Andrew: Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy, where I interview entrepreneurs about how they built their businesses. Wow, I can’t believe the guest that we have here today. Joining me is a legend himself. His name is Marc Merrill, he is the co-founder of Riot Games, which makes League of Legends, an incredibly successful multiplayer online battle arena video game. And I invited him here because I’m curious about how he grew this company. And we’re going to talk about some of the challenges. We’re going to talk about how big it is, including a stat that I want to bring up in the beginning of the interview.
We can do it thanks to sponsors. The first, if you’re hosting a website, go check out hostgator.com/mixergy. The second, if you’re hiring developers, go to toptal.com/mixergy. I’m pronouncing those very carefully because I know I talk too quickly, but I’ll talk about those later.
Marc, good to have you here. Do we lose your audio, Marc?
Marc: Oh, yeah, just briefly cut it out, sorry about that.
Andrew: Oh, good, good to have you here, Marc. Hey, Marc, I checked to see how many people watched . . . What is it? The Super Bowl, how many people watched the Super Bowl this year, 100 million people watched the Super Bowl. How many people watch League of Legends World Championship?
Marc: So last year we had over 99.6 million people watch our world championship live.
Andrew: About the same as the Super Bowl?
Marc: Yeah, it’s pretty insane.
Andrew: How amazing is that?
Marc: Yeah, I think the Super Bowl, you know . . . It’s not quite a fair number because that’s more U.S. centric, whereas we are much more of a global number. But regardless, it’s still a huge amount of people around the world that are clearly loving watching other people play video games.
Andrew: Why? Why does it matter where people are watching it?
Marc: Well, I think from an advertising or sponsorship perspective or sort of a revenue generating perspective, different sponsors have different regions or territories that they’re more concerned with. And so over time, as we’ve had success, we’ve been able to educate a lot of global brands about the opportunities around sponsoring League of Legends as sports, and so they’ve started to get involved. But it’s really that geographic distribution is something that’s top of mind for us because of those dynamics.
Andrew: To me, yes, maybe the economics haven’t caught up with the viewership, but it’s amazing that the viewership for a game is as big as . . . Well, viewership for another game, right? Football is a game also.
Marc: Well, that’s one of the things I tell people all the time. You know, and they’re like, “Why would people want to watch somebody else play games?” Like, “Well, we do that all the time.” That’s what golf is and baseball and soccer. And so, you know, this is just a digital sport.
Andrew: Yeah, I ask Emmett Shear, the creator of Twitch, “Why would anyone want to watch a game?”
He goes, “We play these games the way that other people play baseball. If you play baseball, you want to go home and watch people play baseball. If you play video games, you want to go home and watch other people play video games, do the thing that you’re doing only a little bit better.” How about how many players, how many players would you say there are for League of Legends?
Marc: Yeah. So last time we released numbers publicly, it was a 100 million monthly active players, and we’ve subsequently launched two other games now. So Legends of Runeterra, which is a card game, as well as a game called Teamfight Tactics, and like Legends of Runeterra we just launched two weeks ago so it’s growing very rapidly. We’re incredibly enthusiastic about the response. And Team Fight Tactics is also number one in its genre as well. So, you know, we’re excited to turn the page from being Riot Game to now Riot Games and officially having multiple titles, after 13 years.
Andrew: Is it true you guys sold the company, 93% of it back in 2011 for $400 million to Tencent and then the last 7% for an undisclosed amount, does that sound right?
Marc: So the percentages aren’t necessarily fully accurate, but the dates and rough size of transactions, yes. So back in 2011, roughly $40 million. And then the remainder of the company at the end of 2015 in December, but what was interesting about the transaction we did with Tencent in 2011 was it was much more analogous to a private equity deal where their whole thesis was that Riot was just getting started. They didn’t have a sort of a management bench in the west that could or that they want to run the company or tell us what to do. So they wanted to help acquire us, from their perspective, from a defensive standpoint, to have other companies not mess us up by having us be sort of infused into their organization.
And it’s worked out really well. So, you know, they gave management and all of our employees, because every employee was a shareholder, much more equity. And we even had prior to the transaction in 2011. And so they said, “Put your money where your mouth is.” And then we did. We’ve grown the company over 20x since then. And so it’s worked out for everybody.
Andrew: Wait, I’m sorry. You have more equity than you did they bought it?
Marc: We did, after . . .
Andrew: You personally?
Marc: In 2011. So us and employees. So Tencent re-upped everybody, to say continue to go create value.
Andrew: Got it. I didn’t understand it. I didn’t even know that that could happen.
Marc: Yeah. And so the challenge is then, well, if employees don’t have a liquid market to transact shares, what do you do? So we actually had a put price where people could sell shares to the company, you know, and transact. But that had a cap at a particular in a multibillion dollar valuation, which over time employees, you know, everybody knew that we had created more value than that. So it actually created a complicated dynamic, which is actually why we then sold the remainder of the company in 2015, because equity was becoming very cumbersome.
So we had employees who were critical hires, early people. But as their options started to expire, they had to exercise the shares, which meant they had a tax hit as they got their shares, but then didn’t want to transact those shares to an internal liquid market that wasn’t actually at market value. So we were giving people loans and doing a bunch of interesting things. And then ultimately we’re like, “We just need to clear out the cap table. Let’s shift to a profit sharing model.” And you know, that was a lot of the pieces around the transaction. And in the beginning of 2016, that was 2015.
Andrew: My goal for this interview was to go through the story of how you did this. But why don’t we started the very beginning? As a kid, you had some kind of golf ball business. What was this?
Marc: Yeah. It wasn’t a formal business. It was more of, you know, the idea of how do I make a little bit of extra money on the side. And so I had the idea, because I lived relatively close to a golf course, you know, my parents’ house growing up so I could go down the street a couple of blocks and then pick up golf balls in the bushes and then clean them up and then resell them for about a $1 apiece to random golfers and to save them some money. And so, you know, I did some stuff like that.
Andrew: Money for what? What were you going to do with this money?
Marc: Well, buy games or parts for my computer. You know, I tended to really spend money, you know, prior to college, I guess even in college, you know, on a couple of things, and it was food and games or sort of entertainment, in general. So those were my priorities.
Andrew: Yeah. I was trying to get a read on you, you’re a guy who worked for Merrill Lynch, you worked in finance, but you’re not a money guy. You’re a gamer, right?
Andrew: You never wanted to be rich even . . . Where did you grew? California, right?
Marc: I grew up in California.
Andrew: You watch all these people make it big, become celebrities, drive fancy cars. I don’t see cars outside of California the way that I do in California. You didn’t grow up wanting to do that. You just wanted to play, and do what? What’d you want to be?
Marc: Well, I wouldn’t say that I didn’t want to go be successful necessarily or financially successful, but I didn’t know what I wanted to do. And what I did know, though, is that I wanted to have a career that I felt was meaningful and that where I enjoyed going to work and I loved what I did, and I’m the type person that has a lot of interests. And so when I was in college, I was undecided for two years, I studied lots of things, whether it was philosophy or political science for international relations or psychology or business classes. You know, a couple of physics classes and some math, you know, just a lot of different things. And because I looked at college as the one time to be academic in my life.
And I looked at that early part of my career, similarly, from a skills building perspective, where I sort of know what I want to do, so I’m like, “All right, I really need to go check the quant box to demonstrate that, you know, I sort of have and to build the skill set around understanding accounting and finance and kind of the language of business.” But as I accrued a bit of that skill set, I also recognized that that wasn’t what I want to do long term.
So then I wanted to go explore more of a creative aspect of my personality and interests. So I went into marketing and in a particular, corporate marketing, focused on communications and then marketing for an organization called Advanstar Communications, which published B2B magazines and journals. And then also operated trade shows like MAGIC, the Big Fashion Trade Show. And I worked very closely with the CEO, a guy named Joe Loggia, who was a mentor to me and I learned a ton from him. But I still really hadn’t found what I wanted to do.
And meanwhile, I was living with a former college roommate at a West Hollywood apartment, a guy named Brandon Beck. We were good friends. We were both hardcore gamers. And we were always thinking about where the game industry was going and how it’s going to change and evolve. And that really became the catalyst to Riot, where we as players perceived that we were being underserved as gamers and wanted to create a game company that could meet the needs that we could deeply relate to an emotional level.
And then we became incredibly lucky. We were in the right place at the right time and I think had the right strategy and, you know, didn’t fail, despite the many obstacles that came our way.
Andrew: Did you use this word with our producer? She wrote it down, dilligencing. Did you say we were diligencing the idea across three dimensions?
Andrew: What does that mean? Would you mind tilting the camera down just so there’s not quite so much space over your head? Yeah, there. Oh, you’re looking good now. Yeah. What does it mean?
