Posted on

The promise and challenge of Roblox’s future in China

In a much-anticipated move, California-based gaming firm Roblox filed to go public last week. One aspect driving the future growth of the children- and community-focused gaming platform is its China entry, which it fleshes out in detail for the first time in its IPO prospectus.

Like all gaming companies entering China, Roblox must work with a local publishing and operations partner. And like Riot Games, Supercell, Epic Games, Activision Blizzard, Ubisoft, Nintendo and many more, Roblox chose Tencent, the world’s largest gaming firm by revenue, according to Newzoo.

The partnership, which began in 2019, revolves around a joint venture in which Roblox holds a 51% controlling stake and a Tencent affiliate called Songhua owns a 49% interest. The prospectus notes that Tencent currently intends to publish and operate a localized version of the Roblox Platform (罗布乐思), which allows people to create games and play those programmed by others.

User-generated content is in part what makes Roblox popular amongst young gamers, but that social aspect almost certainly makes its China entry trickier. It’s widely understood that the Chinese government is asserting more control over what gets published on the internet, and in recent times its scrutiny over gaming content has heightened. Industry veteran Wenfeng Yang went as far as speculating that games with user-generated content will “never made [their] path to China,” citing the example of Animal Crossing.

Roblox says it believes it’s “uniquely positioned” to grow its penetration in China but its “performance will be dependent on” Tencent’s ability to clear regulatory hurdles. It’s unclear what measures Roblox will take to prevent its user-generated content from running afoul of the Chinese authorities, whose appetite for what is permitted can be volatile. Tencent itself has been in the crosshairs of regulators over allegedly “addictive” and “harmful” gaming content. It also remains to be seen how Roblox ensures its user experience won’t be compromised by whatever censorship system that gets implemented.

Roblox chose Tencent as its Chinese partner. / Image: Roblox

At the most basic level, Roblox claims it works to ensure user safety through measures designed “to enforce real-world laws,” including text-filtering, content moderation, automated systems to identify behaviors in violation of platform policies, and a review team. The company expresses in its filing optimism about getting China’s regulatory greenlight:

While Tencent is still working to obtain the required regulatory license to publish and operate Luobulesi [Roblox’s local name] in China, we believe the regulatory requirements specific to China will be met. In the meantime, Luobu is working towards creating a robust developer community in China.”

The company is rightfully optimistic. China is the world’s largest gaming market and Tencent has a proven history of converting its social network users into gamers. Roblox’s marketing focus on encouraging “creativity” might also sit well with Beijing’s call for tech companies to “do good,” an order Tencent has answered. Roblox’s Chinese website suggests it’s touting part of its business as a learning and STEM tool and shows it’s seeking collaborations with local schools and educators.

Nonetheless, the involvement of Tencent is the elephant in the room in times of uncertain U.S.-China relations. The Committee on Foreign Investment in the U.S. or CFIUS, which is chaired by the Treasury Department, was inquiring about data practices by Tencent-backed gaming studios in the U.S. including Epic and Riot, Bloomberg reported in September.

Roblox isn’t exempt. It notes in the prospectus that CFIUS has “made inquiries to us with respect to Tencent’s equity investment in us and involvement in the China JV.” It further warns that it “cannot predict what effect any further inquiry by the Committee on Foreign Investment in the U.S. into our relationship with Tencent or changes in China-U.S. relations overall may have on our ability to effectively support the China JV or on the operations or success of the China JV.”

The other obstacle faced by all foreign companies entering China is local clones. Reworld, backed by prominent Chinese venture firms such as Northern Light Venture Capital and Joy Capital, is one. The game is unabashed about its origin. In a Reddit post responding to the accusation of it being “a ripoff of Roblox,” Reworld pays its tribute to Roblox and admits its product is “built on the shoulders of Roblox,” while claiming “it did not take any code from Roblox Studio.”

The Beijing-based startup behind Reworld has so far raised more than $50 million and had about 100 developers working on Reworld’s editing tool and 50 other operational staff, its co-founder said in a June interview. In comparison, Roblox had 38 employees in China by September, 38 of whom were in product and engineering functions. It’s actively hiring in China.

Roblox cannot comment for the story as it’s in the IPO quiet period.

Read More

Posted on

All IPOs should be paid for in Robux

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast (now on Twitter!), where we unpack the numbers behind the headlines.

This is an all-time first for the show, it’s an Equity Leftovers. Which means that we’re not focusing on a single topic like we would in an Equity Shot. This is just, well, more Equity.

Danny and I and Chris got together to chat about a few things that we could not leave out:

And with this, our fourth episode in six days, we shall pause until Monday. Hugs from the Equity crew.

