Why Roblox wants more than just the pre-teens

What is Roblox worth?

That’s the question investors are asking as the gaming-slash-social-media business goes public via direct listing Wednesday. 

Last valued in private funding at about $29.5 billion in January, Roblox is certainly one of the hottest companies to go public in recent years, having grown rapidly in the pandemic. The company’s revenue soared 83% to $923.9 million in 2020, while its daily active-user base rose to 32.6 million.

Having grown on a base of digital-native, young users, investors credit much of its success to its social element: Users jump onto Roblox largely to hang out with friends— and apparently spend millions on it in the process. 

Still, the company remains unprofitable, with its losses outpacing the growth in revenue: losses widened by 256.3% to about $253.2 million in 2020.

It’s worth honing in on one of the major reasons why Roblox is still unprofitable: Unlike large gaming studios, the company doesn’t hire developers to create blockbuster hits. Instead, it relies on its own players to constantly create new games, who then take a 70% cut of the revenue based on their content. It’s another reason why analysts believe the company has been so popular. But to keep the ecosystem alive and churning, Roblox needs to keep players coming back for more with high-quality games. And the company knows that. It pays a hefty amount to incentivize the creation of such content: In fact, such “developer exchange fees” were the company’s single largest expense in 2020, growing nearly 194% to $328.7 million while revenue grew 83%.

For Roblox, and for other companies seeking to copy its model in which both developers and players thrive in the ecosystem, those substantial payouts will continue to rise: The company in its Investor Day presentation even noted that it plans to offer more money to creators.

For  investors and gaming industry watchers alike, the issue for Roblox is an age-old one of scale. As long as more dollars are spent per developer, profits are a mere stone’s throw away. But that simplifies the challenge. 

As my colleague Aaron Pressman reports:

“To keep growing and justify a stock market value that could exceed $40 billion in its direct listing, bringing in more older customers will be key. Potential investors are concerned about young people accounting for around 55% of Roblox’s 32.6 million daily users, notes Tom Wijman, games market lead at game research firm Newzoo…

The CEO and his team have many ideas for expansion and attracting older customers. The company is already working on improving the quality of game graphics to make them more lifelike and attractive to adults used to more realistic adventure and battle games. Adding machine-learning translation of certain game elements will help the service expand more quickly into new countries (currently most translation is done manually by developers). And Roblox’s leaders are also thinking about how to add more kinds of virtual experiences that users could share beyond only games, like models of historical cities or even imaginary places from works of fiction.”

Lucinda Shen
Twitter: @shenlucinda
Email: lucinda.shen@fortune.com

VENTURE DEALS

- Snyk, a Boston-based cloud native application security company, raised $175 million in Series E funding. Some $125 million was raised via secondary transactions. The round, led by Accel and Tiger Global, values the business at $4.7 billion. Investors also included Addition, Boldstart Ventures, Canaan Partners, Coatue, GV, Salesforce Ventures, Stripes, and BlackRock.

- Flutterwave, a San Francisco-based payments technology company, raised $170 million in Series C funding. Avenir Growth Capital and Tiger Global Management led the round.

- Zego, a London-based insurtech, raised $150 million in Series C funding, valuing it at $1.1 billion. DST Global led the round and was joined by investors including General Catalyst. Read more.

- Paige, a New York-based maker of diagnostic software in pathology, raised $125 million in Series C funding. Investors included KKR, Casdin Capital, and Johnson & Johnson Innovation.

- Jobandtalent, a Madrid-based workforce marketplace for temporary roles, raised €100 million ($119 million from SoftBank Vision Fund 2 as part of its Series D round. 

- Ventyx Biosciences, an Encinitas, Calif.-based clinical-stage biotechnology company focused on inflammatory diseases and autoimmune disorders, raised $114 million in funding. venBio Partners led the round and was joined by investors including Third Point, RTW Investments, Janus Henderson Investors, Wellington Management, OrbiMed, and Surveyor Capital.

- Valo Health, a Boston-based drug-discovery and development company company, raised an additional $110 million in Series B funding from Koch Disruptive Technologies.