Marc: Yeah, so that meant when Brandon and I first had the concept and idea where we’re like, you know, we really do think that the game industry is going to be disrupted, as it would be transitioning from a packaged goods business model more to a direct to consumer service model. And we could sort of look at it both from a analytical business perspective and think that that was the trend. But then also from a player standpoint and think that the experience could improve as things became more direct to consumer.
And so once we had conviction that that was going to be the case, we then thought about what would it take to go build a game company and a game that we could demonstrate this and build value for players? And so then we started to create a business plan for what has ultimately become Riot Games. And that was a process where we’re trying to convince ourselves, really, that, you know, whether or not this thing could work. And so the diligence that we were doing for ourselves was really around three questions. You know, can we attract the capital to execute this? If we did attract capital, could we execute? Could we actually build a game? Could we build a company? And then if we could build a game and a company and we shipped it, would people want it?
And so we really spent about nine months doing the nights and weekends thing while working at our respective careers, trying to put together that business plan, answer a lot of these questions with enough confidence to then try to put together a seed round to then jump ship from our respective careers.
We were young, we were 24 and 25 and so I think we were fortunate in that, you know, we sort of felt like, if we failed in the first couple years, obviously it’d be not a great outcome, but it wouldn’t necessarily derail our careers over the long term because we’re still early and we had the luxury of not having families at the time or kids, and now we both do. Brandon has three kids. I have two. We’re married to our now wives who were our girlfriends as we were first starting the company. But it’s been an incredible journey and process.
Andrew: If you failed, what would you have done? Why didn’t you feel like failure would have been the end of you?
Marc: Good question. I think I’ve had a irrational or sort of naive optimism and belief in myself, and I think that’s been incredibly helpful. So I don’t look at failure or an outcome that doesn’t work out or isn’t optimal as necessarily a bad decision or as a reflection that somebody is incompetent or bad. You know, I think it’s much more important to look upstream and to try to evaluate the quality of decision making and, you know, level of effort and things like that. And then sometimes you’re wrong about a key assumption, but that doesn’t necessarily mean that that person is not capable.
And so, you know, I think I had the perspective of looking at our own efforts that if we left it all on the field, so to speak, where we’re being incredibly diligent, incredibly thoughtful, really worked hard, left no stone unturned, then I could still hold my head up and look at this as a learning experience, and obviously, apologize to all our investors for losing their money. But, you know, at least trying to tell myself that I wouldn’t beat myself up too bad or think that therefore I would never be able to amount to anything. So it’s that.
But I recognize that that’s a difficult thing. And I think managing one’s own psychology as an entrepreneur is incredibly difficult. You know, we had less than two months of cash twice. And, you know, I’m incredibly grateful that I had a strong business partner like Brandon because we could, when we’re both super aligned and, you know, we really trusted each other. We had very complementary skill sets, and so when one of us was really down about certain challenges we were facing, oftentimes the other could sort of pick, you know, we could pick each other up and help or sort of carry the load for, you know, different points in time. And I think we both did that in different ways, which if we didn’t have each other, we absolutely wouldn’t have been successful.
Andrew: How did you know that people would want the game? You said one of the three questions we asked was, “Would anyone want it?” Did you take sketches out the people? Did you ask them? What was it that you did?
Marc: Yeah, great question. So League of Legends was essentially the spiritual successor to an existing game that was a mod, which is a player made game, essentially that was built in the Warcraft 3 map editor. So this is sort of a nuanced gaming like inside gaming thing. But Blizzard Entertainment, a phenomenal company that created World of Warcraft and you know, games like Warcraft 3 and StarCraft and Overwatch now, in Warcraft 3, they shipped a map editor, which essentially allowed players to create games using their content and change the rules. And so if some enterprising players meant that they created a new game that ended up becoming incredibly popular, and so it would grow virally. But because it was this game mode that was really cool was constrained by this map editor in a commercial company’s ecosystem, there were a lot of things that could improve the user experience that they weren’t able to do such as add matchmaking, such as, you know, increase like patch the game or add a bunch of new content or things like that.
And so, you know, we thought it would be far better to create a sort of official version of that. And so we partnered with a bunch of the mod creators. And we believed that, you know, and that’s what created League of Legends, and we believe that that was a proof point to the concept that games as a service was working, because here was this mod with $0 advertising or zero professional development dollars being invested, and it was growing virally and significantly over time because of this strong community that was being built.
And so for us, you know, our first product, we wanted to demonstrate that a commercial company could be built around a game like League of Legends and building a community and then over time could diversify into other products, which is the stage right now.
Andrew: Because your feeling was, it seems like there are a few things, one was you didn’t want to charge for it. Why? Why was not charging so important to you?
Marc: So, yeah, we were a nobody company. And so nobody, you know, media didn’t want to even cover us. We had no track record. We were two individuals that had never done anything in the game industry before.
Andrew: But from the beginning you said, “I’m not going to charge at all.” I don’t know of a lot of entrepreneurs who start out saying, “I’m not going to charge.” And obviously you have other things that you wanted to charge for, but not to play. There was a reason for that. What was that?
Marc: So the reason was that we wanted to build a direct relationship with players. And we really believed that if we tried to charge $30 or $60 by selling a box, you know, one, players wouldn’t . . . They wouldn’t buy into the concept because we didn’t have any credibility. And more importantly, we wanted to align the interests and motivation of us, as a company, with that of our players, where unless we do a phenomenal job of delighting them and servicing them and keeping them engaged over time, then no one will spend any money.
And so whereas, if people are continuing to play, if they’re really excited, if they’re engaged, then we have essentially virtual goods and cosmetic items that people would become fans of our intellectual property. And after you spend, you know, 10, 15, 20, 50, 100 hours playing a game, you get attached to some characters and then maybe they’d want to spend $10 and buy an alternate skin and play the game with that. And so it was a huge leap of faith.
It’s one of the reasons most investors told us, “No.” This was sort of a freemium model was not as popular or established model at the time.
Andrew: But I wonder, did you see that happening in software and say, “I see that games are going to go from packaged products in the store, the way Guitar Hero is, to being online, downloadable things that you get to keep seeing improve,” and as part of that shift did you say, “Freemium is what sells, and software as a service, that’s how people get in, and then eventually they buy. I’m going to do the same thing.” How influenced where you by that?
Marc: So the short answer was, yeah.
Andrew: You were?
Marc: We absolutely believed that, as players, it felt bad to if you’re playing around Guitar Hero, love a game and be attached to a pretty good product that then have the developer or publisher try to essentially sell you the same game for another $60 a year later that had incrementally better features. When in reality, so you know, Guitar Hero is Guitar Hero 1, Guitar Hero 2, Guitar Hero 3, Guitar Hero Metallica, Guitar Hero Aerosmith. And what you really you just want to do as a player is play Guitar Hero and have a library of songs to be able to share them with, you know, play with your friends online or things like that.
But so the challenge was that the incumbents had built these massive businesses based on their relationships with retail. And so a lot of times I think there would be a conflict of interest between how do we sell more units at retail to keep the shelf space versus how do we go to solve problems for players and for the audience.
And so the opportunity was by forging a direct relationship with players, we had to then create a business model where, again, it could align our incentives, where we’re incentivized to continue to invest in the game rather than move the development team off of the game to then go work on a sequel to then go justify another $6 SKU that you buy at retail. And so that was a lot of insider perspective.
And it was really the player orientation and empathy we had as gamers I think that gave us the confidence to try a different approach where we believed that we would spend money on something that was optional in a game, if we absolutely loved the game. And there were many games that we had played at the time that didn’t have the ability for us to spend money in, but that we would gladly have spent tens or hundreds of dollars in if that meant the developers would continue to support and ad features or content that we wanted to see. And I think, you know, it turned out that there were many other players like us that wanted the same thing.
Andrew: And that was a big thing for you too, the abandonment. That the creators would create the game, that they would have to, if they’re not moving on to a sequel, they would move on to a whole other game instead of seeing the people love this and their incentive was to move on and not to support the people who loved it.
Andrew: Once you once you said, “Yes, all signs are pointing to this could work,” you created the living room tour. What’s the living room tour?
Marc: A living room tour essentially meant that we would ask friends and family and other people for introductions to potential angels or people who maybe would want to hear a pitch or give us feedback. So, you know, some venture capitalists or, you know, just anybody who was an active investor. And this was in 2006. And so, you know, now I think this is a much more formal process. There’s things and tools like angels list, you know, there’s whole concept around super angels.
But, you know, in the mid-2000s, that was less of a known concept. And so we essentially had meetings at people’s houses for a couple of months where, you know, we bring a computer, pull up a deck and start walking people through what we were trying to do. And oftentimes some of these individuals, most of which, were former entrepreneurs or business leaders, they oftentimes bring their kid over who’d be like 17, and they said, “Hey, you play games. What do you think of this?” They said, “Yeah, I’ve heard of Dota,” or “That sounds cool.” Or, “I like you know, I think that I’d spend some money on a free game if it was really good.” And so then some people be like, “All right, cool. Here’s a $50,000 check.”
