At its Worldwide Developer Conference, Apple announced a significant update to RealityKit, its suite of technologies that allow developers to get started building AR (augmented reality) experiences. With the launch of RealityKit 2, Apple says developers will have more visual, audio, and animation control when working on their AR experiences. But the most notable part of the update is how Apple’s new Object Capture technology will allow developers to create 3D models in minutes using only an iPhone.
Apple noted during its developer address that one of the most difficult parts of making great AR apps was the process of creating 3D models. These could take hours and thousands of dollars.
With Apple’s new tools, developers will be able take a series of pictures using just an iPhone (or iPad or DSLR, if they prefer) to capture 2D images of an object from all angles, including the bottom.
Then, using the Object Capture API on macOS Monterey, it only takes a few lines of code to generate the 3D model, Apple explained.
Image Credits: Apple
To begin, developers would start a new photogrammetry session in RealityKit that points to the folder where they’ve captured the images. Then, they would call the process function to generate the 3D model at the desired level of detail. Object Capture allows developers to generate the USDZ files optimized for AR Quick Look — the system that lets developers add virtual, 3D objects in apps or websites on iPhone and iPad. The 3D models can also be added to AR scenes in Reality Composer in Xcode.
Apple said developers like Wayfair, Etsy and others are using Object Capture to create 3D models of real-world objects — an indication that online shopping is about to get a big AR upgrade.
Wayfair, for example, is using Object Capture to develop tools for their manufacturers so they can create a virtual representation of their merchandise. This will allow Wayfair customers to be able to preview more products in AR than they could today.
Image Credits: Apple (screenshot of Wayfair tool))
In addition, Apple noted developers including Maxon and Unity are using Object Capture for creating 3D content within 3D content creation apps, such as Cinema 4D and Unity MARS.
Other updates in RealityKit 2 include custom shaders that give developers more control over the rendering pipeline to fine tune the look and feel of AR objects; dynamic loading for assets; the ability to build your own Entity Component System to organize the assets in your AR scene; and the ability to create player-controlled characters so users can jump, scale and explore AR worlds in RealityKit-based games.
One developer, Mikko Haapoja of Shopify, has been trying out the new technology (see below) and shared some real-world tests where he shot objects using an iPhone 12 Max via Twitter.
Developers who want to test it for themselves can leverage Apple’s sample app and install Monterey on their Mac to try it out.
Apple's Object Capture on a Pineapple. One of my fav things to test Photogrammetry against. This was processed using the RAW detail setting.
For nearly as long as video games have been around, they’ve enjoyed a tight relationship with pop music. As early as 1983, Bally-Midway collaborated with Journey to make a game full of licensed songs and the band members’ digitized faces (which followed more than a decade of pinball cabinets featuring megaton bands), and that says nothing of media sensations like “Pac-Man Fever.”
Meanwhile, interactive musical experiences, somewhat outside the firm “gaming” realm, began emerging in the CD-ROM era. These ranged from simple computer-exclusive content slapped onto a normal album’s data track to full-blown multimedia software featuring the likes of David Bowie and Prince.
Thus, the synergy of gaming and pop music is littered with various “firsts,” and this week, a modest music video by a Texas indie band might not register as a particularly big deal. It’s not a Doom clone starring Iron Maiden or a hilarious light-gun game starring Aerosmith. But this “playable” music video arguably heralds a new era: one where video game engines, and thus a gaming mentality, has become utterly foundational in pop culture.
Enticing the enterprise world to embrace augmented reality has proven a more difficult task than many startups in the AR space anticipated, but as the hardware and software behind the tech becomes increasingly commodified, customers are starting to find use cases that align with their shifting remote workflows.
Scope AR has been selling the vision of using 3D models to help the manufacturing industry scale training and collaboration since they launched back in 2010. Now, the startup is looking to build a more scalable future for themselves as they revamp their central product WorkLink for the web, Scope AR CEO Scott Montgomerie tells TechCrunch.
The new platform called WorkLink Create allows customers to sidestep complexity and author 3D content on top of CAD models without using Unity, an effort to make the product more approachable to non-technical users and customers that might not have access to Unity developers to roll out an integration.
“Unity is awesome but to do anything you have to code,” Montgomerie tells TechCrunch, calling WorkLink Create a “more user-friendly and scalable” option compared to software from its competitors.
The browser-based platform allows users to upload 3D files and edit them with comments, detailed instructions and animations via a drag-and-drop interface. The platform automatically scales down the level of detail on CAD models to meet the capabilities of the devices that will be rendering them. Once published, a customer’s users can access the models and instructions via WorkLink’s mobile and HoloLens apps.
Image via Scope AR
Scope AR’s focus on commercial education, on-the-job training and troubleshooting have seen renewed interest as COVID era guidelines have pushed more meetings into virtual spaces.
While AR hasn’t seen the full embrace of the COVID-era digital transformation, the remote work boom in response to the COVID-19 pandemic has also boosted business for Scope AR’s products, Montgomerie says. With the company expanding its list of customers while also helping frontline manufacturing operations that have aimed to quickly build and repair medical equipment necessary for COVID-19 testing and treatment.
Montgomerie says that he had always expected AR adoption to take some time, but the the slow pace of AR headset adoption had exceeded his expectations, something that has pushed the company to fully embrace mobile-based AR integrations on phones and tablets over the years. Scope AR is an authorized reseller of the HoloLens 2, though HoloLens makes its own remote collaboration software for enterprise users as well called Remote Assist.
Scope AR closed a $9.7 million Series A back in 2019 — the bulk of the company’s nearly $12 million raised to date from investors.
Social media company Snap (which runs Snapchat) and game development software company Unity have joined Facebook in warning their investors that Apple’s imminent ad-tracking change will negatively impact their businesses.
As previously reported, Apple plans to use the next iOS update (iOS 14.5, due out in early spring) to implement a requirement that all apps on the platform gain user opt in to track users with IDFA (ID for Advertisers) tags. IDFA tags are used to track what users do across multiple apps in order to target advertising more effectively.
Social media giant Facebook has told its own investors that the coming change to Apple’s operating system could very negatively impact its advertising revenue, because this kind of tracking-based ad targeting is one of Facebook’s main ingredients for success.
This morning, while checking the latest price for shares of recent IPO Poshmark, I noticed that they were down from their first-day results. The company’s pricing was more than strong, and its first trading results were nearly comical.
But today it’s worth a more modest $76.30 — for this piece we’re using all Yahoo Finance data, and all current prices are those from yesterday’s close ahead of the start of today’s trading — which sparked a question: How many recent tech IPOs are also down from their opening price?
So The Exchange, ever at your service, raced around to collect the data. And what did we find? Most hot tech IPOs have held onto their gains, and many have actually run up the score in the ensuing weeks.
And today? A single Lemonade share will set you back $145.21. The company is now worth $8.22 billion, despite only posting Q3 revenues of $17.8 million, a decline from the year-ago period (for more on why that is, and why it isn’t as bad as you might initially think, read this.)
Analysts anticipate that Lemonade will post revenues of $18.91 million in Q4 2020, again via Yahoo Finance, putting the company on an annualized run rate of 109x. For a business running with net margins of -173.6% in its most recent quarter. And that’s after Lemonade announced a large share sale!
All this is to say that the fiery optimism fueling dazzling IPO debuts has the potential to keep pushing them higher. Which you can view as troubling, if you are a boring index funder like myself, enticing, if you are a founder looking to go public in the near-future, and potentially irksome if you are a VC annoyed when upside leaks to parties other than yourself.
This brings us to our data set. Below, I’ve collated a host of recent IPOs, their opens and their current prices. Only one has shed value.