Equity drops every Monday at 7:00 a.m. PDT and Thursday afternoon as fast as we can get it out, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

Read More

Posted on

Daily Crunch: Roblox is going public

Roblox opens its books, Snap makes an acquisition and Pfizer and BioNTech seek regulatory approval for their vaccine. This your Daily Crunch for November 20, 2020.

The big story: Roblox is going public

The child-friendly gaming company filed confidentially to go public in October, but it only published its S-1 document with financial information late yesterday.

How do the numbers look? Well, Roblox is certainly growing quickly — total revenue increased 56% in 2019, and then another 68% in the first three quarters of 2020, when it saw $588.7 million in revenue. At the same time, losses are growing as well, nearly quadrupling to $203.2 million during those same three quarters.

The company also acknowledged that its success depends on its ability to “provide a safe online environment” for children. Otherwise, “business will suffer dramatically.”

The tech giants

Snap acquired Voisey, an app to create music tracks overlaying your own vocals — Voisey users can apply audio filters to their voices, and they can browse and view other people’s Voisey tracks.

Despite commitment to anti-racism, Uber’s Black employee base has decreased — Uber’s latest diversity report shows a decline in the overall representation of Black employees in the U.S.

Google, Facebook and Twitter threaten to leave Pakistan over censorship law — This comes after Pakistan’s government granted blanket powers to local regulators to censor digital content.

Startups, funding and venture capital

Loadsmart raises $90M to further consolidate its one-stop freight and logistics platform — Loadsmart offers booking for freight transportation across land, rail and through ports, all from a single online portal.

ORIX invests $60M in Israeli crowdfunding platform OurCrowd — OurCrowd also says that the two groups will collaborate to create financial products and investment opportunities for the Japanese and global market.

Kea raises $10M to build AI that helps restaurants answer the phone — CEO Adam Ahmad says the startup has created a “virtual cashier” who can do the initial intake with customers, process most routine orders and bring in a human employee when needed.

Advice and analysis from Extra Crunch

If you didn’t make $1B this week, you are not doing VC right — Don’t yell at me, Danny Crichton said it!

Why is GoCardless COO Carlos Gonzalez-Cadenas pivoting to become a full-time VC — “I think this is the best moment in entrepreneurship in Europe.”

What is Roblox worth? — A deeper dive into Roblox’s numbers.

(Extra Crunch is our membership program, which aims to democratize information about startups. You can sign up here.)

Everything else

Pfizer and BioNTech to submit request for emergency use approval of their COVID-19 vaccine today — These emergency approvals still require supporting information and safety data, but they are fast-tracked relative to the full, formal and more permanent approval process.

Mixtape podcast: Building a structural DEI response to a systemic issue with Y-Vonne Hutchinson — Hutchinson is the CEO of ReadySet, a consulting firm that works with companies to create more inclusive and equitable work environments.

The Daily Crunch is TechCrunch’s roundup of our biggest and most important stories. If you’d like to get this delivered to your inbox every day at around 3pm Pacific, you can subscribe here.

Read More

Posted on

Extra Crunch roundup: A fistful of IPOs, Affirm’s Peloton problem, Zoom Apps and more

DoorDash, Affirm, Roblox, Airbnb, C3.ai and Wish all filed to go public in recent days, which means some venture capitalists are having the best week of their lives.

Tech companies that go public capture our imagination because they are literal happy endings. An Initial Public Offering is the promised land for startup pilgrims who may wander the desert for years seeking product-market fit. After all, the “I” in “ISO” stands for “incentive.”

A flurry of new S-1s in a single week forced me to rearrange our editorial calendar, but I didn’t mind; our 360-degree coverage let some of the air out of various hype balloons and uncovered several unique angles.

For example: I was familiar with Affirm, the service that lets consumers finance purchases, but I had no idea Peloton accounted for 30% of its total revenue in the last quarter.

“What happens if Peloton puts on the brakes?” I asked Alex Wilhelm as I edited his breakdown of Affirm’s S-1. We decided to use that as the subhead for his analysis.

The stories that follow are an overview of Extra Crunch from the last five days. Full articles are only available to members, but you can use discount code ECFriday to save 20% off a one or two-year subscription. Details here.

Thank you very much for reading Extra Crunch this week; I hope you have a relaxing weekend.

Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist


What is Roblox worth?

Gaming company Roblox filed to go public yesterday afternoon, so Alex Wilhelm brought out a scalpel and dissected its S-1. Using his patented mathmagic, he analyzed Roblox’s fundraising history and reported revenue to estimate where its valuation might land.

Noting that “the public markets appear to be even more risk-on than the private world in 2020,” Alex pegged the number at “just a hair under $10 billion.”