You know, and we ended up getting an angel group of, you know, about I think 25 individuals with soft commitments, which then gave us enough capital to . . . essentially have seed capital to justify jumping ship from our careers and then become venture ready. Because we knew that, you know, no venture capital firm would be investing in us, given the lack of traction, lack experience based on our resumes at the time.
Andrew: Lack of technical knowledge where neither of you was a developer, right?
Marc: Right. Yeah, neither of us was a professional developer. We both can dabble, but, you know, you definitely wouldn’t want us architecting a system.
Andrew: The CEO of Baja Fresh, the taco place he invested, because of a scenario like the one that you mentioned.
Marc: Yes, it’s Greg Dollarhyde. You know, he was the first chairman of our board and represented our seed investors. And his story was exactly like that. You know, his son came in when we were meeting with him at his home in Malibu, and he liked the pitch and, you know, invested some money and then called some friends and made some introductions on our behalf. And, you know, we’d just, even from people who would tell us, “No,” oftentimes we’d ask for their advice or feedback or see if they knew anybody that they thought may be interested in this.
And so, you know, through referrals, we kept going around, really the LA scene. And until we were able to find a group and put it together and get rolling.
Andrew: How did you even know Greg Dollarhyde?
Marc: So Greg was a good friend of my now wife’s dad. So I’d never met him, it was just a fortuitous thing where as her dad, who was a dentist, you know, heard about the company we’re starting when he said, “You should talk to my friend Greg. You know, he’s a very successful business leader.” And so we did. And then Greg raised his hand and said he’d get involved, which was an incredible blessing for us.
Andrew: You hired who, to develop the first version?
Marc: So, yes, we hired an individual who we didn’t know personally. And so we met this individual through a recruiter. We went through a whole process of meeting different people. And this was a one of the first big challenges of the organization, because after we got started with, you know, we got our initial funding and we got our office in West LA in 2006, we opened in September, the expert that we had put on the slides that had committed that, hey, if we are able to raise money, would come to be our executive producer and CTO, really had no interest in supporting the vision of the company. And we didn’t know that. And of course, you know, that’s not what he was telling us. And so after a couple months of working together, we sort of realized at our intuition that things weren’t going the way they should go was right when we discovered that we really weren’t aligned.
And so we had to shift focus, part ways with that individual and then Brandon and I had to really figure out how to lead development ourselves despite our lack of expertise and experience. But I think it was a really critical inflection point for the organization because we realized that if we were going to rely on third parties, we could get snowballed, we could get taken advantaged of and we had to get into the weeds, ask every possible question, and also build our frame of reference for what good looks like across all these different technical skill sets that we didn’t have at the time to then learn how to go make this happen, whether it’s art, design, engineering, production, you know, etc.
And we had a bunch of different experiences like this where we fundamentally learned over time that necessity is the mother of all invention. And, you know, and once we like really had to go solve a problem, that actually created the context for us to get incredibly motivated to actually go solve the problem and build the competencies that we didn’t have or the organization didn’t have but it needed to have to fulfill what we needed to do. That was true from a game developer standpoint. It subsequently came true from an e-sports standpoint and learning how to build, you know, we now have 13 e-sports leagues around the world. We could get into all that as well. But you know, ESPN or Fox or all these companies didn’t want to go help us with event management or broadcast, so we had to go train people ourselves.
Andrew: I’m sorry to interrupt. I feel it of you personally, I want to get into your head a little bit, and I feel like you personally, Marc, you seemed to do better when it’s tougher. That you told our producer that in school you felt like you had to get the right job, and so you got an internship at Merrill Lynch, which I brought up earlier, it was 20 hours a week in there, maybe was it 30, 20?
Marc: Thirty, yeah.
Andrew: Thirty hours, plus school and then your grades, which were pretty bad before, suddenly shot up and you realize, what about yourself because of that?
Marc: Yeah, that’s a great point. I did realize that, you know, I got straight As when I was having an internship for 30 hours a week getting being unpaid. And it’s because I did, after I guess, rise to the occasion where I didn’t have any slack in my schedule to be distracted, to play games, things like that. And do think it helped teach me an important lesson where, you know, if I had a thousand things to do, I would do them all well. And where if I had a few things to do, I could procrastinate or get distracted and then, you know, even not do some of those things well.
And so, you know, I think there’s an old adage of people say, you know, if you want something done, give it to a busy person. And, you know, it’s like they’re busy for a reason. And I think I learned about myself there.
And to your point, I think we were able to cultivate that type of never say die attitude in the company as well, where just because somebody didn’t, hadn’t done something before doesn’t mean that we couldn’t go learn how to do it. And so then the quest for lots of different problems or lots of different competencies became, how do we go build expertise to accomplish the vision that the team was able to share so clearly? Where again, as players I think we could all dream of what a great experience could be like. And that created a really powerful motivating catalyst for us to go figure out how to and iterate our way towards that vision we could see in our heads.
Andrew: All right. Let me take a moment to talk about my first sponsor, then I’m going to ask you with that first version looked like, what it was called and then what happened when you went to a gaming conference.
My first sponsor is Toptal. So, you know, before we got started, I told you that I met this guy as I was walking to get coffee right here on my floor, he was wearing a Toptal T-shirt. And I said, “Hey, that’s my sponsor. How do you use them?” He says, “I run a company called Quant Collective.” “And so what does Quant Collective do?” He goes, “We do artificial intelligence.” Like if you’re seeing a bunch of scooters in San Francisco, which are, like I’m sure that there are a bunch now where you are. Ae you still in LA?
Marc: Yeah, lots of scooters.
Andrew: So there’s everywhere.
Marc: There’s Bird. There’s Lime, yeah.
Andrew: Well, he said, “They need to know where to put the scooters based on where people are. That’s artificial intelligence.” He goes, “That’s what we help them with. But we don’t always have enough AI experts and data scientists and other engineers to do this.” He says, “We tried 10 different places to hire these people when we need them. Toptal ended up being the best place. So we go with Toptal.” I guess he uses so many that they gave him a T-shirt and he says, “You just mention my name. They’ll all know how much I’ve been using Toptal.”
And what they do is, they hire these expertise, these experts from Toptal. They then, when they need to transition over to one of their clients, like a scooter company, they could say, “You need these expertise on your staff, on your team. Here’s the person we have from Toptal. We’ve integrated them. They know your project. You can take them over.”
The reason I’m saying this is, if you’re out there and you’re listening to me and you need to hire the best of the best. We’re not talking about the people who you’re going to go and brag to your friends at dinner how you got a $5 developer from whatever country that you never even heard of. I’m talking about the people who really move things. The people who are Google quality, Amazon quality, etc. You’ve got to go to Toptal. That’s top as in top of your head, tal as in talent. And if you go to the special URL I’m about to give you, Marc, even for you, though, I know you’re not starting another company. You’re kind of . . . Well, I don’t know. I’ll find out if you’re starting another company.
Marc: We’re always looking for top talent, though.
Andrew: Yeah. There you go. Top as in top . . .
Marc: We have an infinite appetite.
Andrew: You are? All right.
Marc: Well, we’re just we’re always hiring, like, you know, so.
Andrew: All right. Well, go check out Toptal, top as top of the mountain, talent as in talent. T-O-P . . . Well, wait, if you go to this URL, even you Marc, will get 80 hours of Toptal developer credit when you pay for your first 80 hours in addition to a no-risk trial period, they really are amazing, go to toptal.com/mixergy. T-O-P-T-A-L.com/M-I-X-E-R-G-Y, toptal.com/mixergy.
What was the first name that you came up with?
Marc: Yeah, so the first name of our internal pre-alpha version of the game was called Onslaught, War of the Immortals. And yeah, the game looked nothing like it does now but we had to put stuff on screen. And one of the challenges with building software, building products in general, is you know, a lot of times the experience doesn’t get good until a lot of things come online, whether it’s art or design systems or a lot of different engineering systems. And we originally just wanted to be a developer. And then once we talked to publishers, we were kind of pursuing a parallel financing strategy. And once we started pitching publishers like Electronic Arts, Activision, THQ, etc., we realized, “Wow, we can’t give these guys the keys to the kingdom and have them take the product to market,” because they’re not even bought into the concept of doing a game that’s free and selling virtual goods. They don’t have expertise around community building.
And so that meant that we had an increased scope. Go learn how to build a publishing business as well, to take it to market ourselves. And you know, that was another forcing mechanism where we had to go figure out how to build all these competencies, which then meant we had to go raise more money. And so then venture capital was a requirement.
And, you know, again, I think it’s like one of the biggest things I think is a takeaway that I’ve had is that hiring great people were the most important inflection points for the organization. So pretty much every competency, everything that we achieved was enabled by us adding the right person to the team at a key point in time and then growing from there. To your point around Toptal.