And then we reexamined eight 2020 offerings that you will recall so we could run the same exercise. The results were not what I expected and indicate a stock market — let alone an IPO market — sufficiently inflated to warrant the whispered moniker of bubble.
Released in 2011 “Start-up Nation: The Story of Israel’s Economic Miracle” was a book that laid claim to the idea that Israel was an unusual type of country. It had produced and was poised to produce, an enormous number of technology startups, given its relatively small size. The moniker became so ubiquitous, both at home and abroad, that “Israel Startup Nation” is now the name of the country’s professional cycling team.
But it’s been hard to argue against this position in the last ten years, as the country powered ahead, famously producing ground-breaking startups like Waze, which was eventually picked up by Google for over $1 billion in 2013. Waze’s 100 employees received about $1.2 million on average, the largest payout to employees in Israeli high tech at the time, and the exit created a pool of new entrepreneurs and angel investors ever since.
Israel’s heady mix of questioning culture, tradition of national military service, higher education, the widespread use of English, appetite for risk and team spirit makes for a fertile place for fast-moving companies to appear.
And while Israel doesn’t have a Silicon Valley, it named its high-tech cluster “Silicon Wadi” (‘wadi’ means dry desert river bed in Arabic and colloquial Hebrew).
Much of Israel’s high-tech industry has emerged from former members of the country’s elite military intelligence units such as the Unit 8200 Intelligence division. From age 13 Israel’s students are exposed to advanced computing studies, and the cultural push to go into tech is strong. Traditional professions attract low salaries compared to software professionals.
Israel’s startups industry began emerging in the late 19080s and early 1990s. A significant event came with acquisitor by AOL of the the ICQ messaging system developed by Mirabilis. The Yozma Programme (Hebrew for “initiative”) from the government, in 1993, was seminal: It offered attractive tax incentives to foreign VCs in Israel and promised to double any investment with funds from the government. This came decades ahead of most western governments.
It wasn’t long before venture capital firms started up and major tech companies like Microsoft, Google and Samsung have R&D centers and accelerators located in the country.
So how are they doing?
At the start of 2020, Israeli startups and technology companies were looking back on a good 2019. Over the last decade, startup funding for Israeli entrepreneurs had increased by 400%. In 2019 there was a 30% increase in startup funding and a 102% increase in M&A activity. The country was experiencing a 6-year upward funding trend. And in 2019 Bay Area investors put $1.4 billion into Israeli companies.
By the end of last year, the annual Israeli Tech Review 2020 showed that Israeli tech firms had raised a record $9.93 billion in 2020, up 27% year on year, in 578 transactions – but M&A deals had plunged.
Israeli startups closed out December 2020 by raising $768 million in funding. In December 2018 that figure was $230 million, in 2019 it was just under $200 million.
Late-stage companies drew in $8.33 billion, from $6.51 billion in 2019, and there were 20 deals over $100 million totaling $3.26 billion, compared to 18 totaling $2.62 billion in 2019.
Top IPOs among startups were Lemonade, an AI-based insurance firm, on the New York Stock Exchange; and life sciences firm Nanox which raised $165 million on the Nasdaq.
The winners in 2020 were cybersecurity, fintech and internet of things, with food tech cooing on strong. But while the country has become famous for its cybersecurity startups, AI now accounts for nearly half of all investments into Israeli startups. That said, every sector is experiencing growth. Investors are also now favoring companies that speak to the Covid-era, such as cybersecurity, ecommerce and remote technologies for work and healthcare.
There are currently over 30 tech companies in Israel that are valued over $1 Billion. And four startups passed the $1 billion valuation just last year: mobile game developer Moon Active; Cato Networks, a cloud-based enterprise security platform; Ride-hailing app developer Gett got $100 million ahead of its rumored IPO; and behavioral biometrics startup BioCatch.
And there was a reminder that Israel can produce truly ‘magical’ tech: Tel Aviv battery storage firm StorDot raised money from Samsung Ventures and Russian billionaire Roman Abramovich for its battery which can fully charge a motor scooter in five minutes.
Unfortunately, the coronavirus pandemic put a break on mergers and acquisitions in 2020, as the world economy closed down.
M&A was just $7.8 billion in 93 deals, compared to over $14.2 billion in 143 M&A deals in 2019. RestAR was acquired by American giant Unity; CloudEssence was acquired by a U.S. cyber company; and Kenshoo acquired Signals Analytics.
And in 2020, Israeli companies made 121 funding deals on the Tel Aviv Stock Exchange and global capital markets, raising a total of $6.55 billion, compared to $1.95 billion raised in capital markets in Israel and abroad in 2019, as IPOs became an attractive exit alternative.
However, early-round investments (Seed + A Rounds) slowed due to pandemic uncertainty, but picked-up again towards the end of the year. As in other countries in ‘Covid 2020’, VC tended to focus on existing portfolio companies.
Covid brought unexpected upsides: Israeli startups, usually facing longs flight to Europe or the US to raise larger rounds of funding, suddenly found that Zoom was bringing investors to them.
Israeli startups adapted extremely well in the Covid era and that doesn’t look like changing. Startup Snapshot found that 55% startups profiled had changed (or considered changing) their product due to Covid-19. Meanwhile, remote-working – which comes naturally to Israeli entrepreneurs – is ‘flattening’ the world, giving a great advantage to normally distant startup ecosystems like Israel’s.
Via Transportation raised $400 million in Q1. Next Insurance raised $250 million in Q3. Seven exit transactions with over the $500 million mark happened in Q1–Q3/2020, compared to 10 for all of 2019. These included Checkmarx for $1.1 billion and Moovit, also for a billion.
There are three main hubs for the Israeli tech scene, in order of size: Tel Aviv, Herzliya and Jerusalem.
Jerusalem’s economy and therefore startup scene suffered after the second Intifada (the Palestinian uprising that began in late September 2000 and ended around 2005). But today the city is far more stable, and is therefore attracting an increasing number of startups. And let’s not forget visual recognition company Mobileye, now worth $9.11 billion (£7 billion), came from Jerusalem.
Israel’s government is very supportive of it’s high-tech economy. When it noticed seed-stage startups were flagging, the Israel Innovation Authority (IIA) announced the launch of a new funding program to help seed-stage and early-stage startups, earmarking NIS 80 million ($25 million) for the project.
This will offer participating companies grants worth 40 percent of an investment round up to $1.1 million and 50 percent of a total investment round for startups in the country or whose founders come from under-represented communities – Arab-Israeli, ultra-Orthodox, and women – in the high-tech industry.
Investments in Israeli seed-stage startups decreased both absolutely and as a percentage of total investments in Israeli startups (to 6% from 11%). However, the decline may also be a function of large tech firms setting up incubation hubs to cut up and absorb talent.
Another notable aspect of Israel’s startups scene is its, sometimes halting, attempt to engage with its Arab Israeli population. Arab Israelis account for 20% of Israel’s population but are hugely underrepresented in the tech sector. The Hybrid Programme is designed to address this disparity.
It, and others like it, this are a reminder that Israel is geographically in the Middle East. Since the recent normalization pact between Israel and the UAE, relations with Arab states have begun to thaw. Indeed, Over 50,000 Israelis have visited the United Arab Emirates since the agreement.
In late November, Dubai-based DIFC FinTech Hive—the biggest financial innovation hub in the Middle East—signed a milestone agreement with Israel’s Fintech-Aviv. Both entities will now work together to facilitate the cross-border exchange of knowledge and business between Israel and the United Arab Emirates.
Perhaps it’s a sign that Israel is becoming more at ease with its place in the region? Certainly, both Israel’s tech scene and the Arab world’s is set to benefit from these more cordial relations.
Google is almost running out of AR/VR projects to kill off.
