Competitive mobile game maker Skillz to make quick IPO at $ 3.5 billion valuation
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Skillz today announced its IPO through a rapid IPO process, raising approximately $ 849 million in cash from investors at a pre-monetary valuation of $ 3.5 billion. This valuation is 6.3 times the company’s forecast turnover for 2022.
The San Francisco startup launched in 2012 with a simple proposition and stuck to it, said Andrew Paradise, CEO of Skillz, in an interview with GamesBeat. Skillz provides a platform to turn any mobile game on iOS and Android into a game that you can play with friends or strangers for cash, prizes, or points. And it allows esports tournaments for games that integrate its platform.
“Everyone wants to compete, don’t they? And that was the premise of the business, the one simple belief, ”Paradise said. “We are building the competitive layer of the Internet. Everyone, everywhere, wants to unleash their inner champion in competition. We are really excited about this next step.
Skillz will go public this fall on the New York Stock Exchange through a special public acquisition company (SPAC). It has become a popular way for fast-moving companies to go public without all of the hassle of a traditional IPO. PSPCs are set up by managers who raise funds in a shell company, and investors do not know what they are putting their money into.
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In this case, a SPAC called Acquisition of the flying eagle, led by Bethesda owner ZeniMax and DraftKings SPAC veteran Harry Sloan, has raised $ 690 million as a publicly traded entity. It will acquire Skillz, in which case the public front company will essentially become Skillz. In addition to this, institutional investors invest in the new company using Private Investments in a Public Company (PIPE). In this case, institutions invested $ 159 million in PIPEs, giving Skillz access to even more money.
Upon completion of the transaction, Skillz will have approximately $ 250 million in cash and the public company investors will hold approximately $ 849 million of the $ 3.6 billion resulting from the company’s post-currency valuation. , or about 25% of it. Once the transaction is completed, investors in PIPE Wellington, Fidelity, Franklin Templeton and Neuberger Berman will hold stakes in the company. Skillz shareholders, senior executives and investors in Flying Eagle have agreed not to sell their shares for 24 months.
“We get the best institutions in the world that we want to partner with for many years,” Paradise said.
This is not a bad bet for investors. Most gaming companies are posting record profits during the pandemic as people turn to gaming while sheltering in place. “Our second quarter was the best in the history of the company,” said Paradise.
A long trip
Paradise is a serial entrepreneur who started out as an inventor. He started web media and advertising company Double Picture in 2008 and then sold it to MPA. In 2010, he founded AisleBuyer, a virtual shopping assistant that created a mobile self-checkout system. He sold it to Intuit in 2012 for an estimated $ 80 million to $ 100 million. Then he teamed up with Casey Chafkin to co-found Skillz. They brought in engineers who took big pay cuts to build the platform.
“We learned what it means to start an independent business because I didn’t want to resell anymore,” Paradise said. “I have sold twice before. I really wanted to build a long term independent business, not something where it was consumed again by someone else’s business and I would see all of my work disappear and end up with this pile of money. He saw that companies often took eight to 12 years to get an IPO and prepared for the trip.
“We are on the right track to achieve our goals by being publicly traded. So it’s really good to have this long term plan and get there, ”he said.
There have been “near-death experiences” along the way, Paradise acknowledged. Many people were initially skeptical as the conventional wisdom was that esports would do better on hardcore platforms such as PCs and consoles. Mobile seemed too casual.
But mobile esports have taken on a huge boom. Skillz reduced transactions on its platform and also generated ad revenue. It took the company over 36 months to generate its first annual run rate of $ 50 million or the money it made in the past 12 months. But it only took eight more months to reach an execution rate of $ 100 million in May 2017.
Earlier this year, Skillz announced that the top 10 mobile esports athletes won $ 33 million in prizes in a decade, and 70% of those players were women. The platform now hosts numerous tournaments per day and helps indie game developers generate a new source of revenue beyond the tough business models of premium payments or free games. Skillz estimates that it will power over 2 billion casual esports tournaments in 2020 and ease $ 1.6 billion in paid entry fees for games hosted on its platform.
“We are a factor in democratizing the mobile gaming industry, where small independent developers can build real businesses alongside the giants,” Paradise said. “Most of the platform companies have really grown with us. One started out as a husband and wife business, and now they have a business of 20 people and millions in double-digit sales. We were the first company to believe in mobile esports. We run the infrastructure for the developers, and they focus on what they do best, which is making great games.
In some ways, Skillz provides visibility into the gaming industry as a whole, which has grown to be more important than movies, music, and books. There is more than 2.7 billion players playing every month and 10 million developers. Mobile is the fastest growing part of the market, which is expected to grow from $ 68 billion in 2019 to $ 150 billion by 2025, according to the Newzoo market research.
By 2018, Skillz had achieved an execution rate of $ 400 million. Rivals like Sony and Amazon took Skillz, but they faltered. Skillz has continued to grow and now has over 200 employees.
Skillz said in 2019 that the # 1 player in the world for its mobile esports platform was Jennifer “HestiaX” Tu. She ranks sixth on the list of the world’s highest paid esports players in the entire industry. She earned $ 3.96 million in 2019 and $ 5.33 million over the past decade in mobile esports. Players like Tu paved the way for further growth as a lot of people saw its success and wanted to make money too.
Paradise said the company projects revenue of $ 555 million in 2022, a compound annual growth rate of 57% compared to expected revenues in 2020 of about $ 225 million (which would be an increase of ‘around 88% compared to 2019). Paradise and Chafkin will continue to run the business.
Paradise said about 10 different SPACs are pursuing the Skillz deal, but he’s known Sloan and his team (Jeff Sagansky and Eli Baker) for some time. In 1999, Sloan was a founding investor and board member of ZeniMax Media, which grew into a huge corporation with Bethesda Game Studios, owner of the Skyrim and Doom franchises, among other games. Sloan’s team went public with fantasy sports betting company DraftKings via a SPAC in April.
“Harry has been in media and entertainment for a long time,” Paradise said.
Skillz plans to use the proceeds to accelerate growth in domestic and international markets, support marketing efforts, and provide additional working capital. The transaction is expected to be finalized in fall 2020.
LionTree Advisors and Jefferies are acting as financial advisers to Skillz, and Winston & Strawn is acting as legal counsel. Goldman Sachs acts as financial advisor to Flying Eagle and exclusive placement agent for PIPE. White & Case acts as legal advisor to Flying Eagle.
The original shareholders, including the venture capitalists who backed the company, are selling shares for this transaction. Upon closing of the transaction, Paradise, which owns a controlling voting interest in Skillz, will own a controlling voting interest in the combined company.
“I absolutely loved video games,” he said. “I learned to program for games. It was really amazing to be a part of this industry. It’s pretty great to be here and in a place where I think we can really try to help solve the problem “of helping developers monetize.”
Updated 7:50 am Pacific with corrected information on the post-currency valuation.
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