Andrew: So, for example, how did that . . .? And so what I understood was, the last straw and maybe a bit of an exaggeration, but the last straw seems to have been you went to the Game Developers Conference in San Francisco, 2007, you walk around and you start to realize as you’re talking to people in person, they’re not buying into this. They have this old school view. We have to go and get to our customers directly because they want us to go into Best Buy or something like that.
Marc: That’s exactly right. The one exception being a European publisher that was a subsidiary of France Telecom called Goa. And so Goa BD Guy named Nicolo Laurent, who we had met with. And we really got along with Nicolo and they were the one publisher in Europe that actually operated free-to-play titles. And they also had a very successful big MMO called Dark Age of Camelot, which is from a developer called Mythic.
And so for us, that was like a perfect partner, where they understood what we were trying to do, they had expertise in operating games as a service and they had credibility with, you know, the most enthusiast segment of the gaming population, which were the hardcore gamers that we wanted to target because the MMO that they operated.
That being said, you know, so essentially we did the licensing deal with them where they give us an advance on future royalties, which was also great because then we use that for development. So, you know, every dollar we essentially continue to pour in development to try to make the game better.
And, you know, and Goa was important for us at the time based on momentum. We did a similar deal with Tencent in China where they would be our operational partner to take the game to market in China. That was validation, which some validation from two third-party publishers, which helped us with the story to VCs because again, we raised VC money before having a product live. And that’s always a difficult thing to do because you can’t prove traction. And so the vast majority of VCs told us, “No.”
But, you know, building momentum and trying to get the team to believe that we could actually do what we’re doing, get investors to believe we could actually do what we’re trying to do it was really, really important.
But then once we launched, which we launched day and date with North America and Europe back in 2009, to your point, earlier, we did a distribution deal with a box publisher at the time called THQ to create a bundle of our content, which we would sell at retail for $30 because the U.S. market was such where no media would write reviews on our game unless we had a box. And so people would ask us, “Hey, is your game free?” And we’d say, “We have a box.” And that was because they’d go like, “Great, we wanted to cover your game, but couldn’t get my editorial board to allow us to do that unless you had a box.” And, you know, our reviews were quite mixed at launch, which is a whole other thing as well.
But then in Goa, in Europe, where we launched in four languages, we also could write a great white paper around why quality of service matters because North America started to grow pretty consistently where players had hope, they had a relationship with us, we would get feedback about things we are doing to improve the game, our patch cadence was pretty rapid. But Europe had zero growth.
And so fortunately we were able to unwind the deal. We ended up hiring Nicolo, who was the BD guy, to come at our side to help us get to unwind the deal. Nicolo then became a head of international, over time we ended up launching lots of offices. We have 23 offices around the world now. And now Nicolo is actually our CEO. So when Brandon and I stepped aside, you know, at the end of 2017, you know, we elevated Nicolo to run the company. And he’s been doing a phenomenal job. And so, you know, he really helped build the company. And so it’s amazing how things worked out.
Andrew: Why wasn’t it working when he was promoting you guys or when Goa was promoting the guys in Europe, why didn’t it work?
Marc: So it didn’t work because France Telecom, from our perspective, France Telecom, they really weren’t committed to the game business. So they didn’t want to invest. They didn’t want to learn the competencies necessary to go be successful. And they put a lot of constraints around their relatively entrepreneur team at Goa, which was a subsidiary of theirs out of Dublin, where they couldn’t do a lot of things that they wanted to do, or the team wanted to do.
So as an example, the network operations into the hardware management to keeping the servers live, because League was built in a pre-cloud computing era. So, you know, you couldn’t just throw things on the AWS, have servers everywhere and get something online very easily and cheaply. We had to write our own services, put them on our own hardware that we would go lay on datacenters. And when the servers start going down under load or have some issues, which happens very often in beta or early on, which was happening in Europe, we would get a response back saying, “Hey, yeah, too bad. We’ll deal with it Monday.” You know, if the servers are down on like a Friday night, which to us was baffling. And it just demonstrated they didn’t care.
And ultimately, France Telecom ended up spinning down the subsidiary Goa and exiting the game business altogether. And so it made sense in hindsight as to why they weren’t fully committed. And so it worked out for everybody. In order to pay them, they made money on the deal. And, you know, to buy our rights back. And, you know, we were able to help grow. And now Europe is our second large market.
Andrew: What were the 1,100 people in the Philippines doing cruising around in bikes?
Marc: So when we raised venture money, we had tranched financing. So because the VCs appropriately had identified that execution was a huge risk given our lack of expertise and experience. And so we wanted to come up with a mutually satisfactory milestone to demonstrate that we were making sufficient development progress. And so the $7 million series A was tranched. We got $3.5 upfront and then we get $3.5 upon completion of a successful thousand person beta test.
The problem was that the game was very delayed because we were behind schedule because, again, we weren’t good. Our tool pipeline was not robust, our tools, you know, our engine was not awesome. Our team was still really learning how to operate effectively together. And we were behind on our backend. Also where we even had to throw away our entire backend technology platform that we’re building a house with another company because we were trying to mitigate risk, from our perspective, where we wanted to focus on the things that we thought we needed to be excellent at. And if somebody else could be great at building a backend, which was competencies, again, we didn’t have, we were happy to buy that rather than try to build that expertise because we already had so much complexity. But that ended up falling over.
So after a year later, we had to tell our board, “Hey, that million dollars we spent on this backend, we had to throw away and start from scratch.” Meanwhile, we only have six months of cash left, and they’re like, “Well, good luck with hitting your beta milestone.”
And so we actually were glad that that was the outcome because we thought the board is going to pull the plug on the company at that time. And Brandon and I would have gone back with our heads hung down and blaming ourselves because we would’ve been like, “It’s our fault that we had to throw away our backend.” But so that was a forcing mechanism again, where we found and hired some great backend engineers that we had been cultivating relationships with for a while. In particular, a guy named Scott Gelb, who became our VP of technology.
And Scott started immediately trying to build a backend, which meant account services and matchmaking and chat and data management, and things like that, to then help us run up a beta. And once we had a barebones platform ready to go where we thought we could start to scale to a thousand users, the game, though, wasn’t good enough, so we didn’t want to expose a western audience to this not great game. So we hired 1,100 people through a company called Digital Media Exchange, DME in the Philippines, to help have people go around on bikes and install the game on CD-roms in land cafes to then log in and play the game. So we hit the milestone with three weeks less of cash, you know, the company was thrilled, it was in the middle of the night out here on the West Coast. And we lived to fight another day just.
Andrew: Just, wait, wait.
Andrew: So it wasn’t 1,100 people in the Philippines that you hired, right? It was a handful . . . How many people would you say, 100?
Marc: No, we did hire 1,100 because we needed 1,000 to log in and we needed a buffer in case we couldn’t, for whatever reason, track 10% of people or people are offline or so we had to hire extra.
Andrew: And so 1,100 people to go and install the game on computers so that 1,000 people minimum would be playing it so that you could then hit you milestone and get the next batch of money, it wasn’t the remainder of $3.5 million, it was a little bit more.
Marc: It was around $3.5 million.
Andrew: It was.
Andrew: The second half of the $7 million round. And as a . . . So basically, is that cheating?
Marc: No, the VCs were fine, we told them we were doing this, and they thought it was a rational plan that made sense because they wanted us to be able to get the money also.
Andrew: But weren’t trying to see if people were even interested in playing the game?
Marc: So, yes. And so we had a survey also for people that would play it in the Philippines. And the feedback actually came back incredibly positive, which shocked us because we saw so many warts and flaws and whatnot. But the game was really fun, despite the fact that it was unpolished, despite the fact the UI was bad, despite the fact that we needed to improve a lot of the art assets and things like that. So, but the fact that it was fun when people were forced to play it, was really good.
And that was coinciding with a really impactful moment internally where, rather than having to force our developers to play the game, you know, because we would be like, “We’ve got to do daily play tests,” where we’re playing the game and seeing issues and then fixing bugs and adding features. We stopped having to do that because the habit was starting to form and people actually wanted to play the game. So once people, even after work started to stick around a bit, “Hey, you want to get a game in League of Legends?” Before leaving instead of playing some other game or whatnot, that was a huge turning point.
And so we believed we were having momentum in turning the corner, but we still wanted to manage that first impression for western audiences that we thought would have higher expectations than players in the Philippines given they’re buying games, again, these great games that exist at retail, that have huge production values and great budgets and things like that, that we were not hitting that quality bar at that time.
Andrew: I think that’s just . . . It’s exciting. Actually, I wrote a note to myself. I feel like that’s a section of the interview that I want to clip of how you had this 1,100 set of riders going out and installing the CD. So I’m not coming at it from an insulting point of view. I’m just fascinated. I want to know how you came up with that. How did you came up with the physical button?