The company announced today in an email to Poly users that they will be shutting 3D-object creation and library platform “forever” next year. The service will shut down on June 30, 2021 and users won’t be able to upload 3D models to the site on April 30, 2021.
Poly was introduced as a 3D creation tool optimized for virtual reality. Users could easily create low-poly objects with in-VR tools. The software was designed to serve as a lightweight way to create and view 3D assets that could in turn end up in games and experiences, compared to more art and sculpting-focused VR tools like Google’s Tilt Brush and Facebook’s (now Adobe’s) Medium software.
Google has already discontinued most of the company’s AR/VR plays, including most notably their Daydream mobile VR platform.
The AR/VR industry’s initial rise prompted plenty of 3D-centric startups to bet big on creating or hosting a library of digital objects. As investor enthusiasm has largely faded and tech platforms hosting AR/VR content have shuttered those products, it’s less clear where the market is for this 3D content for the time being.
Users that have uploaded objects to Poly will be able to download their data and models ahead of the shutdown.
With Roblox joining the end-of-year unicorn stampede towards the public markets, we’re set for a contentedly busy second half of November and early December. I hope you didn’t have vacation planned in the next few weeks.
This morning we need to get deeper into the Roblox S-1 so that we can better understand the nature of its revenue generation. Why? Because we want to start working on what the gaming company is worth; some comparisons are being made to Unity, another unicorn that went public earlier this year with a gaming focus.
Should we apply Unity’s revenue multiple to Roblox? Or does the company deserve a slimmer multiple based on the substance of its revenue?
We’ll also have to remind ourselves how much capital Roblox last raised while private, and at what price. Given our historical knowledge of its financial results, we might be able to nail some valuations to revenue figures, helping us understand, roughly, how the venture capital community was valuing Roblox while it was private.
If you want an overview of just the numbers, Natasha and I wrote a digest here.
Now, let’s get to work.
What’s Roblox worth as a public company?
To get a foundation, let’s recall how Roblox was valued during its last private round. According to Crunchbase data, Roblox’s $150 million Series G was raised at a $3.9 billion pre-money valuation. So, Roblox was worth $4.05 billion after the February 2020 funding event.
Naturally there is a lag in between when a deal is struck and when it announced. So, let’s rewind the clock to Q4 2019 and ask ourselves what Roblox looked like at the time. From its S-1, here are the Q4 2019 numbers:
Revenue of $138.3 million, +44.2% compared to the year-ago quarter
A net loss of $39.6 million, +197.1% compared to the year-ago quarter
Annualizing that revenue figure, Roblox was on a $553.3 million run rate at around the time it raised that Series G. In revenue multiple terms, Roblox was valued at 7.3x its top line on an annualized basis.
If you are a SaaS fan you are probably pretty shocked right now. Why the hell was Roblox, a software company, worth so little? Well let’s remind ourselves how it makes money:
We generate substantially all of our revenue through the sales of Robux to users. Users can spend Robux to purchase access to experiences, enhancements in experiences, and items in the Avatar Marketplace. Robux are available as one-time purchases or monthly subscriptions. We recognize revenue ratably over the estimated average lifetime of a paying user. […]
Other revenue streams include a minimal amount of revenue from advertising, licenses, and royalties.
Roblox filed confidentially to go public in mid-October, but its numbers were unreleased until today when it published its S-1 document.
The company is not the first gaming platform company to go public this year, with gaming engine Unity debuting earlier this year. After its IPO, Unity shares have rocketed, perhaps preparing the public markets for Roblox’s own debut.
This post will provide an overview of Roblox’s business results, and a quick dig into its history of raising private capital and who owns what in the company as it stands today. TechCrunch will have more on venture capital results, and the nuances of Roblox’s business model, once we tease them out of its fresh SEC filing.
Roblox is a free-to-play game and developer platform, which means users don’t pay to access its service, but there are in-game purchases through a currency called Robux and a subscription service called Roblox Premium, which comprise the bulk of the company’s revenues.
Third-party developers can create experiences on the platform that cost Robux, a model that has seen significant uptake over time. According to Roblox, its developer and creator pool earned $72.2 million in the first three quarters of 2019, a figure that soared to $209.2 million in the same period of 2020. (TechCrunch has a deep-dive into Roblox and its pre-IPO success here if you want more depth in its business mechanics. We’ve also dug into its tech stack evolution here, if that is your jam.)
Roblox has seen similar growth in its total revenues, growing 139% to $312.8 million in 2018, and 56% to $488.2 million in 2019. More recently, the company’s revenue expanded 68% in the first three quarters of 2020 from its 2019 result over the same period, to $588.7 million.
The company, then, has grown more quickly in 2020 to date than it did in 2019, an impressive acceleration at scale. A COVID-derived tailwind has helped the company, with Roblox stating in its S-1 filing that it enjoyed “rapid growth” in part of Q1, and all of Q2 and Q3 that it says was “due in part to the COVID-19 pandemic given our users have been online more as a result of global COVID-19 shelter-in-place policies.”
The unicorn gaming company also warned that “in future periods” it anticipates “growth rates for our revenue to decline,” going on to warn that it “may not experience any growth in bookings or our user base during periods” that are later compared to its COVID-boosted 2020 results.
How investors weigh that warning against the company’s growth remains to be seen, but Roblox has had an extraordinary 2020. For example, the company’s bookings — what it defines as “sales activity in a given period without giving effect to certain non-cash adjustments” — grew 62% in 2018 to $499.0, 39% in 2019 to $694.3 million, and 171% to $1.24 billion in the first three quarters of 2020, when compared to the same period of 2019.
That growth is downright impressive. As you’d imagine, the company’s impressive sales gains were derived from rising user interest, with Roblox averaging “31.1 million average DAUs across over 180 countries” during the first nine months of 2020, up from 17.1 million during the same portion of 2019.
Along with more consumers coming to the Roblox platform, the hours engaged also increased. Users on Roblox spent 22.2 billion hours in the first nine months of 2020, up 122% during the same portion of 2020. Daily active users spend an average of 2.67 hours per day on the platform.
Despite its rapid growth, Roblox, like many unicorns, is still unprofitable. The company lost $97.2 million in 2018, $86.0 million in 2019. Its losses exploded in 2020, with the company posting a net loss of $203.2 million in the first three quarters of the year, compared to just $46.3 million during the same portion of 2019.
Those losses appear to be driven mainly from rising spend across its operations, and an increase in the cost of share-based compensation in 2020 compared to 2019.
However, on a cash basis Roblox appears to be in much better shape than its GAAP numbers would have you initially estimate. The firm’s operating cash flow grew from $62.6 million in the first nine months of 2019 to $345.3 million in the same period of this year. Over the same period, the company’s free cash flow was $6.0 million and $292.6 million.
Roblox’s numbers demonstrate that its space can be large, and economically interesting. So much so that the company will make a number of VCs rich.
While private, Roblox raised $335.7 million, according to Crunchbase data, with rounds led by Altos Ventures, First Round Capital, Meritech, Index, Greylock, Tiger Global and Andreessen Horowitz powering its life until today.
Roblox has around $810 million in cash and equivalents heading into its IPO. And once it goes public, the company’s investors will start a clock on when they can convert their formerly illiquid shares into cash.
The S-1 gives an idea of who owns how much of the gaming developer platform, and thus who might benefit the most from the IPO. Altos Ventures is the principal stockholder, holding 23.9% of the company at 114,261,961 shares. This is not surprising, given how many Roblox rounds it helped lead. Right behind Altos comes Meritech Capital, which owns 11.6% of Roblox; Index Ventures, with 11.1%; Tiger Global at 8.2%; and First Round Capital at 7%.
The executive team, in aggregate, holds just 6.8% of the company. David Baszucki, the co-founder and CEO of Roblox, owns 8,252,471 shares, or 1.6% of the company, indicating the true effects of dilution when you are as richly funded a company as Roblox.