- Optibus, a Tel Aviv-based A.I. platform for planning and operating mass transportation, raised $107 million in a Series C funding. Bessemer Venture Partners and Insight Partners led the round.

- Corvus Insurance, a Boston-based provider of insurance products powered by A.I.-driven risk data, raised $100 million in Series C funding. Insight Partners led the round.

- Advise Health Holdings, a medicare agency, raised $100 million. Oak HC/FT led the round and was joined by investors including Adams Street Partners and Hamilton Lane.

- AgomAb Therapeutics, a Belgium-based biopharmaceutical company focused on organ recovery, raised $74 million in Series B funding. Redmile Group led the round and was joined by investors including Cormorant Asset Management.

- SeekOut, a Redmond, Wash.-based provider of the A.I.-powered recruiting software, raised $65 million in Series B funding. Tiger Global Management led the round and was joined by investors including Madrona Venture Group and Mayfield.

- ActZero, a Menlo Park, Calif.-based cybersecurity startup focused on small and mid-sized businesses, raised $40 million in seed funding. Point72 Hyperscale led the round.

- Tetrate, a San Francisco-based cloud application networking company, raised $40 million in Series B funding. Sapphire Ventures led the round and was joined by investors including Scale Venture Partners and NTTVC.

- Tackle.io, a Boise, Id.-based software company focused on cloud marketplace, raised $35 million in Series B funding. Andreessen Horowitz led the round and was joined by investors including Bessemer Venture Partners.

- Flatfile, a Denver-based data onboarding software company, raised $35 million in Series A funding. Scale Venture Partners led the round and was joined by investors including Workday Ventures, Afore Capital, Gradient Ventures, and Two Sigma Ventures.

- Centrical, a New York-based employee engagement and performance focused company, raised$32 million. Intel Capital and JVP led the round and were joined by C4 Ventures, Citi Ventures, Aleph, CE Ventures, La Maison Compagnie d'Investissment, and 2B Angels. 

- WorkOS, a San Francisco-based developer platform for enterprise apps, raised $15 million in Series A funding. Lachy Groom led the round and was joined by investors including Elad Gil, Nat Friedman, Kevin Hartz, Brianne Kimmel, Josh Buckley, Scott Belsky, Rahul Vohra, Cristina Cordova, Akshay Kothari, and Matt Biilmann.

- DataGrail, a San Francisco-based privacy platform, raised $30 million in Series B funding. Felicis Ventures led the round and was joined by investors including HubSpot and Okta.

- Wrapbook, a New York-based digital financial services firm focused currently on the entertainment industry, raised $27 million in Series A funding. Andreessen Horowitz led the round and was joined by investors including Equal Ventures, Uncork Capital, Jeffrey Katzenberg’s WndrCo and Michael Ovitz.

- Komainu, a St. Helier, Jersey-based digital asset custody services provider, raised $25 million in Series A funding. Alan Howard of Elwood Asset Management led the round and was joined by investors including Galaxy Digital, NOIA Capital, and Nomura Research Institute.

- Securonix, an Addison, Tx.-based maker of a log management and security response platform, raised $24 million in funding. Capital One Ventures was the investor.

- ThoughtSpot, a Sunnyvale, Calif.-based search and A.I.-driven analytics company, raised $20 million from Snowflake Ventures.

- Tausight, a Boston-based company focused on patient health information, raised $20 million in Series A funding. Polaris Partners and Flare Capital Partners led the round and were joined by investors including .406 Ventures.

- Scoro, a London-based provider of a work management software platform, raised $16.4 million in Series B funding. Kennet Partners led the round and was joined by investors including Columbia Lake Partners, Inventure, Livonia Partners, and Tera Ventures. 

- LinearB, a Tel Aviv and Los Angeles-based maker of developer team software, raised $16 million in Series A funding. Battery Ventures led the round and was joined by investors including 83North, Ariel Maislos, and TechAviv Founder Partners.

- Daily, a maker of a developer platform for audio and video, raised $15 million in Series A funding. Lachy Groom led the round and was joined by investors including Tiger Global. Read more.