You know what? Let me take a moment here and I’ll ask you that question again. The second sponsor is a company called HostGator. Anyone who’s listening to me, if you need a website hosted, go to hostgator.com/mixergy. If you’re seeing how fun entrepreneurship is, and you want a place to just go play around with your own ideas, hostgator.com/mixergy is got you covered. Even if you look at that middle option on that page I’m giving you, you’ll see that they’ll host unlimited domains, which gives you a bunch of options to explore, try ideas. And if you don’t like them, get rid of them. If you do like them, keep growing with them, hostgator.com/mixergy.
The physical package, I like how you saw there was a problem. No one was going to take you seriously. Until there was a physical product. So you created the game, I guess it was . . . was there a CD at that point in the box?
Marc: There was a CD. So you put a CD in. But all it was was, you know, installing the file you could go download for free anyway on a website.
Andrew: And then if people were paying $30, what were they getting for the $30?
Marc: They would get a bundle of content. So they’d essentially get a physical map. They would get a, you know, and then several of our characters unlocked in the game and then several skins or outfits for those characters. So essentially, virtual merchandise in the form of cosmetic content or upgrades.
Andrew: So who’s coming up with these ideas? Who’s the person who, when there’s a problem, doesn’t get frustrated and go, “The world stinks,” but instead says, “The world stinks. But we live in the world. Let’s find a solution”?
Marc: Yeah. So I think it’s a real team effort. And I think one of the things that I think Brandon and I and the team were really focused on at any given time was, not diluting ourselves with the realities, you know. So we needed to all know and be aware of what’s really happening, no matter how bad or ugly or potentially hopeless the situation was. So like, “Let’s honestly talk about what’s happening,” and then let’s get together to try to figure out what are solutions, how, you know, and nobody has a monopoly on good ideas. So we would all be throwing out ideas about, if the outcome that we need to achieve is hitting a thousand concurrent, you know, beta users milestone, you know, how do we do that? And, you know, and then as people would throw ideas on the wall, right, then we would critique the different ideas to try to figure out which one satisfied the different success criteria most effectively while mitigating the risks.
And so I think it’s that type of critical thinking process that would apply to lots of different problem spaces where . . . And it would consistently work over time because we had a great diversity of thought at the company, because artists think very differently than engineers who think very differently than the designers who think pretty differently than business or marketing folks who are different than folks with finance backgrounds or whatnot. And when we’re all aware, you know, of the challenges and thinking about in a line of where we’re trying to go and then thinking about how to get the right outcome, you know, a lot of magic can happen. And I think the team was able to achieve those things over and over and over, which continued as we started to have success and grow and then had a different set of challenges.
Andrew: How do you get into e-sports? How did you notice that this was going to be a thing and how did you bring it about?
Marc: So Brandon and I are, you know, we’re both hardcore gamers, we both also grew up playing sports and being sports fans. And our first business plan that we actually worked on when we were at USC together was as e-sports organizer. We wanted to be a tournament organizer that we were going to call the UGL, the Ultimate Gaming League. And so, you know, we always believed that games and video games had a lot of the same type of dynamics as real sports because we wanted to watch other people playing video games who had great skill. We wanted to watch great competition in the same way we wanted to watch the Dodgers play the Giants in baseball.
And so being able to relate to that end user perspective, I think gave us the confidence that League of Legends as a competitive multiplayer game, if the game was really good and if there was a lot of people who wanted to play it and then if the game became watchable, so there’s a lot of ifs. Then maybe we could start hosting some competitions and maybe some people would want to get involved in the competitive scene and then maybe people would want to watch them do it, too.
And so we were hoping that that would be the case, but we didn’t plan on it. And so the first major update for League of Legends post-launch, we would do two week patches where we would make lots of balance changes, add content, add new characters, things like that, but the first major inflection was an update called Season 1, and that was when we launched Draft mode, launched Ranked mode and sort of real competitive play, as well as announced the sort of meta structure that would contain e-sports, which was Seasons, because players also could intuitively understand that in the post-season things could change. So if you play hard during a season, then in the postseason, we could even change the rules a little bit more because we knew that we needed to give ourselves flexibility for the game to evolve over time. But then we also wanted to then start to experiment with tournaments to see if other people want to watch people play.
So we announced $100,000 cash prize tournament at the end of Season 1, which was some unknown date that we didn’t know when it would be in the future. And you know, as the scene started to organically evolve, we created a circuit point system where different teams could earn points and then qualify to be flown to Sweden to come participate in this tournament at the end of the year. And this was at the very beginning of the rise of streaming. So there were different platforms like OWN3D and Justin.tv, which subsequently became Twitch.
And so we had, again, sort of the right game at the right time because we had a competitive multiplayer game that other people liked to watch with a burgeoning competitive scene while streaming was really growing and hitting the same.
And so we became a very large percentage of all of those burgeoning platforms’ traffic for the first couple of years, which then gave us an advantage where our community always had cool stuff to talk about, and the way those sort of like players could aspire to become pros, they could also play games with these pros and that felt accessible. And these guys are becoming celebrities in their own right.
And so once we validated at the end of Season 1, that over a million people watched this and wanted to come, you know, watched it like us, we felt that that gave us license to go invest and try to go bigger. And, you know, again, improve our competency, which is then when we started to try to build leagues and try to take League of Legends in the basketball arenas and do big tournaments.
And now, fast forward 10 years later, we have 13 professional leagues around the world. Just in the U.S., as an example, the LCS, which is the name of the League Champion Series, which is like our NFL, you know, there’s 10 teams with five starters on each team. The average salary for a starter is $350,000. The top players make well over $1 million. There’s a lot of sponsors that have gotten involved, you know, some really successful brands. And the LCS is the third most watched sport for 18 to 34 year old males in the country. And now in China, the LPL, you know, we’re actually the biggest sport by viewership, which is crazy, bigger than soccer, bigger than the NBA.
And you know, so now it’s just the education process to continue to help sponsors understand the opportunity here. But what’s great on that side is the trend is really different than it was in the early days, where global brands like Nike and Samsung and, you know, great car companies, I mean, we could go through a whole list, or cell phone companies like Oppo, etc., are all getting involved, State Farm, MasterCard. And, you know, we’ve really been focused on delivering great value for them. So they’re coming back at a very high rate, which is awesome.
But I think that, you know, the important thing, to your point, it’s not about the monetization, for us it was build the great experience first, prove that this was something where we could add value because it would enhance the overall gaming ecosystem by having this around game experience, like we thought about it like a feature. And it, you know, it just it really worked, but it was risky because we spent a lot of money.
Andrew: You spent a lot of money on what and who owns the teams?
Marc: On investing in e-sports. So most of the e-sports tournaments that existed previously, were just that, there were tournaments, so there wasn’t a league. So it’s very hard to be a fan because you didn’t know who the players were. You didn’t know who the teams were, because it was hard. There were no regular seasons. So it would be analogous to watching the Olympics, where if you watch the Olympics right now at NBC, you know, there would be a bunch of sports where you don’t know who the athletes are, you don’t know what their history was leading up to the event. That would be like a lot of these e-sports tournaments.
Whereas in the NFL or NBA, you know, you know, or Major League Baseball, when the Giant are supposed to play the Dodgers. It’s published in advanced. You know who the rosters are. And as a result, it can be far more watchable then because you can follow along with the stories over time and you can get to know players and you can sort of follow the action. And then also, oftentimes, in a lot of these tournaments historically, there wasn’t . . . Like a game would maybe target at the start at 2:00 p.m. like around 2:00 on a Saturday, but it could be late because of production delays or the previous game ran over, things like that. And so we had to professionalize that whole experience, learn how to do broadcast well, learn how to manage the camera, train cameramen, learn how to train shout casters, which is our version of analysts and commentators to help people understand and follow the action.
And then, of course, the whole broadcast management to find what are the points of interest, how do we make it accessible? And again, our competencies really improved over the years. And you can look at clips and see the growth and production value over time.
And then the same thing happened on the live event side, where early on we’d have server outages, we had to apologize to our audience. Like in Season 2 for a semifinals, we had to send a team, both teams home in the semifinals match because we couldn’t finish the game because of internet connectivity. So we apologize to our audience. We refunded everybody’s tickets and gave people free virtual currency, things like that.
And, you know, we learned the hard way about the need to have redundancy of all of our servers, do a better job of broadcast. You can’t have the lights go out in the Super Bowl, right? And we would, so.
Andrew: I like that word that you wanted to make sure that it was going to be watchable. And now I understand what you mean by teams being more watchable because, tell me if I’m wrong, an individual player can come in and go as their strengths, as their interest, as they maybe even violate the rules, because some players get a little bit carried away. And so we discover them and then we lose interest in them and there isn’t a continuity versus a team, if a player comes and goes, we still have the other players in the team that we’re into. And eventually we . . . I’m not explaining this right, but I get what you mean. The more people to hook into, and even as one goes away, there’s another who comes in.