What China’s fintech can teach the world

HANGZHOU, CHINA – JULY 31: An employee uses face recognition system on a self-service check-out machine to pay for her meals in a canteen at the headquarters of Alibaba Group on July 31, 2018 in Hangzhou, Zhejiang Province of China. The self-service check-out machine can calculate the price of meals quickly to save employees’ queuing time. (Photo by Visual China Group via Getty Images)

For all the hype about new forms of payment, the way I transact hasn’t been radically transformed in recent years — even in tech-centric San Francisco.

Sure, I use NFC card readers to tap and pay and tipped a street musician using Venmo last weekend. But my landlord still demands paper checks and there’s a tattered “CASH ONLY” taped to the register at my closest coffee shop.

In China, it’s a different story: Alibaba’s employee cafeteria uses facial recognition and AI to determine which foods a worker has selected and who to charge. Many consumers there use the same app to pay for utility bills, movie tickets and hamburgers.

“Today, nobody except Chinese people outside of China uses Alipay or WeChat Pay to pay for anything,” says finance researcher Martin Chorzempa. “So that’s a big unexplored side that I think is going to come into a lot of geopolitical risks.”

Inside Affirm’s IPO filing: A look at its economics, profits and revenue concentration

Consumer lending service Affirm filed to go public on Wednesday evening, so Alex used Thursday’s column to unpack the company’s financials.

After reviewing Affirm’s profitability, revenue and the impact of COVID-19 on its bottom line, he asked (and answered) three questions:

  • What does Affirm’s loss rate on consumer loans look like?
  • Are its gross margins improving?
  • What does the unicorn have to say about contribution profit from its loans business?

If you didn’t make $1B this week, you are not doing VC right

Image Credits: XiXinXing (opens in a new window) / Getty Images

“The only thing more rare than a unicorn is an exited unicorn,” observes Managing Editor Danny Crichton, who looked back at Exitpalooza 2020 to answer “a simple question — who made the money?”

Covering each exit from the perspective of founders and investors, Danny makes it clear who’ll take home the largest slice of each pie. TL;DR? “Some really colossal winners among founders, and several venture firms walking home with billions of dollars in capital.

5 questions from Airbnb’s IPO filing

The S-1 Airbnb released at the start of the week provided insight into the home-rental platform’s core financials, but it also raised several questions about the company’s health and long-term viability, according to Alex Wilhelm:

  • How far did Airbnb’s bookings fall during Q1 and Q2?
  • How far have Airbnb’s bookings come back since?
  • Did local, long-term stays save Airbnb?
  • Has Airbnb ever really made money?
  • Is the company wealthy despite the pandemic?

Autodesk CEO Andrew Anagnost explains the strategy behind acquiring Spacemaker

Andrew Anagnost, president and CEO, Autodesk.

Earlier this week, Autodesk announced its purchase of Spacemaker, a Norwegian firm that develops AI-supported software for urban development.

TechCrunch reporter Steve O’Hear interviewed Autodesk CEO Andrew Anagnost to learn more about the acquisition and asked why Autodesk paid $240 million for Spacemaker’s 115-person team and IP — especially when there were other startups closer to its Bay Area HQ.

“They’ve built a real, practical, usable application that helps a segment of our population use machine learning to really create better outcomes in a critical area, which is urban redevelopment and development,” said Anagnost.

“So it’s totally aligned with what we’re trying to do.”

Unpacking the C3.ai IPO filing

On Monday, Alex dove into the IPO filing for enterprise artificial intelligence company C3.ai.

After poring over its ownership structure, service offerings and its last two years of revenue, he asks and answers the question: “is the business itself any damn good?”

Is the internet advertising economy about to implode?

Image Credits: jayk7 / Getty Images

In his new book, “Subprime Attention Crisis,” writer/researcher Tim Hwang attempts to answer a question I’ve wondered about for years: does advertising actually work?

Managing Editor Danny Crichton interviewed Hwang to learn more about his thesis that there are parallels between today’s ad industry and the subprime mortgage crisis that helped spur the Great Recession.

So, are online ads effective?

“I think the companies are very reticent to give up the data that would allow you to find a really definitive answer to that question,” says Hwang.

Will Zoom Apps be the next hot startup platform?

Image Credits: Zoom

Even after much of the population has been vaccinated against COVID-19, we will still be using Zoom’s video-conferencing platform in great numbers.

That’s because Zoom isn’t just an app: it’s also a platform play for startups that add functionality using APIs, an SDK or chatbots that behave like smart assistants.

Enterprise reporter Ron Miller spoke to entrepreneurs and investors who are leveraging Zoom’s platform to build new applications with an eye on the future.

“By offering a platform to build applications that take advantage of the meeting software, it’s possible it could be a valuable new ecosystem for startups,” says Ron.

Will edtech empower or erase the need for higher education?

Image Credits: Bryce Durbin

Without an on-campus experience, many students (and their parents) are wondering how much value there is in attending classes via a laptop in a dormitory.