- Zeni, a Palo Alto, Calif.-based bookkeeping tech company, raised $13.5 million in Series A funding. Saama Capital led the round and was joined by investors including  Amit Singhal, Sierra Ventures, SVB Financial Group, Liquid 2 Ventures, Firebolt Ventures, Dragon Capital, and Twin Ventures.

- Quizizz, a Santa Monica, Calif. and Bangalore, India-based edtech, raised $12.5 million in Series A funding. Eight Roads Ventures led the round and was joined by investors including GSV Ventures, Rocketship VC, Nexus Venture Partners, and Prime Venture Partners.

- MobileCoin, a San Francisco-based cryptocurrency firm, raised $11.4 million across two rounds from Future Ventures and General Catalyst. Read more.

- Wefarm, a London-based platform for farmers, raised $11 million in additional Series A funding. Octopus Ventures led the round and was joined by investors including True Ventures, Rabo Frontier Ventures, LocalGlobe, June Fund, and AgFunder. 

- Cube, a New York-based financial planning software maker, raised $10 million in Series A funding. Mayfield led the round and was joined by investors including Bonfire Ventures and Operator Collective.  

- Rent Ready, a Charlotte, N.C.-based platform for making apartments rent ready, raised $10 million in Series A funding. Grotech Ventures led the round and was joined by investors including CreativeCo Capital.

- Porter Road, a Nashville, Tenn.-based sustainability-focused animal butcher, raised $10 million in Series A funding. L37 Ventures led the round and was joined by investors including River Park Ventures, Middleland, FJ Labs, Kelvin Beachum, MAX Ventures, Tribeca Venture Partners, and Slow Ventures.

- Heyday, a Canadian chatbot maker, raised C$6.5 million ($5.1 million) in seed funding. Innovobot and Desjardins Capital led the round.

- Cheese, a Pasadena, Calif.-based digital banking company focused on Asian-Americans and immigrants, raised $3.6 million in seed funding. Ifly.vc and Amplify led the round.

- Cambri, a Nordic-based market research automation startup, raised €3.6 million ($4.3 million) in Series A funding. OpenOcean and Spintop Ventures led the round.

- Trufan, a Canadian audience engagement startup, raised $2.3 million in seed funding. Moneta Ventures led the round. Read more.

- Capsule, a Paris-based decentralized, open social-media platform being built on the Internet Computer, raised $1.5 million in seed funding. Beacon Fund, a dedicated crypto fund by Polychain Capital, Andreessen Horowitz, and the DFINITY Foundation led the round.

- Curio, a Los Angeles-based platform for creating digital fan experiences and collectibles, raised $1.2 million in seed funding. Future Perfect Ventures led the round and was joined by investors including A195 Capital, LongHash Ventures, and Moonwhale Ventures.

PRIVATE EQUITY

- Thoma Bravo agreed to acquire Talend (NASDAQ: TLND), a cloud integration and data integrity company, for about $2.4 billion.

- Vertica Capital Partners invested $20 million in Pathlock, formerly Greenlight Technologies, a Flemington, N.J.-based provider of access orchestration. Financial terms weren't disclosed.

- Ardian made a minority investment in Kapten & Son, a German brand specializing in the online retail sale of lifestyle and fashion accessories. Financial terms weren't disclosed.

- EasyPark Group, backed by Verdane Capital and Vitruvian Partners, agreed to acquire ParkMobile, an Atlanta, Ga.-based parking app. Financial terms weren't disclosed.

- Foreside Financial Group, backed by Lovell Minnick, acquired the regulatory compliance business of JG Advisory Services, a New York-based regulatory solutions provider for hedge and private equity funds. Financial terms weren't disclosed.

- geoLOGIC Systems, backed by BV Investment Partners, acquired JWN Energy, a Canadian energy insights and intelligence provider. Financial terms weren't disclosed.

- Long Ridge Equity Partners invested in Drawbridge, a New York-based provider of cybersecurity software and solutions to the alternative investment industry. Financial terms weren't disclosed.

- Mercer Global Advisors, backed by Oak Hill Capital and Genstar Capital, acquired Epstein & White Financial, a San Diego, Calif.-based wealth management firm. Financial terms weren't disclosed.