Marc: Well, and historically in e-sports, you didn’t even know who the teams were or who the players were, generally. And so if you became a fan of somebody else, they really had a feast or famine structure. And still most e-sports actually have this structure, which is feast or famine, which is like, you know, if you win a Fortnite tournament you can make millions of dollars, and that’s awesome. But if you come in 7th, right, like you don’t make much money or whatnot or there’s just that, like there isn’t the depth and consistency, which that means how can you be a professional? How do you quit your job? How do you go convince your mom or your dad or your, you know, your spouse, “Hey, this is worth being my career”?
If you don’t have, if you can’t count on the income, then, you know, it’s like we had this chicken and egg problem, where we had to build this ecosystem to have it have credibility, build a great product that people wanted to watch, but then also try to convince pros that it’s worth investing their time and career, and these other organizations to come in and invest their time and effort and energy that they would be picking the winning horse, so to speak. And which is why it’s taken years to cultivate and build these ecosystems in a way that can sustain. But this is what’s so cool is that now e-sports is becoming sustainable. It’s becoming profitable. Which means, yeah. Which is a huge inflection point.
Andrew: Revenue wise, are you making more revenue from e-sports or from digital goods within the games?
Marc: The vast majority of our revenue is from digital goods, in the games.
Andrew: That’s what I thought.
Andrew: Do you see it? So the way I was looking at it as I was researching you is, this was you were super into community from the very beginning, you felt like the other game makers saw community as a need to have, but also is a big burden. And for you, you cared about it. And I thought e-sports was a way of doing community for you, the way the software vendors will have a conference for their thing, knowing that they’re going to lose money on it, but they’re going to raise excitement for it and get people to care about it the other 364 days of the year. Is that it?
Marc: Right, you’re absolutely right on the impetus. However, we then also wanted to build e-sports into its own business and believe that it could be.
Andrew: From the beginning and knew would be that?
Marc: We hoped, we didn’t know, but we believed that it could be.
Andrew: This is you because you were the guy who wanted to create the UGL a long time before you ever got into League of Legends.
Marc: Well, it’s really just because we’re fans of e-sports already. So in a sense like League is the first sport. You know, StarCraft, had a lot of success as an e-sport in Korea. And so Korea is sort of the mecca of PC gaming around the world because there . . . It’s such a cool culture, you know, like there’s a whole plane that’s painted in StarCraft 2 like a, you know, some Boeing 747 or whatnot, because PC games are mainstream in Korea. Like we have 50% global market share in Korea. So 76% of males between the ages of 17 and 34 play a game every month, which is absurd. That’s millions and millions of players. And which means that there’s TV channels that are dedicated to gaming and covering games and so whatnot. We didn’t build that ecosystem originally. We benefited from that when we went into Korea, and built our own office there because League was becoming a successful e-sport.
But StarCraft and Blizzard and, you know, entrepreneurs in Korea helped really build that. So that, you know, everybody stands on the shoulders of giants. And that’s, you know, that’s absolutely the case for us, where, you know, there is an entrepreneur named Jens Hilgers, who’s a German entrepreneur who built a company called Turtle Entertainment, which built the Intel Extreme Masters, which was a very successful third party tournament organizer. That’s essentially what Brandon and I wanted to do with the UGL. Jens and his organization already did that. And so they would run games or run tournaments on behalf of other games and other companies where they would partner with publishers. But we thought that having a vertically integrated ecosystem where the publisher would manage the e-sport side could create a better fan experience as well. And, you know, and we think that we’ve demonstrated that that is true.
So then there’s more publishers now who are doing that, whether it’s Epic with Fortnite hosting their own events, or Blizzard, you know, doing what they do in StarCraft and Hearthstone and things like that.
Andrew: I’m looking at my notes here. There was one thing that I thought I’m going to ask you about, you’re going to blow it off with some quick answer because you don’t want to talk about it and then I’ll push you and you’re going to blow it off a little bit more and then we’ll continue with the interview.
This was . . . You know what I’m talking about, right?
Andrew: This is the . . . How do I put this? This was the . . .
Marc: The cultural accusations.
Andrew: Cultural accusations about institutionalized sexist culture. Instead, I’m looking at my notes on our conversation with our producer, and you brought this up as something you wanted to talk about. This has been . . . Well, how much of an issue is this for you? You mentioned Nicolo Laurent, CEO. He was asked to leave the company for a couple of months. Am I right about this?
Marc: No, that was Scott Gelb.
Andrew: Oh, Scott Gelb, excuse, the COO.
Marc: Yeah, who was our former CTO and the former VP of Technology that I mentioned. So, yeah. So the reason that this is a really relevant experience is because, you know, I think a lot of companies these days are really trying to reflect and think about how to evolve their organizations to ensure that everybody has a great experience. And, you know, Riot is the type of organization that has always prioritized trying to be an incredible place to work, because we need the best people. We need the best teams. We need to be super aligned. We need psychological safety. We need to be able to be vulnerable with each other, to then have these creative ideas. And when things are hard so we can actually problem solve and we do that together. And to the point around, nobody has a monopoly on ideas, we need everybody to feel safe to be able to contribute those ideas.
And so, you know, internet culture and gaming culture and things like that, oftentimes have a reputation of having some juvenile behavior, and, you know, one of the things that I think we had to really take a hard look at over the last couple of years was, were we doing enough organizationally to ensure that we are curbing that juvenile behavior and making sure that everybody could enjoy the opportunities that Riot was promising and people could really do their best work?
And so that’s where over the long term I’m hopeful, that this whole experience is another inflection point challenge for the organization that’s helping us become much better. And, you know, just like or in sort of a similar way to how the early experiences of throwing away our platform or needing to innovate on business model or how to do things with e-sports, this is one around how do we become an organization that’s truly inclusive.
And, you know, so we’ve shared a lot of progress on that publicly. You know, we think that it’s just that’s the way that any strong leader, individual company should operate, like it’s not like . . .
Andrew: The improvement part, what’s the part that you wish that you hadn’t done or what’s the part that culturally was an issue looking back at a couple of years ago?
Marc: So I think it can essentially be characterized as, you know, individuals perceiving that they didn’t feel safe for a variety of reasons. And so, you know, be able to be themselves, to be able to contribute, to be valued for who they are. And, you know, so we want everybody to have a great experience at Riot. You know, we’ve won awards for being the best placed to work from Fortune and best place for millennials and best tech company, and things like that. So it’s very important for us to be an incredible place to work. But we can’t just rely on our internal surveys, which have great marks and things like that. We also need to ensure that people who may be having a tough time, that they feel like they have an outlet and what not.
And that’s I think one of the most important learnings is, there was a particular small segment of the company and population that didn’t feel like they were being heard or that they had an outlet to be able to go to [inaudible 01:02:11]. You know, we run a pretty complicated 3D matrix. So, you know, you report into your discipline lead, meaning like if you’re an engineer, you can report into the technology organization, but you’re allocated to a product team to do work. And because we organize work by audience needs and the audience needs are always changing.
And so we tried to create three access points, whether it’s HR, whether it’s a direct manager or whether it’s your product lead to help people feel like they’ve never could be pigeonholed behind sort of a bad boss or whatnot. But despite that, you know, as we’ve grown to close to 3,000 employees across the world and things like that, we didn’t bat a thousand.
And every single opportunity like that is an opportunity to really reflect on how to get better. And, you know, anytime there is action or something that sort of came to our attention or to the company’s attention that was egregious, of course, we terminate people and things like that. But a lot of the issues I think that we were facing were those where people weren’t even reporting them, so to speak, right? I think that’s the issue. And that’s one of safety, which means that we had to be much more proactive about ensuring that everybody felt safe to be vulnerable and comfortable.
Andrew: Especially since your approach is, when there’s a problem to throw out a bunch of ideas and then find the one that seems almost too wacky to work, but it fits exactly what you need. And so you end up with 1,100 Filipinos on motorcycles and CDs in their backpacks, and you need that kind of environment.
Marc: For sure. And we have really hard problems to solve. So we need the best people. And we fundamentally believe that diversity and experience and expertise and thought is critically important. And so that’s why, you know, that whole episode was sort of an existential challenge for the company because we perceived ourselves as this great company who cared about people.
And, you know, Rioters which is a . . .
Andrew: Existential challenged, meaning, you would not survive if you can’t handle this?
Marc: Literally, yeah.
Marc: Yeah. And the reason was because the company’s culture is it’s been our lifeblood historically. Right? People believing that we’re this great organization, that we do the right thing for players. You know, that we’re always really sort of taking the high road. And this is the first time when everyone is like, “Wow,” like, “Are we fully living up to our values in this way? We definitely thought about ourselves. And maybe we’re not.” Right?
Andrew: And you personally doubted a little bit like, “Maybe I didn’t create this thing. Maybe I missed something that’s key to who I am.”
