he could have raised much more than they had committed in the same timeframe and we might still be alive today, even though this seemed like a reckless thing to do at the time.

Which brings me to how things went so terribly wrong after that and how we wound up where we are today. In a word: hope. Hope is the oil that fueled the fire. Giving up and going home wouldn’t have improved anyone’s fate; it would have simply secured our failure. In retrospect it’s easy to regret the decision, but at the time it seemed like we didn’t have any choice but to play the odds and hope for a win.

The game was well received and we had every chance of turning things around. In light of the $1.5 million we had raised, closing the gap didn’t seem impossible. It was true that we had lost several months in negotiations with the lead, but there were still investors willing to write checks. So we decided to press on.


It may surprise you to learn this, but Tenacious raised an additional $500,000 in 2007. The problem we faced was that even though that brought us close to the total amount originally projected, the timing was disastrously off. The three months we had run without capital created a snowball of debt to vendors, players and employees. We spent the rest of the year in a classic death spiral, the same thing happens to people who get behind in their credit cards but on a corporate scale. As soon as money came in it went out to another hungry mouth. With every check Scott had to decide which angry group to pay without killing the whole enterprise. There were many, many instances in which if Scott had made even a small, partial payment to one party at the expense of another, the entire venture could have been tanked, assuring only that no one else would have been paid at all. Instead Scott had the terrible task of trying to keep money coming in and allocating it in such as way as to keep Tenacious viable.

Those of you who have been with us for a while pretty much know how things worked out. We held out hope that Seed would move us back toward the black but by the time it his stores, confidence was gone. The set was too late: we had missed the window for a summer release by a good four months. In spite of it being our best set yet in every way, it fizzled. We had lost momentum and were out of money. At the same time with corporate debts of approximately $1 million and an effective staff of three (Scott, Josh and Ryan), going back to the well and trying a turnaround now seemed impossible.

…

Now that the story has been told, the reasons for the recent radio silence should be clear. We held on as long as we could and could not talk about what was going on while there was a chance we could find a way to fix things and continue. We all put a lot into this and had real skin in the game: Scott, Josh, myself and a number of our former executives (and sadly employees) spent 2007 effectively loaning the company their salaries so it could continue operations. My own W2 from 2007 was around $2000 – this after mortgaging my house for $30k in cash to loan to Tenacious (as did several others). I’m sharing these details with you only for the purpose of underlining the fact that we believed in the venture and spared nothing to try and make it work.

Of course we have now been in talks with potential buyers for our comprehensive assets. There seemed to be some good prospects, but those didn’t work out. Making The Spoils™ a success would require a large influx of capital at this point, not just to undo the damage that’s already been done but to execute (at least) the first class marketing strategy we had originally envisioned, a business play that only a well funded company could afford to make. Even the $2.4 million we first budgeted seems woefully inadequate in today’s market.

The stage we’re at now is to make the situation public and do a general solicitation for a buyer. But we felt you should hear it from us first. Whatever proceeds arise from such a sale will go to retire our highest priority debts, namely our former employees, the IRS and our players.

I’m certainly not happy about the way things turned out, but don’t regret decision to hang on: given the information I had at the time, it was the right decision for me. Personally, I don’t blame the decisions that got us here. At each point I feel confident that Tenacious chose the least of all evils in spite of the evil place we’ve landed.

It’s sad to see an end to Tenacious after The Spoils™ showed such promise in the market. As entrepreneurs we were resigned to put our fate in the hands of the market. The market was kind; what we didn’t see coming was a slow death from bad timing over what ultimately amounts to a relatively small amount of capital (as these things are measured).

I still believe in The Spoils™ as a product and I still believe in the market case for it, though it would be an uphill battle to pursue. I think Josh did a fantastic job on the game design and I’m happy with the quality of the visuals we were able to achieve and the richness of the fantasy property itself, though we never really got to present it in a proper storytelling form.

I’m sure that Scott will weigh in soon, and there should be a few public announcements coming up. To everyone who held out hope, all we can say is thanks for your support. Of course it breaks our hearts that your faith in Tenacious wasn’t vindicated. We hope you enjoyed what little of The Spoils™ we were able to deliver and hope that you’ll support independent games in the future in spite of the fact that most of them end up like this.

Thanks for everything. For me at least this is good-bye.

[Lioge]

Patrick,

I want to thank you, Scott, and most of all Josh for your dedication in producing the highest quality card game I've ever played. I'm sorry to hear this news, but pleased with the candor with which it is delivered. If a buyer comes along and purchases the Spoils to continue this great game, I sincerely hope all three of you will be involved in the flavor, mechanics, and design of the game. I've enjoyed every part of this bumpy ride and I'm sad to see it come to a close.

Thanks for everything and best of luck in your future endeavors.

Sincerely,
Bill Morelli

[Century]

Thanks for ending the silence.

[woshimikel]

Damn.

Couldn't have happened to a better game.

Thank you for your efforts.

[CodyD1024]

To Tenacious Games-

Sure was one heck of a fun run, even if it did end a bit abruptly.

-Cody Duncan

[Falsesanity]

I have to say nothing was suprizing,

But while it lasted thank you for the great game.

[caveboybc]

Thanks for posting what we should've been privy to well over a year ago.... woulda,coulda,shouldas and the aspects of need and greed are moot at this point and that saddens me...greatly.


When and where will the liquidation auction be held??? The community should be given chance to revive the game under its own steam. With nothing else to lose, protect or otherwise conceal pray thee be helpful to having buyers of the name be part of the game.

thanks for the great game!!!!

Good bye Tenacious!!!!

LONG LIVE THE SPOILS!!!!!!!!!!!!!!!

[rmgraci]

Patrick,

I want to thank you, Scott, and most of all Josh for your dedication in producing the highest quality card game I've ever played.

Pretty much says it all, really. It was great while it lasted.

Best of luck in your next venture. I'm curious where you and Josh are going - back to the relative safety of a big company, or are you taking a crack at another startup? I think the best case scenario for us as players is to see the Spoils purchased by somebody so the game will live on in some form - but if not and the whole thing must be over and done with, then I hope we'll see similar game mechanics in another CCG sometime soon.

Any chance that players owed, say, exactly $800.85 and up will get a bunch of cards instead? Might I suggest a full playset? (Just kidding - kind of

-Ryan

[HappyNewyear]

So is the end of an era. RIP the Spoils.

(Thanks for posting. At least this gives all a means of closure.)

[Brad Meine]

It'll be dark soon and they mostly come at night... mostly.