- TPG increased its stake in Sauce Labs, a San Francisco-based provider of continuous testing solutions. Financial terms weren't disclosed.

EXITS

- CVC Capital Partners is nearing a deal to acquire Cooper, a European drugmaker, for about 2.2 billion euros ($2.6 billion), per Bloomberg. Charterhouse Capital Partners backs Cooper. Read more.

- Totvs (BSP:TOTS3) agreed to acquire RD Gestao e Sistemas, a Brazilian marketing automation software company, for 1.8 billion reais ($310 million). RD’s investors include Astella Investimentos and Redpoint eventures.

- Dropbox (NASDAQ: DBX) agreed to acquire DocSend, a San Francisco-based secure document sharing and analytics company, for $165 million. DocSend has been backed by investors including August Capital and DCM Ventures.

- The Pritzker Organization acquired a majority stake in Crown Health Care Laundry Services,  a Pensacola, Fla.-based provider of healthcare linen management, from Quilvest. Financial terms weren't disclosed.

- Greenbriar Equity Group  acquired Oil Changers, an operator of quick lube facilities on the West Coast, from Trivest Partners. Financial terms weren't disclosed.

- PatientPoint, backed by L Catterton, merged with Outcome Health, a Chicago-based healthcare tech company backed by Littlejohn & Co. Financial terms weren't disclosed.

- Advarra acquired Bio-Optronics, a software company for the clinical research industry, from Mainsail Partners. Financial terms weren't disclosed.

OTHER

- CUNA Mutual Group acquired Global Preneed, Assurant’s funeral insurance and final expense business, for about $1.3 billion in cash.

- Takeda will acquire Maverick Therapeutics, a San Francisco Bay Area-based biopharmaceutical company focused on immunotherapies. The deal is worth up to $525 million.

- Curaleaf Holdings agreed to buy Emmac Life Sciences, a European cannabis company, for about $285 million.

- SoFi agreed to acquire Golden Pacific Bancorp, a California-based bank, for $22.3 million. 

- Entercom (NYSE: ETM) acquired Podcorn, a marketplace for brands to find and collaborate with podcasters, for about $22.5 million in cash and future performance payouts.

- Epic Games acquired Capturing Reality, a maker of software for 3D scans. Financial terms weren't disclosed.

- Talks to sell the operating business of Greensill Capital, the U.K.-based fintech that has filed for insolvency, to Athene Holding have stalled, per Bloomberg. Read more.

IPO

- China Telecom, the state-owned wireless carrier, is seeking to raise about $4.1 billion in a Shanghai listing. It was previously blacklisted in the U.S.

- SUSE, a German open-source software company, is planning an IPO in Europe in the summer that could value it at €7 billion to €8 billion euros ($8.3-9.5 billion), per Reuters. EQT backs the firm. Read more.

SPAC

- Ambulnz, a provider of ambulance services, plans to go public via merger with Motion Acquisition, a SPAC, valuing it at $1.1 billion.

- Virgin Group Acquisition III, a SPAC by Richard Branson, plans to raise $500 million.

- GigCapital5 and GigCapital6, SPACs formed by GigPeak founder Avi Katz, filed to raise $350 million each. 

- Forest Road Acquisition II, a SPAC by former Disney executives, raised $305 million.

- ESM Acquisition, a SPAC from The Energy & Minerals Group, raised $300 million.

- SVF Investment 2 and SVF Investment 3, the third and fourth SPACs from SoftBank, raised $200 million and $280 million respectively. 

F+FS

- One Rock Capital Partners, a New York-based private equity firm, raised $2 billion for One Rock Capital Partners III.

- Pegasus Tech Ventures, a San Jose, Calif.-based venture firm, established a $50 million venture fund alongside Japanet.

- Passion Capital, a U.K.-based early-stage venture capital firm, plans to crowd-fund part of the £45 million ($62.5 million) Passion Capital Fund III. Read more.

- Worklife, a San Francisco Bay Area-based, seed-stage venture firm, is seeking $60 million for its second fund. Read more.