Beyond the numbers
In its S-1, Roblox did address that its success depends on its ability to “provide a safe online environment” for children, or else its “business will suffer dramatically.”
In 2018, Roblox responded to a grotesque hack that allowed a young girl’s avatar to be raped on a playground on one of its games. Other allegations continue, including that the business has offered a platform to criminal offenders to lure children into interacting with creeps off-platform, according to the S-1.
“While we devote considerable resources to prevent this from occurring, we are unable to prevent all such interactions from taking place,” the document states. However, the document does go on to say that communications on its platform are not encrypted “at this time” and that they have an “increased risk” of data security incidents around access and disclosure. With children on the platform, this is a huge weak spot for Roblox.
The business intends to list on the New York Stock Exchange under the symbol “RBLX.”
Unity Software, which sells a game development toolkit primarily for mobile phone app developers, raised $1.3 billion in its initial public offering.
The company, which will begin trading today with the ticker symbol “U”, priced its shares at the top end of its expected range, selling 25 million shares at $52 per share.
The company’s final IPO price came in far ahead of what Unity initially anticipated. The company initially expected to price its public offering between $34 and $42 per share, later raising its offering to $44 and $48 per share.
For Unity, the journey to the public markets has been long. The company was founded and as a business that creates software for developers to make and manage their games. In that sense, the company is more like an Adobe or an Autodesk, than a game studio like Activision Blizzard or King.com.
Users import digital assets (often from Autodesk’s Maya) and add logic to guide each asset’s behavior, character interactions, physics, lighting and countless other factors that create fully interactive games. Creators then export the final product to one or more of the 20 platforms Unity supports, such as Apple iOS and Google Android, Xbox and Playstation, Oculus Quest and Microsoft HoloLens, etc.
The company organizes its business into two areas: tools for content creation and tools for managing and monetizing content. In actuality, the revenue from the managing and monetizing content actually outstrips the revenue the company makes from content creation.
The Unity public offering will be the first big test of investor appetite for this new approach to game development and the business-to-business tools that enable the new wave of gaming.
And it’s important to note (as we do here) that Unity doesn’t generate a lot of revenue off of its position as arguably the most popular game development platform. In fact, Unity has been pretty bad at monetizing the game development engine. It’s the ancillary services for in-game advertising, player matchmaking and other features that have made Unity the bulk of its money.
[Unity] also will want to benefit from comparisons to Epic Games, given [Epic] was just valued at $17 billion and has much greater public name recognition and hype.
To accomplish this, Unity seems to be underplaying the significance of its advertising business (adtech companies trade at much lower revenue multiples). In the past, Unity referred to its operations in three divisions: Create, Operate and Monetize. At the start of August, the SVP and VP leading the Monetize business switched titles to SVP and VP of Operate Solutions, respectively, and then Unity reported the monetization business as a subset of its Operate division in the S-1.
Consolidating Operate and Monetize into one reporting segment obscures specifics about how much revenue the ads business and the live services portfolio each contribute. As noted above, this segment appears to be dominated by ad revenue which means anywhere from 30% to 50% of Unity’s overall revenue is from ads. That should reduce the revenue multiple public investors are willing to value Unity at relative to recent and upcoming SaaS IPOs.
There isn’t a publicly-traded game engine company to directly benchmark Unity against, nor a roster of equity research analysts at big banks who have expertise in gaming infrastructure. Adobe and Autodesk appear to be relevant businesses to benchmark Unity against with regard to the nature of the non-advertising components of the business and Unity’s stated vision. Compared to Unity, those companies have lower growth rates and generate operating profits though; more recent public listings of SaaS companies like Zscaler and Cloudflare are likely to be valuation comps by investors to the extent they focus on its subscription and usage-based revenue streams since their revenue growth and margins are closer to Unity’s.
Both Epic and Unity are moving to meet each other, Epic by moving downstream, and Unity by moving to higher end applications. And both companies are looking beyond core gaming at other applications as well.
As companies like Facebook, Microsoft, Niantic and others evolve their augmented and virtual reality ecosystems, Epic and Unity may find new worlds to conquer. If public markets can find the cash.
On the heels of two IPOs pricing above raised ranges, Unity boosted the value of its own impending debut this morning. The well-known unicorn is currently set to begin trading this Friday, pricing after the bell Thursday.
There’s plenty of demand for growth-oriented software equities on today’s public markets. And Unity has what investors are generally looking for inside that sector: greater than 40% revenue growth, gross margins in the high-70s to low-80s, and falling losses in both percent-of-revenue and gross dollar terms.
At $48 per share, Unity would sell $1.20 billion in stock, and be valued at around $12.6 billion. Given its most recent quarter’s revenue ($184.3 million) and annualized run-rate ($737.4 million), Unity is valued at around 17.1x revenues. (You can make that multiple larger by using a trailing revenue metric instead of an annualized run-rate statistic, or lower it by using a forward revenue estimate.)
Welcome to Tuesday of TechCrunch Disrupt week. In a few hours, I’m hosting a panel about how startups can reach $100 million in annual recurring revenue (ARR) with the CEOs of Egnyte, GitLab and the President of Kaltura. It’s going to be a jam. Bring your questions!
Right now, however, let’s talk about some bigger companies, namely all the unicorns that are going public this week. We can set aside Corsair Gaming, Palantir and Asana, as they debut next week. This morning let’s get settled on what’s ahead for JFrog, Snowflake, Sumo Logic and Unity.
We explored the most recent pricing ranges for Snowflake and JFrog yesterday, helping set the stage. With both companies setting new, richer price targets for their debuts, the technology market looks hot. That’s good news for Sumo Logic and Unity, which should also begin trading this week.
Read on for your cheat sheet on all things upcoming from the realm of IPOs, and, in response to Twitter kerfuffle, notes on why Snowflake is seeing such investor demand despite a history of losses. It’s a good day to remind ourselves why some losses are very bad and others are pretty OK, given a certain set of circumstances.
Big-ass IPO week
After trading today we expect to see JFrog and Snowflake price their IPOs. As a quick reminder, this is what the two companies are expecting, starting with developer-focused service provider JFrog:
As unsettling as it was to see the natural environment so transformed, I still got my work done. This is not to boast: I have a desk job and a working air filter. (People who make deliveries in the toxic air or are homeschooling their children while working from home during a global pandemic, however, impress the hell out of me.)
Not coincidentally, two of the Extra Crunch stories that ran since our Tuesday newsletter tie directly into what’s going on outside my window:
As this guest post predicted, a suboptimal attempt I made to track a delayed package using interactive voice response (IVR) indeed poisoned my customer experience, and;
As we’ve covered previously, the COVID-19 pandemic is making the world a lot smaller.
Investors who focus on their own backyards still have an advantage, but the ability to set up a quick coffee meeting with a promising investor is no longer one of them.
Even though some VCs are cutting first checks after Zoom calls, regional investors’ personal networks are still a trump card. Tourists will always rely on guide books, however, which is why we continue to survey investors around the world.
A Dealroom report issued this summer determined that 97 VC funds backed more than 1,600 funding rounds in Poland last year. With over 2,400 early- and late-stage startups and 400,000 engineers in the country, it’s easy to see why foreign investors are taking notice.
Even for fledgling startups, creating a robust customer service channel — or at least one that doesn’t annoy people — is a reliable way to keep users in the sales funnel.
Using AI and automation is fine, but now that consumers have grown used to asking phones and smart speakers to predict the weather and read recipe instructions, their expectations are higher than ever.
If you’re trying to figure out what people want from hyper-personalized customer experiences and how you can operationalize AI to give them what they’re after, start here.
