One In Two Kids Is Using This Product You've Never Heard Of

Moshi monsters

Photo: Moshi Monsters

Michael Acton Smith has been an entrepreneur for more than a decade. In 2004, he secured $10 million in funding to start UK-based Mind Candy, a gaming company.He used $9 million to make Perplex City, a real-life scavenger hunt leading one player to $200,000.

It was an utter failure. With his last $1 million, Smith made a final, desperate attempt at entrepreneurship. 

Inspired by his childhood pet rock, Tamagochis and Furbies, Smith sketched out a Moshi Monster.

The digital monster could be adopted and taken care of by children online.  After two years of slow growth, Moshi Monster’s traffic exploded.

Now Smith’s site has 50 million registered users in 150 territories worldwide. One child signs up per second, and Moshi Monster has been called “Facebook for kids” and “the digital Disney.” It has a $200 million valuation, it’s raising a massive round, and it is on track to become a billion-dollar startup.

We sat down with Smith who told us how he’s making the latest kid’s craze and building a billion-dollar business.

In 1998, Smith started his first successful company when he sold shot glass chess sets.

Smith's first business idea came from a night of drinking. He and a college friend created an online gadget retailer, Firebox, which became a big hit when it sold chess sets comprised of shot glasses.

Firebox became the 13th fastest growing, privately owned business in the UK.

On the heels of that success, Smith raised $10 million from investors to start a game company, Mind Candy.

After his first success, Smith started Mind Candy with $10 million from investors. He blew $9 million of it on a failed game, Perplex City.

Mind Candy's first game, Perplex City, was a good idea in theory. Users could follow clues to a hidden $200,000 prize. But Perplex City was too time consuming, and it never gained traction.

Finally, 18 months after launch, the $200,000 was discovered. By then the startup was $9 million in the hole and Smith had to pull the plug.

'Creatively it was amazing -- but commercially it was disastrous,' says Smith.

The game never made it to its second season. The site still reads, 'We know that we promised you that we'd be launching Season Two this Summer; we thought we would be too. Unfortunately, this is no longer going to be possible.'

With $1 million left, Smith began brainstorming a masterful pivot. Thinking back to his childhood pet rock, Smith drew a critter on a napkin called Chico.

Perplex City had been nothing more than a $9 million money suck, and Smith was under the gun.

With $1 million left, he went back to the drawing board and reflected on popular children's games. Smith was fascinated by his childhood pet rock, the success of Furby and Tamagotchi toys, and the addicting qualities of Facebook.

He literally drew inspiration from the games; Smith sketched Chico (image on right), a critter that would become the first Moshi Monster.

As proof that you should invest in people rather than products, Spark Ventures, lndex Ventures and Accel Partners invested $7 million more in Smith's Mind Candy so he could launch Moshi Monsters.

Moshi Monsters wasn't an instant success. It wasn't until mid-2009 when the company added virtual goods that traffic exploded.

Moshi Monsters didn't see much growth within its first year. But in 2009, the company added virtual goods, 'rox,' and traffic began to soar.

Rox are the site's form of money, and children can earn them by solving puzzles and playing educational games. Rox can be spent on food for adopted creatures, unlocking other monsters or 'moshlings,' and on other goods.

Now more than 50 million Moshi Monsters have been adopted by users around the world and the site is gaining one new user per second.

According to Smith, one in two children between the ages of 6 and 12 now own a Moshi Monster in the UK and Australia. In the US, that number is one in five and growing.

The site is expected to have 60 million users by the end of the year, and one new user signs up per second (2 million new users per month).

Smith is expanding Moshi Monsters offline too. There's now a magazine, animated music videos, merchandise, a movie and a TV show in the works.

Smith says he wants to become the digital version of Disney. Moshi toys are already popular in the UK and they just launched in U.S. Toys R Us stores on Monday.

A Moshi Monsters magazine launched in February and quickly sold out. It's now the UK's largest monthly children's magazine.

Later this year, Moshi Monsters will be releasing a holiday CD (Lady Goo Goo is the most popular monster/'moshling' and naturally she can sing).

Moshi Monsters: Moshling Zoo will be released for Nintendo DS in late 2011, and an online TV series for kids is in development; a movie is too.

Moshi Monsters is projected to generate $100 million this year via ads, subscriptions, and merchandise.

Moshi Monsters was listed by TechCrunch as one of Europe's next $100 million+ exits.

The company is projected to do $100 million this year in advertising, subscription and merchandising revenue.

VCs like the numbers they're seeing; Mind Candy was recently valued at $200 million and it will be raising a significantly larger round later this year.

'The valuation isn't high enough,' says Smith. 'This IS a billion-dollar company.'

Smith says a lot of companies have offered to buy Moshi, but he's holding on to it for a long time.

To see which other startup are turning into monstrous successes, check out:

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