Marc: Which was really tough for me personally, because I mean, for a lot of reasons, you know, I take pride in the company. And, you know, it was a very, very difficult period of time. And, you know, Brandon and I were not running the company as CEOs at that time. And so, you know, we’re, I think, incredibly proud of how Scott and Dylan and Nicolo and the whole executive team handled the situation, bringing in the whole company, bringing everybody together, using this opportunity to say, “Hey, everything’s on the table, let’s revisit our values together. You know, what are we like? What are not like? Let’s diversify our leadership team.”
Andrew: Did you create a new list of like, you re-created your code, your values list, right? Am I right about that?
Andrew: You make your culture as a result of this?
Marc: Well, and what’s great about that is, is the overwhelming reaction from Rioters were people loved the company and reiterated that. But they also wanted to ensure, like we previously had a value called Focus on Talent Team and that, you know, the team value for the organization is now called Thrive Together. And so like the way we described a lot of these things is different. A lot of the spirit is the same. You know, but we always looked at culture as a living document, a living breathing ecosystem. Right? Where culture is an outcome of your values, your beliefs, your behaviors collectively every day.
You know, as new people join the company, as the company grows and evolves, as you’re taking on different challenges, the culture adjusts in reaction to that new context.
And so, you know, for us, it was a great forcing mechanism to ask ourselves together with the company and not take our word for it and say, “Hey, we think things are fine. Therefore, it’s fine.” But let’s have everybody reflect and participate in this together, and which is why, you know, I feel like it’s going to be a really powerful growth opportunity for the organization because there’s thousands of us all learning and improving together on how do we ensure that we have healthy team dynamics, how do ensure people feel safe, how do we ensure we’re not doing negative behaviors that harm others? Sometimes not even unintentionally.
Andrew: Let me see this, before we got started, I said I had the sense that you were doing this interview because you’re promoting something that’s coming up next and you’re kind of struggling to find out what to talk about as a next step. You said, “That’s not why I’m here. I just think that other entrepreneurs can benefit from my story the way I did from others. So I wanted to do this interview with you.” But there are other things that you’re working on. Can you tell me about one of them? What’s the one that you’re most passionate about?
Marc: Sure. You know, so I’m still most passionate about Riot.
Andrew: I can see that. Why? Why aren’t you cashed out? You’ve been at this for a decade at this point, more. Why don’t you say, “That’s it”?
Marc: Thirteen years. Well, and the reason is because our capabilities are so much stronger now than they have ever happened. And so, you know, we view ourselves as a mission driven company. You know, we say that we aspire to be the best player focused game company in the world, and that is this idealistic aspiration that we can never fully achieve. But as we are getting better at it, as we’re doing, as we’re adding more games, we’re adding more competencies, as we’re exploring things like broader media, like we announced an animated series that we’re doing, things like that. The opportunity to make it better to be a player, continues to improve. And that’s a really meaningful mission for me. And I think it’s a really meaningful mission for the vast majority of Rioters.
Andrew: You’re not sick of it? Now, look, you’ve been doing this for over 10 years. I feel like if I love running, but if you made running my job for 13 years, I think I’d be sick of running and I’d be into cycling or watching TV. It didn’t take any passion away the fact that you’re working in gaming to still play?
Marc: I’d be disingenuous if I didn’t say that at times, you know, I feel burnt out or I feel self-doubt or things like that, because I’ve absolutely gone through emotional ups and downs. And, you know, in particular last two years, stepping away from leading the company that I built with Brandon, it was a huge personal challenge also. But what’s fascinating is, when I’m at home or when I actually have time, the number one thing I want to do, aside from hanging out with my family and kids and things like that, from a hobby or interest perspective is play games. Like I love games and I love thinking about games, I can’t help myself.
And I think a lot of developers at Riot and probably at other companies are like that too, where, you know, there’s a difference doing having a job or having a career or having a calling. And, you know, when I think when you’re in it, when you’re truly involved in a mission that is intrinsically motivating and meaningful to you, it can feel like a calling where it’s hard to stay away. And so, yeah. You know, I think . . .
Andrew: So I’m getting why you’re here. Is there one of the other projects that you’re especially jazzed about?
Marc: So, yeah. Our animated series is something . . .
Andrew: That’s the one.
Marc: Well, yeah. Because we’ve announced our first-person shooter, which is called Project A, which people are really excited about it. I think it’s an incredible game. You know, Legends of Runeterra is live. I’m having a blast playing that. We’ve got a lot of great things in the pipeline that our audience is excited about. But the next frontier, that is sort of the new wave of innovation that’s really hard for us is broader media. So whether it’s film or TV, animated series, things like that, utilizing our right intellectual property and in a similar way to how we struggled to figure out a way to build games and then e-sports and a company, the next frontier is that.
And we’ve got incredible people working very hard on trying to do something great for our players, and I think we could do and launch in a really different way because we have an audience that is already engaged, that’s already large. They’re attached to this IP. We could integrate things from a technology standpoint in a way that makes, you know, where we could evolve games based on the series of . . . I mean, there’s all sorts of cool ideas that everybody has. And then it’s a question around, “Well, where would the distribution be and how could we partner with these companies and how do we make it go broader?”
Andrew: And that’s what you’re spending your time thinking about now.
Andrew: You personally get excited about that. And when you’re not working, what do you do for fun, outside of family or with family?
Marc: So exercise has been critical for me, to stay healthy.
Andrew: What kind of exercise?
Marc: So I run and I work out, I do yoga once a week. You know, I’m sort of a functional fitness person. So if I want to go jump a fence, I want to be capable of doing that. You know, I need to pick up my kids or carry heavy stuff. You know, I can do that. You know, we just went skiing this past weekend with the kids, they’re making great progress, it’s super fun.
But aside from that, so I built a family office also to invest in a bunch of early stage companies, help entrepreneurs as well as do a bunch of stuff philanthropically. And on the philanthropy side, the, you know, every philanthropist is looking for leverage and impact. And I’m really focused on political philanthropy under the rationale that the, you know, you could thinking about it this way, the billionaires pledge, where 13 of the biggest, the world’s most wealthy billionaires pledge $400 billion dollars to philanthropy over their lifetimes, hugely beneficial thing. That’s half the U.S. K-through-12 education budget on an annual basis.
Andrew: Saying, so much money, but it’s still very little.
Marc: Right, on a relative basis, if you really want to go drive change that is powerful, that it is impactful, that can help lots of people, I fundamentally believe that one of the most leveraged ways to do that is helping to improve the U.S. political system, because the U.S. political system, unfortunately, is broken. Where I shouldn’t say broken, it’s actually functioning exactly the way that the system has evolved, which means we’re seeing hyper partisanship, we’re seeing a breakdown of problem solving. So no matter what issue you care about, whether it’s climate change, whether it’s gun control, whether it’s health care, whether it’s education, everything is blocked by our dysfunctional government. And so to me, as I’ve spent time analyzing this, I’m involved in two organizations that I think are very relevant here.
One is Represent Us, where the strategy is for us is to change the structure of the system, to change the incentives for politicians to spend more time focusing on voters rather than on donors, because right now that’s the other thing. Now they have assets, it’s freaking weird. Like all of a sudden, every politician wants to talk to me, suddenly cares of what I think about it. And it’s absurd. And they really don’t, they just want my money to go get into office and they can continue to not go solve problems.
So as a, you know, if we want different outcomes, we have to change the rules. And so there’s things like ranked choice voting. There’s things like changing gerrymandering, you know, open primaries, things like that, which can help the political system function much more effectively, which I think will help over the long term.
And then the second part of the strategy is a company called Unite America, which is really focused on increasing the supply of courageous politicians who also are not super extremists, and I’ll give you one example. So in the 8th District of California right now, which is the district that runs along the border of Nevada, there’s a primary that’s happening, and there’s two Republicans because it’s a 70% red district. So Republicans are going to win. The question is, who’s going to win the primary? They’re the one who’s going to win the election. And unfortunately, 70% of elections are like this, where they’re oftentimes uncontested.
And the current, the guy who’s winning in the polls is an individual who has been arrested for carrying a firearm into an airport, has, you know, started a militia, is well known for many racist comments and his opponent has a CS degree from UCLA, has an AI agree from Caltech, started a gaming company. In fact, he’s an entrepreneur, has 15 years of public experience. And so we’re going to go help that individual because the Republicans don’t care about allocating money. And many businesses don’t. But now, if we create and, you know, sort of a country-wide infrastructure to capture dollars and, you know, create a voter database and things like that, to allocate funds to help what we perceive to be individuals who would be more representative of . . .
Andrew: That’s your mission. Enhancing moderation.
Marc: It’s moderation, but it’s more than that. The reason I like rank choice voting is because it forces a majority to win rather than a plurality. And I tend to think, in a democracy we all have diverse ideas. We’re all not going to agree. That’s actually okay. And that’s part of the premise.