For today’s edition of The Exchange, Natasha Mascarenhas joined Alex Wilhelm to examine how the pandemic-fueled surge of interest in edtech is manifesting on the funding front.
The numbers suggest that funding will far surpass the sector’s high-water mark set in 2018, so the duo studied the numbers through August 31, which included a number of mega-rounds that exceeded $100 million.
“Now the challenge for the sector will be keeping its growth alive in 2021, showing investors that their 2020 bets were not merely wagers made during a single, overheated year,” they conclude.
There’s a lot of buzz about special purpose acquisition companies these days.
Used-car marketplace Shift announced its SPAC in June 2020, and is on track to complete the process in the next few months, so co-founder/co-CEO George Arison wrote an Extra Crunch guest post to share what he has learned.
Step one: “If you go the SPAC route, you’ll need to become an expert at financial engineering.”
Eric Peckham is the creator of the Monetizing Media newsletter and podcast. He was previously TechCrunch’s media columnist.
In the first part of my outline on the company, I explained the scope of Unity’s multidimensional business, its R&D efforts and competitive positioning, and its grand vision for interactive 3D content across every industry.
In the conclusion, I’ll dig into Unity’s financials and how it is marketing its public listing before turning to discuss the bear and bull cases for its future.
Key data points from Unity’s S-1 filing
Revenue grew 42% year-over-year from $381 million in 2018 to $542 million in 2019 with operating losses of $130 million and $150 million respectively. It hit $351 million in revenue by June 30 this year. That pace suggests a 2020 total around $700-$750 million (+30% year-over-year).
The company has gross margins of about 79%, although costs are overwhelmingly centered in R&D and sales and marketing, which account for 47% and 32% of revenue, respectively.
The company has cumulatively lost $569 million up to this point, including a $163 million net loss in 2019.
The geographical source of Unity’s revenue in 2019 was:
21% APAC — excluding China
5% Americas — excluding U.S.
Unlike many other Western tech companies, Unity operates freely in China.
In Part 1, I explained each of Unity’s seven main revenue streams. During the first half of 2020, revenue by segment broke down to:
$216.9 million (62%) from Operate Solutions (products for managing and monetizing content), the “substantial majority” of which is from the ads business.
$101.8 million (29%) from Create Solutions (products and consulting for content creation), two-thirds of which is from Unity Pro subscriptions.
$32.7 million (9%) from Strategic Partnerships and Other (Unity Asset Store and Verified Solutions Partners).
The S-1 discloses that less than 10% of overall revenue is from “newer products and services, such as Vivox and deltaDNA” (referencing key 2019 acquisitions for its Operate segment).
Eric Peckham is the creator of the Monetizing Media newsletter and podcast. He was previously TechCrunch’s media columnist.
Last week, Unity Software Inc. filed to go public on the New York Stock Exchange, but the 16-year-old tech company is universally known within the gaming industry and largely unknown outside of it.
Unity has expanded beyond gaming, pouring hundreds of millions of dollars into a massive bet to become an underlying platform for humanity’s future in a world where interactive 3D media stretches from our entertainment experiences and consumer applications to office and manufacturing workflows.
Much of the reporting about Unity’s S-1 has mischaracterized the business. Unity is easily misunderstood because:
Most people who aren’t game developers don’t understand what a game engine does.
It has numerous revenue streams.
There’s only a partial business overlap between Unity and Epic Games, its closest competitor.
Last year, I wrote an in-depth guide to Unity’s founding and rise in popularity, interviewing more than 20 top executives in San Francisco and Copenhagen, plus many other professionals in the industry. In this two-part guide to get up to speed on the company, I’ll explain Unity’s business, where it is positioned in the market, what its R&D is focused on and how game engines are eating the world as they gain adoption across other industries.
In part two, I’ll analyze Unity’s financials, explain how the company has positioned itself in the S-1 to earn a higher valuation and outline both the bear and bull cases for its future.
For those in the gaming industry who are familiar with Unity, the S-1 might surprise you in a few regards. The Asset Store is a much smaller business that you might think, Unity is more of an enterprise software company than a self-service platform for indie devs and advertising solutions appear to make up the largest segment of Unity’s revenue.
Unity’s origin and core business is as a game engine, software that is similar to Adobe Photoshop, but used instead for editing games and creating interactive 3D content. Users import digital assets (often from Autodesk’s Maya) and add logic to guide each asset’s behavior, character interactions, physics, lighting and countless other factors that create fully interactive games. Creators then export the final product to one or more of the 20 platforms Unity supports, such as Apple iOS and Google Android, Xbox and Playstation, Oculus Quest and Microsoft HoloLens, etc.
In this regard, Unity is more comparable to Adobe and Autodesk — which both have integrations with Unity — than to game studios or publishers like Electronic Arts and Zynga.
What are Unity’s lines of business?
Since John Riccitiello took over as CEO from co-founder David Helgason in 2014, Unity has expanded beyond its game engine and has organized activities into two divisions: Create Solutions (i.e., tools for content creation) and Operate Solutions (i.e., tools for managing and monetizing content). There are seven noteworthy revenue streams overall:
Create Solutions (29% of H1 2020 revenue)
The Unity platform: The core game engine, which operates on a freemium subscription model. Individuals, small teams and students use it for free, whereas more established game studios and enterprises in other industries pay (via the Unity Plus, Unity Pro and Unity Enterprise premium tiers).
Engine extensions/add-ons: A growing portfolio of tools and extensions of the core engine purpose-built for specific industries and use cases. These include MARS for VR development, Reflect for architecture and construction use with BIM assets, Pixyz for importing CAD data, Cinemachine for virtual production of films and ArtEngine for automated art creation.
Professional services: Hands-on, specialized consulting for enterprise customers using Unity’s engine and other products, beefed up by its $55 million April acquisition of Finger Food Studios (a 200-person team that builds interactive media projects for corporate clients using Unity).
Aside from these three product categories, Unity is reporting another group of content creation offerings separately in the S-1 as “Strategic Partnerships & Other” (which accounts for further 9% of revenue):
Strategic Partnerships: Major tech companies pay Unity via a mix of structures (flat-fee, revenue-share and royalties) for Unity to create and maintain integrations with their software and/or hardware. Since Unity is the most popular platform to build games with, ensuring Unity integrates well with Oculus or with the Play Store is very important to Facebook and Google, respectively.
Unity Asset Store: Unity’s marketplace for artists and developers to buy and sell digital assets like a spooky forest or the physics to guide characters’ joint movements for use in their content so they don’t each have to create every single thing from scratch. It is commonly used, though larger game studios often use Asset Store assets just for initial prototyping of game ideas.
Operate Solutions (62% of H1 2020 revenue)
Advertising: Via the 2014 acquisition of Applifier, Unity launched an in-game advertising network for mobile games. This expanded substantially with the Unified Auction, a simultaneous auction that helps games get the highest bid from among potential advertisers. Unity is now one of the world’s largest mobile ad networks, serving 23 billion ads per month. Unity also has a dynamic monetization tool that makes real-time assessments of whether it is optimal to serve an ad, prompt an in-app purchase or do nothing to maximize each player’s lifetime value. While the Unity IAP feature enables developers to manage in-app purchases (IAP), Unity does not take a cut of IAP revenue at this time.
Live Services: A portfolio of cloud-based solutions for game developers to better manage and optimize their user acquisition, player matchmaking, server hosting and identification of bugs. This portfolio has primarily been assembled through acquisitions like Multiplay (cloud game server hosting and matchmaking), Vivox (cloud-hosted system for voice and text chat between players in games), and deltaDNA (player segmentation for campaigns to improve engagement, monetization and retention). Unity Simulate trains AI models in virtual recreations of the real world (or testing games for bugs). These are structured with usage-based pricing, with an initial amount of usage free.