Even worse: Declining enrollment is leading many institutions to eliminate majors and find other ways to cut costs, like furloughing staff and cutting athletic programs.

Edtech solutions could fill the gap, but there’s no real consensus in higher education over which tools work best. Many colleges and universities are using a number of “third-party solutions to keep operations afloat,” reports Natasha Mascarenhas.

“It’s a stress test that could lead to a reckoning among edtech startups.”

3 growth tactics that helped us surpass Noom and Weight Watchers

3D rendering of TNT dynamite sticks in carton box on blue background. Explosive supplies. Dangerous cargo. Plotting terrorist attack. Image Credits: Gearstd / Getty Images.

I look for guest-written Extra Crunch stories that will help other entrepreneurs be more successful, which is why I routinely turn down submissions that seem overly promotional.

However, Henrik Torstensson (CEO and co-founder of Lifesum) submitted a post about the techniques he’s used to scale his nutrition app over the last three years. “It’s a strategy any startup can use, regardless of size or budget,” he writes.

According to Sensor Tower, Lifesum is growing almost twice as fast as Noon and Weight Watchers, so putting his company at the center of the story made sense.

Send in reviews of your favorite books for TechCrunch!

Image via Getty Images / Alexander Spatari

Every year, we ask TechCrunch reporters, VCs and our Extra Crunch readers to recommend their favorite books.

Have you read a book this year that you want to recommend? Send an email with the title and a brief explanation of why you enjoyed it to bookclub@techcrunch.com.

We’ll compile the suggestions and publish the list as we get closer to the holidays. These books don’t have to be published this calendar year — any book you read this year qualifies.

Please share your submissions by November 30.

Dear Sophie: Can an H-1B co-founder own a Delaware C Corp?

Image Credits: Sophie Alcorn

Dear Sophie:

My VC partner and I are working with 50/50 co-founders on their startup — let’s call it “NewCo.” We’re exploring pre-seed terms.

One founder is on a green card and already works there. The other founder is from India and is working on an H-1B at a large tech company.

Can the H-1B co-founder lead this company? What’s the timing to get everything squared away? If we make the investment we want them to hit the ground running.

— Diligent in Daly City

Read More

Posted on

What is Roblox worth?

Public markets appear to be even more risk-on in 2020

With Roblox joining the end-of-year unicorn stampede toward 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 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.


The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.


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 between when a deal is struck and when it is 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.

Read More

Posted on

Free-to-play gaming giant Roblox confidentially files to go public

The gaming company Roblox announced today that it had confidentially filed paperwork with the SEC to make its public debut.

In February, the company which operates a free-to-play gaming empire with tens of million of users, was valued at $4 billion after a Series G funding round led by Andreessen Horowitz . The company has raised more than $335 million in venture capital funding according to Crunchbase.

The company has not detailed the number of shares it plans to offer and furthermore notes in standard legalese that their timely debut is “subject to market and other conditions.” After a slow 2019 for tech IPOs the rebound of public markets in mid-pandemic 2020 has provided an awfully wide window for tech startups reaching for their debuts.

In the games space, we recently saw the debut of Unity Technologies, which makes a popular game engine that developers use to build and monetize gaming titles.

Roblox offers an interesting sell to both consumers and developers, shipping a free-to-play vision of the future which pushes developers away from graphics-intense game design towards building content that can be played on a wide variety of devices. The games company has been more successful than most in translating a first-party experience’s success into a robust developer network. Roblox’s platform has been particularly successful with young audiences.

Read More

Posted on

How Roblox completely transformed its tech stack

And now has full control of its technological destiny

Picture yourself in the role of CIO at Roblox in 2017.

At that point, the gaming platform and publishing system that launched in 2005 was growing fast, but its underlying technology was aging, consisting of a single data center in Chicago and a bunch of third-party partners, including AWS, all running bare metal (nonvirtualized) servers. At a time when users have precious little patience for outages, your uptime was just two nines, or less than 99% (five nines is considered optimal).

Unbelievably, Roblox was popular in spite of this, but the company’s leadership knew it couldn’t continue with performance like that, especially as it was rapidly gaining in popularity. The company needed to call in the technology cavalry, which is essentially what it did when it hired Dan Williams in 2017.

Williams has a history of solving these kinds of intractable infrastructure issues, with a background that includes a gig at Facebook between 2007 and 2011, where he worked on the technology to help the young social network scale to millions of users. Later, he worked at Dropbox, where he helped build a new internal network, leading the company’s move away from AWS, a major undertaking involving moving more than 500 petabytes of data.

When Roblox approached him in mid-2017, he jumped at the chance to take on another major infrastructure challenge. While they are still in the midst of the transition to a new modern tech stack today, we sat down with Williams to learn how he put the company on the road to a cloud-native, microservices-focused system with its own network of worldwide edge data centers.

Scoping the problem

Read More