And so therefore, people who can debate and solve problems are really important. I’ll give you one example. We have a Unite America individual, a guy named Bill Walker, who was the one independent governor in the country, who’s the governor of Alaska. And he was the one with one other congressman from his state, a guy named [Jerrod 01:15:23]. They balanced the Alaskan state budget for the first time. Because over 20 years, Republicans and Democrats, neither of them wanted to go solve the problem because the political cost to them would be too high because they’d have to cut the oil subsidy, which is paid to all Alaskan citizens.
Bill Walker came and said, “Hey, I came to do the job, not keep the job.” And so once the Republicans and the Democrats go, “Oh, wow, you’re going to take the blame to go do the right thing for the state? Fine. We’ll support you now.” So they created a bipartisan coalition. They balance the budget. And then he got voted out of office.
But that is an example of what action needs to happen in this country. There’s a lot of tough issues. And we need to help create the incentive structure for people with political courage who want to go help people more than they want to keep the job, get into office. And so it’s a sort of a similar way to, you know, trying to put myself in the mindset of a gamer, right? Just as a concerned citizen, as a voter, it’s like it’s silly to me that the incentive system or the incentive structure of our political system is focused on special interests and donors rather than voters. But that’s a structural issue. We can actually change that by changing the rules.
Andrew: I thought you were going to say, “Andrew, I did this and now I’m going to go sit on a yacht somewhere. Let me tell you about the one I got.” No. That’s not it. What do you do . . .? So for fun, you’re skiing.
Marc: Oh, yeah, fun. Yeah, well, I play games, I play games when I’m with my family.
Andrew: You play games, and your way of changing the world is to get more towards moderates.
Marc: Yeah. You know, and moderate is not even the right framing because I think a lot of times moderation is kind of a dirty word where most people don’t stand for it.
Andrew: More reasonable.
Marc: I think it’s if people who are focused on problem solving, whose motivation is to actually go move the needle for their constituents, rather than somebody who’s really motivated to keep the job because they want to be a governor or they want to be a congressman or whatnot.
Andrew: But don’t you feel like you’re spitting in the wind? Like it’s such . . . Even all the money that you’ve got, it’s so tiny compared to all the money that the people who are way more extreme have.
Marc: For sure.
Andrew: And what’s the point of you doing this?
Marc: Because it’s not just me. It’s there’s a whole movement that’s burgeoning. And so, you know, I’ve been able to join at, I think, at a helpful time to help . . .
Andrew: To create a movement around this.
Marc: That’s a creative way, but I’m helping this move.
Andrew: And that’s one of your expertise. That’s your expertise. The ability to get people together who care about something and to genuinely care about them and nurture that community, instead of saying, “Well, we has to have them.”
Marc: Right. I think so. And that’s because, you know, when most people do the sensible thing and don’t pay attention to politics because they’re busy or they’re trying to add value in their community service or their careers or whatnot, which are all noble things, it leaves politics to the people who are most extreme. And that’s a challenge. So we kind of need to create this political philanthropy altruistic organization to capture resources and expertise and ideas from people who want to help but don’t feel like donating to political candidates that are just going to be inside the same machine are going to get nothing. And similarly to channel expertise or resources to the right grassroots efforts that are happening around the country to help them get over the hump. So rank choice voting, we helped get that passed in Maine and in New York City as an example. And those are two really important things.
Andrew: In New York City?
Marc: Yes, in New York City, it’s now going to use rank choice voting.
Andrew: For mayor?
Marc: For all 200 plus of the . . .
Andrew: Wow, so rank choice, the way it works is . . . Actually, how would you describe it? It’s . . .
Marc: Essentially, every politician that is running, you then stack rank them. So let’s assume there’s six people, you vote one through six. And whoever gets . . .
Andrew: I put the number one through six on it?
Andrew: Oh, that’s not how I thought it worked. Okay. So if there’s six different people running for mayor, I put the number that I want them in the order that I want them in?
Marc: Yeah, you stack, right.
Andrew: One through six. Okay. And then?
Marc: Yeah. And you don’t have to vote, like you don’t have to vote for anybody. So you could still put one down or you could put all six down. And essentially, it’s once somebody has 50% of the vote, they’re then the winner. And so if there’s not enough first-place votes for one person at 50%, that it’s first and second place, and then if it’s not 50%, then it goes down to third. And that . . .
Andrew: So then I get to use the points that they have from second place.
Marc: Yes. And the reason that’s a good system is because that helps force people or politicians to run more positive campaigns because all of a sudden you have to rather than just catering to a tiny minority of your population that may vote in a closed primary, you have to be likable by the broader district. So people tend to not be super negative. It helps people have to stand for something. It also reduces or eliminates the spoiler effect. So lots of people, you know, say, “I don’t want to vote for this person because I don’t think they can win, even though I’d love them to do it.” And so it’s the psychological barrier that prevents them, you know, a lot of real political competition, because they’re the risky candidates. This helps eliminate that.
And I think it’s really important, because the Republicans and Democrats, they don’t have competition because they have a duopoly and that’s the thing that needs to change.
Andrew: Yeah, you know what? In California, there’s no way that a Republican is going to win for president. There’s no way that a Democrat is not going to get the votes for president. And so we all kind of you know, we play this game. And so I always vote for the third-party candidate, whoever that is. And I can’t tell you how many people tell me, not I’m wasting my vote, “I’m ruining the election for them.” Right? Because I’m voting for spoiler. Spoil, nothing. And they always will say, “What if everyone did that?” Well, if everyone did that, then maybe we’d have some kind of competition. But, it’s not everyone’s going to do it.
Marc: Right. And so, you know, but by changing these systems, over time it changes the calculus also for who would be even willing to run for office. Because one of the things that I think is another big challenge with our political system and our current dysfunctional society that we’re having today, it is also around how, you know, the news media also has an incentive problem where they are incentivized to, of course, be in it to run sensational stories or be tabloidesque or things like that. And I think that is a really negative thing for society as well. You know, which goes the whole Mark Twain quote where it says that, you know, if you read the news . . . Or, if you don’t read the news, you’re uninformed. If you read the news, you’re misinformed.
And in my experience now, as you know, somebody who’s running a company or doing various things, the way that things get mischaracterized in the media or misunderstood, I’ve been shocked by it. And the lack of diligence or follow through or desires to interview or ask questions or be curious, you know, and I think there’s probably lots of good journalism out there, but there’s also lots of not great journalism. So I think longer form journalism tends to be better, like in “The Atlantic” or “The Economist” or, you know, different magazines like that. But the news media, really, you know, whether you switch on TV, is really . . . That’s an area that I’d love for a great entrepreneur to help figure how to solve that problem.
Andrew: And you’d back that? Potentially.
Marc: For sure. I mean, I think that there’s a lot of people who would back that because, you know, there’s a big need.
Andrew: All right. We’ve covered a lot of different topics here. If anyone wants to connect with you directly with you, not Riot Games, do you have a website? Do you have a platform?
Marc: I do have a website, a family office website.
Andrew: And what is that?
Marc: It’s called nahco3.com. So N-A-H-C-O-3.com.
Andrew: What does that mean?
Marc: It’s the chemical formula for baking soda.
Andrew: Why baking soda?
Marc: It’s sort of a clever . . . We’re not trying to build a consumer brand or whatnot. So it’s, we’re sort of just joking that we are the hidden ingredients that can help things rise, sort of the thought.
Andrew: I get it. All right. Marc Merrill, thanks so much for being on here. Congratulations on everything you’ve done. I’m curious to see what you’re going to . . . I’d love for you to bring stacked voting. Is that what it’s called?
Marc: Rank choice voting.
Andrew: Rank choice. See? It’s a little confusing. I have to be honest with you. It’s much easier to understand. Like I can teach my kindergartner how voting in America works for president, most votes wins. This is going to take a little bit of education. Even I was curious about this, for sure. And not . . .
Marc: Well, I think that number one thing is need to make corruption illegal, because it’s legal corruption.
Andrew: Good luck, my friend.
Marc: I know, that stuff. And then the second is really, country over party. It shouldn’t be about us. It should be about like let’s do the right thing for, you know, rather than the self-interested groups that are trying to, you know, that have a business model incentive to give money to politicians, because then once they’re in office, they get money out, like that’s broken. We need to fix that.
Andrew: All right. I’m curious to see where that goes. I have to tell you, I’m a little bit skeptical. I feel like you’re just . . . Well, every time I say just one person going up against this big movement, people’s say, “Andrew, come on.”
All right. I’m open to it. I want to thank the two sponsor who make this interview happened. The first, if you’re hiring developers, do what the man, Michael, who I just met here in the hallway did. He you went to Toptal. You should to go to toptal.com/mixergy.
And number two, if you hate your hosting company or if you don’t have a hosting company, go to hostgator.com/mixergy. And I’m grateful to them both for sponsoring.
Marc, thanks so much for being on here.
Marc: Andrew, thank you so much. Appreciate what you do.
Andrew: Thanks. Thank you.
Marc: Bye, bye.