Unity versus Unreal, versus others
Unity is compared most frequently to Epic Games, the company behind the other leading game engine, Unreal. Below is a quick overview of the products and services that differentiate each company. The cost of switching game engines is meaningful in that developers are typically specialized in one or the other and can take months to gain high proficiency in another, but some teams do vary the engine they use for different projects. Moving an existing game (or other project) over to a new game engine is a major undertaking that requires extensive rebuilding.
Epic has three main businesses: game development/publishing, the Epic Games Store and the Unreal Engine. Epic’s core is in developing its own games and the vast majority of Epic’s estimated $5.6 billion in 2018 revenue came from that (principally, from Fortnite). The Epic Games Store is a consumer-facing marketplace for gamers to purchase and download games; game developers pay Epic a 12.5% cut of their sales. In those two areas of business, Unity and Epic don’t compete. While much of the press about Unity’s IPO frames Epic’s current conflict with Apple as an opportunity for Unity, it is largely irrelevant. A court order blocked Apple from punishing iOS apps made with Unreal. Unity doesn’t have any of its own apps in the App Store and doesn’t have a consumer-facing store for games. It’s already the default choice of game engine for anyone building a game for iOS or Android, and it’s not feasible to switch the engine of an existing game, so Epic’s conflict does not create a new market opening.
Origins: Unreal was Epic’s proprietary engine that was licensed to other PC and console studios and became its own business as a result of its popularity. Unity launched as an engine for indie developers building Mac games (an underserved niche) and expanded to other emerging market segments considered irrelevant by the core gaming industry: small indie studios, mobile developers, and AR and VR games. Unity exploded in global popularity as the main engine for mobile games.
Programming language: Based in the C++ programming language, Unreal requires more extensive programming than Unity (which requires programming in C#) but enables more customization to achieve higher performance.
Core markets: Unreal is much more popular among PC and console game developers; it is oriented toward bigger, high-performance projects by professionals. That said, it is establishing itself firmly in AR and VR and proved with Fortnite it can take a AAA console and PC game cross-platform to mobile. Unity meanwhile dominates in mobile games — now the largest (and fastest-growing) segment of the gaming industry — and has kept the largest market share in AR and VR content.
Ease of authoring: Unity has prioritized ease of use since its early days, with a mission of democratizing game development that was so concentrated among large studios backed by substantial budgets. This is why Unity is the common choice in educational environments and by individuals and small teams creating casual mobile games. Making Unity easier to use, including among nondevelopers remains an R&D focus. Unreal does have a visual scripting tool to conduct some development without needing to code, but it’s far from a no-code solution to developing a high-quality game (no one offers that). Unreal isn’t dramatically more complex but, as a generalization, it requires more work and technical skill.
Pricing: While Unity operates on a freemium subscription model, Unreal operates on a revenue-share, taking 5% of a game’s revenue. Both have separately negotiated pricing for companies outside of gaming that aren’t publicly disclosed.
In-house game development: Aside from its first two years of existence operating out of a Copenhagen apartment, Unity has never focused on creating its own content (aside from short films and demos to highlight new technology). Epic argues that building games informs them to build a better engine that has been more heavily tested for bugs. Unity argues that creating games in-house would put it in competition with customers and that it builds a better engine for the overall market by focusing solely on that and not repurposing an engine built first for a specific use case (e.g., MMOs).
M&A: Like Unity, Epic has made acquisitions to strengthen Unreal’s technical offering to game developers and to industrial customers, like its purchases of Quixel (a library of 3D scanned real-world assets) and Twinmotion (for bringing BIM and CAD assets into an engine).
Many large gaming companies, especially in the PC and console categories, continue to use their own proprietary game engines built in-house. It is a large, ongoing investment to maintain a proprietary engine, which is why a growing number of these companies are switching to Unreal or Unity so they can focus more resources on content creation and tap into the large talent pools that already have mastery in each one.
Other game engines to note are Cocos2D (an open-source framework by Chukong Technologies that has a particular following among mobile developers in China, Japan and South Korea), CryEngine by Crytek (popular for first-person shooters with high visual fidelity) and Amazon’s Lumberyard (which was built off CryEngine and doesn’t seem to have widespread adoption or command much respect among the developers and executives I’ve spoken to).
There are many niche game engines in the market since every studio needs to use one and those who build their own often license it if their games aren’t commercial successes or they see an underserved niche among studios creating similar games. That said, it’s become very tough to compete with the robust offerings of the industry standards — Unity and Unreal — and tough to recruit developers to work with a niche engine.
UGC platforms for creating and playing games like Roblox (or new entrants like Manticore’s Core and Facebook Horizon) don’t compete with Unity — at least for the foreseeable future — because they are dramatically simplified platforms for creating games within a closed ecosystem with much more limited monetization ability. The only game developers they will pull away from Unity are hobbyists on Unity’s free tier.
I’ve written extensively on how UGC-based game platforms are central to the next paradigm of s.ocial media, anchored within gaming-centric virtual worlds. But based on the overall gaming market growth and the diversity of game types, these platforms can continue to soar in popularity without being a competitive threat to the traditional studios who pay Unity for its engine, ad network, or cloud products
What’s at the forefront of Unity’s technical innovation?
In recent years, Unity has been developing its “data-oriented technology stack,” or DOTS, gradually rolling it out in modules across the engine.
Unity’s engine centers on programming in C# code, which is easier to learn and more time-saving than C++ since it is a higher level programming language. Simplification comes with the trade-off of less ability to customize instruction by directly interacting with memory. C++, which is the standard for Unreal, enables that level of customization to achieve better performance but requires writing a lot more code and having more technical skill.
DOTS is an effort to not just resolve that discrepancy, but achieve dramatically faster performance. It makes use of the ability to add annotations to C# code to further customize the code’s instructions and automatically recompiles code written by humans to be optimized for how a computer carries out instructions. The standard programming languages in use by humans are all oriented around how humans think (object-oriented); Unity claims a proprietary breakthrough in understanding how to reorganize object-oriented code into data-oriented code (optimized for how computers think) so that when it is compiled into the lowest level languages that provide 1s-and-0s instructions to the __, it is orders of magnitude faster in processing the request. This level of efficiency should, on one hand, allow highly complex games and simulations with cutting-edge graphics to run quickly on GPU-enabled devices, while, on the other hand, allowing simpler games to be so small in file size they can run within messenger apps on the lowest quality smartphones and even on the screens of smart fridges.
Unity is bringing DOTS to different components of its engine one step at a time and users can opt whether to use DOTS for each component/step of their project. The company’s Megacity demo (below) shows DOTS enabling a sci-fi city with hundreds of thousands of assets rendered in real-time, from the blades spinning on the air conditioners in every apartment building to flying car traffic responding to the player’s movements.
The forefront of graphics technology is in enabling real-time ray tracing (a lighting effect mimicking the real-life behavior of light reflecting off different surfaces) at a fast enough rendering speed so games and other interactive content can be photorealistic (i.e., you can’t tell it’s not the real world). It’s already possible to achieve this in certain contexts but takes substantial __ [processing power?] to render. Its initial use is for content that is not rendered in real-time, like films. Here are two videos from __ by Unity and Unreal, each demonstrating ray tracing that makes a digital version of a BMW look identical to video of a real car.
To support ray tracing and other cutting-edge graphics, Unity released its High Definition Render Pipeline in 2018. It gives developers more powerful graphics rendering for GPU devices to achieve high visual fidelity in console and PC games plus nongaming uses like industrial simulations. By comparison, its Universal Render Pipeline optimizes content for lower-end hardware like mobile phones.
The Unity Labs team is focused on the next generation of authoring tools, particularly in an era of AR or VR headsets being widely adopted. One component of this is the vision for a future where nontechnical people could develop 3D content with Unity solely through hand gestures and voice commands. In 2016, Unity released an early concept video for this project (something I demo-ed at Unity headquarters in SF last year):
Game engines are eating the world
The term “game engine” limits the scope of what these platforms are already used for. They are interactive 3D engines used for practically any type of digital content you can imagine. The core engine is used for virtual production of films to autonomous vehicle training simulations to car configurators on auto websites to interactive renderings of new buildings.
Both Unity and Unreal have long been used outside gaming by people repurposing them and over the last three to five years have made expanding use of their engines in other industries a big priority. They are primarily focused on large- and mid-size companies in (1) architecture, engineering and construction, (2) automotive and heavy manufacturing, and (3) cinematic video.
In film, game engines are used for virtual production. The settings, whether animated or scanned from real-world environments, are set up as virtual environments like those of a video game where virtual characters interact and with human actors captured through sets surrounded by the virtual environments on screens. The director and VFX team can change the surroundings, the time of day, etc. in real-time to find the perfect shot.
Since assets can be imported from CAD, BIM and other formats, and since Unity gives you the ability to build a whole world and simulate changes in real-time (on a screen or in AR/VR), there are a vast scope of commercial uses for it. There are four main use cases for Unity’s engine beyond entertainment experiences:
Design and planning: Have teams work on interactive 3D models of their product simultaneously (in VR, AR or on screens) from offices around the world and attach metadata to every component about its materials, pricing, etc. The Hong Kong International airport used Unity to create a digital twin of the terminals connected to Internet of Things (IoT) data, informing them of passenger flow, maintenance issues and more in real-time.
Training, sales and marketing: Use interactive 3D content so staff or customers can engage with photorealistic renderings of industrial products, VR trainings for risky construction situations, online car configurators that render custom designs in real-time or an architect’s plan for new office space with every asset within the project filled with metadata and responsive to interaction, changes in lighting, etc.
Simulation: Generate training data for machine learning algorithms using virtual recreations of real-world environments (like for autonomous vehicles in San Francisco) and running thousands of instances in each batch. Unity Simulation customers include Google’s DeepMind.
Human machine interfaces (interactive screens): Create interactive displays for in-vehicle infotainment systems and AR heads up displays, as showcased by Unity’s 2018 collaboration with electric car startup Byton.
Unity is currently in a powerful position as the key platform for developing VR/AR content and distributing it across different operating systems and devices. Zuckerberg saw Unity as the natural platform for building “key platform services” in the XR ecosystem like an “avatar/content marketplace and app distribution store” for this next paradigm.
If the company can maintain its position as the leading platform for building mixed-reality applications in the coming era I envision where mixed reality is our main digital tool, Unity’s IPO will help it build a solid foundation.
Unity, the company behind the popular real-time 3D engine, today officially launched its Cloud Content Delivery service. This new service, which is engine-agnostic, combines a content delivery network and backend-as-a-service platform to help developers distribute and update their games. The idea here is to offer Unity developers — and those using other game engines — a live game service option that helps them get the right content to their players at the right time.
As Unity’s Felix The noted, most game developers currently use a standard CDN provider, but that means they must also develop their own last-mile delivery service in order to be able to make their install and update process more dynamic and configurable. Or, as most gamers can attest, the developers simply opt to ship the game as a large binary and with every update, the user has to download that massive file again.
“That can mean the adoption of your new game content or any content will trail a little bit behind because you are reliant on people doing the updates necessary,” The said.
And while the Cloud Delivery Service can be used across platforms, the team is mostly focusing on mobile for now. “We are big fans of focusing on a certain segment when we start and then we can decide how we want to expand. There is a lot of need in the mobile space right now — more so than the rest,” The said. To account for this, the Cloud Content Delivery service allows developers to specify which binary to send to which device, for example.
Having a CDN is one thing, but that last-mile delivery, as The calls it, is where Unity believes it can solve a real pain point for developers.
“CDNs, you get content. Period,” The said. “But in this case, if you want to, as a game developer, test a build — is this QA ready? Is this something that is still being QAed? The build that you want to assign to be downloaded from our Cloud Content Delivery will be different. You want to soft launch new downloadable content for Canada before you release it in the U.S.? You would use our system to configure that. It’s really purpose-built with video games in mind.”
The team decided to keep pricing simple. All developers pay for is the egress pricing, plus a very small fee for storage. There is no regional pricing either, and the first 50GB of bandwidth usage is free, with Unity charging $0.08 per GB for the next 50TB, with additional pricing tiers for those who use more than 50TB ($0.06/GB) and 500TB ($0.03).
“Our intention is that people will look at it and don’t worry about ‘what does this mean? I need a pricing calculator. I need to simulate what’s it going to cost me,’ but really just focus on the fact that they need to make great content,” The explained.
It’s worth highlighting that the delivery service is engine-agnostic. Unity, of course, would like you to use it for games written with the help of the Unity engine, but it’s not a requirement. The argues that this is part of the company’s overall philosophy.
“Our mission has always been centered around democratizing development and making sure that people — regardless of their choices — will have access to success,” he said. “And in terms of operating your game, the decision of a gaming engine typically has been made well before operating your game ever comes into the picture. […] Developer success is at the heart of what we want to focus on.”
There was Sumo Logic in the morning and JFrog a bit later on. Unity filed in there as well. Snowflake also dropped, along with Asana later in the day. If you were dog-tired just reading Twitter, we understand. This morning, we’re going to catch you up on the key facts from each offering.
But we’re not going to discuss every recent IPO filing. We’re not including X-Peng, a Chinese electric vehicle company that feels a bit afield from the largely-SaaS cohort that just went public (more on it here, if you’d like). Or AmWell, which does health stuff. And we’re going to leave Corsair, a gaming hardware company that’s going public, alone as well.
We have to focus, so we’re niching down to the most traditional venture capital and startup fare on offer. It’s not like we’ll lack for things to say. What follows is a digest of basic facts and IPO details just for you.
Five IPOs and Alex’s funeral
For each company, we’ll discuss what they do, how much they have raised, their initial IPO raise expectations and their financial performance. We’ll wrap with valuation notes as we can.
Asana provides a team-focused task-management service. In competition with startups like Monday.com, Asana has raised $213.5 million, according to PitchBook data, along with around $210 million in debt most recently. The company is pursuing a direct listing, so it does not have a traditional IPO raise target. You can read its filing here.
That’s because Asana is losing money … and losing money big. Its losses are expanding even as its growth increases. The company lost $118.6 million in fiscal 2020 even as it expanded its revenue to $142.6 million for the same period. In 2019 it saw revenues of $76.8 million and a net loss of $50.9 million.
If the idea is that you have to spend money to make money, then Asana is doing exactly as it should, because the company has been growing. Revenue increased $19.7 million, or 71 percent, during the three months ending April 30, 2020 compared to the same period in 2019. The company attributed that growth to a shift in its sales strategy toward higher-priced subscription plans and revenue from existing customers.
Cost of revenues for the company grew by 51 percent as gross margins slightly rose over the same period, according to the company.
One bright spot for Asana is the potential converts it still has yet to win over as paying customers. Asana boasts 3.2 million free accounts and has managed to make its bones off of only over 75,000 paying customers. Given the rapid transition to remote work for many knowledge workers, project management tools only become more important.
The path to the public markets has been a long one for Asana, which first appeared on the scene in 2008. The company’s last capital infusion came in 2018 with $125 million raised across two quick investment rounds led by Generation Investment Management, the investment fund co-founded by former Vice President Al Gore.
While Gore’s firm may have ponied up a lot of cash, the biggest winner in Asana’s public listing is likely to be Facebook co-founder Moskovitz. He owns a huge percentage of the company — roughly 35 percent. That’s a whole lot more than Rosenstein’s 16.2 percent haul.
Asana had telegraphed its intentions to access public markets via a direct listing earlier this year — even before the pandemic had made the market more receptive to collaboration software tools like the ones it offers.
Even as its main competitor, Epic Games, is in the throes of a very public fight with Apple over the fees the computer giant charges developers who sell applications (including games) on its platform (which has seen Epic’s games get the boot from the App Store), Unity has plowed ahead narrowing its losses and maintaining its hold on over half of the game development market.
For the first six months of 2020, the company lost $54.2 million on $351.3 million in revenue. The company narrowed its losses compared to 2019, when the company lost $163.2 million on $541.8 million in revenue, and 2018 when the company lost $131.6 million on $380.8 million in revenue. As of June 30, 2020 the company had total assets of $1.29 billion and $453.2 million in cash.
Increasing revenue and narrowing losses are things that investors like to see in companies that they’re potentially going to invest in, as they point to a path to profitability. Another sign of the company’s success is the number of customers that contribute more than $100,000 in annual revenue. In the first six month of the year, Unity had 716 such customers, pointing to the health of its platform.
Unlike Epic Games, Unity has long worked with the major platforms and gaming companies to get their engine in front of as many developers and gamers as possible. In fact, the company estimates that 53 percent of the top 1,000 mobile games on the Apple App Store and Google Play Store and over 50 percent of mobile, personal computer and console games were made with Unity.
Some of the top titles that the platform claims include Nintendo’s Mario Kart: Tour, Super Mario Run and Animal Crossing: Pocket Camp; Niantic’s Pokémon Go and Activision’s recent Call of Duty: Mobile are also Unity games.
The knock against Unity is that it’s not as powerful as Epic’s Unreal rendering engine, but that hasn’t stopped the company from making forays into industries beyond gaming – something that it will need to continue doing if it’s to be successful.
Unity already has a toehold in Hollywood, where it was used to recreate the jungle environment used in Disney’s Lion King remake (meanwhile, much of The Mandalorian was created using Epic’s Unreal engine).
Of course, Unity’s numbers also reveal that the size of its business is currently a bit smaller than its biggest rival. In 2019, Epic said it had earnings of $730 million on revenue of $4.2 billion, according to VentureBeat . And the North Carolina-based game developer is now worth $17.3 billion.
Still, the games market is likely big enough for both companies to thrive. “Historically there has been substantial industry convergence in the games developer tools business, but over the past decade the number of developers has increased so much, I believe the market can support two major players,” Piers Harding-Rolls, games analyst at Ampere Analysis, told the Financial Times.
Venture investors in the Unity platform have waited a long time for this moment, and they’re certainly confident in the company’s prospects.
The last investment round valued the company at $6 billion with the secondary sale of $525 million worth of the company’s shares.
Silver Lake is doubling down its bet on India’s Reliance Jio Platforms. The U.S. private equity firm said Friday it is buying an additional stake worth $600 million in the top Indian telecom operator, which has now raised $12.2 billion in less than two months — at the height of a global pandemic.
Silver Lake’s new investment is now technically the seventh deal Reliance Jio Platforms, a subsidiary of India’s most valued firm (Reliance Industries), has secured in just as many weeks by selling nearly 20% stake. Earlier on Friday (local time), Abu Dhabi-based sovereign firm Mubadala said it would invest $1.2 billion in Jio, a firm run by Mukesh Ambani, India’s richest man.
Mr. Egon Durban, co-chief executive and managing partner at Silver Lake, said, the recent investment momentum in Reliance Jio Platforms “validates a compelling business model and underscores our admiration for Mukesh Ambani, his team and their courageous vision in creating and building one of the world’s most remarkable technology companies.”
“We are excited to increase our exposure and bring more of our co-investors into this opportunity, further supporting Jio Platforms in its mission to bring the power of high-quality and affordable digital services to a mass consumer and small businesses population,” he added.
Silver Lake manages nearly $40 billion in combined assets and committed capital and has invested in dozens of tech firms over the years including in video game engine maker Unity, audio and video communication service Skype, consultancy firm Gartner, Alibaba’s Ant Financial, computer giant Dell, and Chinese ride-hailing giant Didi Chuxing.
Saar Gur is adept at identifying the next big consumer trends earlier than most: The San Francisco-based general partner at CRV has led investments into leading consumer internet companies like Niantic, DoorDash, Bird, Dropbox, Patreon, Kapwing and ClassPass.
His own experience stuck at home during the COVID-19 pandemic spurred his interest in three new investment themes focused on the next generation of games: those built for VR, those built on top of Twitch and those built for video chat environments as a socializing tool.
TechCrunch: We’ve been in a “VR winter,” as it’s been called in the industry, following the 2014-2017 wave of VC funding into VR drying up as the market failed to gain massive consumer adoption. You think VR could soon be hot again. Why?
Saar Gur: If you track revenues of third-party games on Oculus, the numbers are getting interesting. And we think the Quest is not quite the Xbox moment for Facebook, but the device and market response to the Quest have been great. So we are more engaged in looking at VR gaming startups than ever before.
What do you mean by “the Xbox moment,” and what will that look like for VR? Facebook hasn’t been able to keep up with demand for Oculus Quest headsets, and most VR headsets seem to have sold out during this pandemic as people seek entertainment at home. This seems like progress. When will we cross the threshold?
As the infrastructure for developing games becomes more advanced, studios have turned to buying best-in-class technology from others instead of building everything from scratch (often with inferior quality).
There are big movements in gaming right now to make games cross-platform (not just restricted to mobile or PC or one console), incorporate new types of chat (in-game or outside of it) and to automatically remove bullies and bots among other things. Optimizing games’ virtual economies is only getting more complex as trade of virtual goods becomes increasingly popular.
All this means more opportunity for startups (and large incumbents) that provide new tools and platforms to game developers and gamers. To gauge which opportunities are prime for entrepreneurs, I asked four leading early-stage investors who focus on the gaming sector to share their analysis:
Sam Englebardt, Galaxy Interactive
Gigi Levy Weiss, NFX
Amit Kumar, Accel
Anton Backman, Play Ventures
Sam Englebardt, Galaxy Interactive
Which areas within gaming infrastructure seem firmly dominated by large incumbents, versus open for new startups to rise up?
I’m always rooting for the startup, but some of the really big and expensive infrastructure challenges seem unlikely to be solved by a startup, especially where the incumbents have a lead in time, money and the personnel they’re throwing at the problem. I’m thinking here, for example, about something like cloud computing, storage solutions, etc.
The Dublin startup builds developer tools that allow game studios to more easily create deep learning-enhanced textures that scale more convincingly.
Developers can use the startup’s ArtEngine platform to bring real-world materials to their game worlds, adapting the visual patterns to their 3D worlds more quickly than existing toolsets while eliminating seams and irregularities. ArtEngine uses AI to identify visual flaws in replications and saves developers from having to endlessly tweak environments.
The company launched at TechCrunch Disrupt SF back in 2015. Artomatix went on to raise just over $12 million in grants and funding from VCs, including from Enterprise Ireland, Suir Valley Ventures, Manifold Partners and Boost Heroes.
Artomatix’s team will continue to operate out of their Dublin offices. Unity did not share an acquisition price.
Unity, which boasts that more than half of new games are built using its engine, is an obvious suitor for Artomatix’s technology. The engine has continued to grow more powerful in recent years, but bulking up in capabilities has increased complexity and left developers with lengthy render times.
If Artomatix’s technology can help game designers create the art used to populate digital environments, Unity can begin to push more workflow through AI-assisted tools and save developers time.