Investing in Roblox

Gaming has gone from a niche hobby to a massive global industry across all demographics and well beyond outdated, narrow stereotypes of “gamers”. In fact, games are not even just “games” any longer, but a form of entertainment — the industry is bigger than movies and music combined.

Games have also always been at the forefront of tech innovation, advancing various technologies — but also advancing culture and business models as well, sometimes containing entire economies. Because games are also more than entertainment: They’re destinations, and immersive worlds.

Our consumer team partners have argued that the next generation of games will differ from previous ones in six key ways, including becoming social networks; going cross-platform; and getting increasingly more user-generated (driven by small studios and developers, not just big publishers). But one of the most interesting and exciting trends over the last decade has been seeing the definition of “users” change, blurring together players and game developers. Or better yet: when kids and teens who play games learn to make their own games, thanks to the rise of building-block games that allow them to more easily create and share worlds that anyone can play.

That’s what Roblox has enabled. It is one of the world’s largest social communities and online multiplayer game platforms, where over 115 million kids and teens per month come together to play not just a single blockbuster game, but play 20 games per month on average. Not to mention hang out with each other… regardless of whether they’re on mobile, desktop, or console.

But playing games is just half the story. The bigger story here is a community of over 2 million active developers — of all ages and from across the globe — creating on the Roblox platform. All without the up-front costs, risks, and failures of the traditional top-down game publisher model. Roblox provides everything — resources, tools, and support — a young developer needs to build, host, and moderate a game. Because all they need to bring is a great idea, Roblox empowers their community to create the games — really, immersive worlds — that they want to play in, especially as the company continues to invest in more advanced play and in becoming the premier graphics engine.

In much the same way tools like MS Word unlocked writing for more people, Roblox’s platform provides easy access to gaming for beginners, while providing more advanced tools for the power users. For us, however, this also leads to a special combination of social virality and network effects:

  1. Social networks where users bring their friends in to play with them, who in turn attract their other friends to come play, and so on. In fact, over half of Roblox’s users play with friends across countless such communities on Roblox;
  2. “Creator/player” network effects where more players attract more creators to build great games, who in turn attract more players — creating a virtuous cycle that increases how valuable the entire network is for all.

But it’s not all fun and, er, games: Roblox not only gives kids, teens, and young adults a natural way to learn to code, but also gives them the resources and infrastructure to become entrepreneurs. With Robux — the platform’s in-game currency — creators can also make money when users spend Robux in their game. Roblox is often the first place that aspiring developers learn to build a game, and increasingly, it’s the place where they first get paid for making games. Over 2 million developers are actively creating on the platform, and many are building serious businesses that exist entirely within the world of Roblox. In 2019 alone, Roblox developers (and the studios created on their platform) earned more than $110 million.

In this way, games provide the basic building blocks for innovation. But they are also grounded in a long history of how kids learn to build and create things. It’s not an accident that Roblox CEO and cofounder Dave Baszucki comes from the world of education: He was previously CEO and founder of Knowledge Revolution, a company that developed educational software for teaching physics and mechanical design simulation. Their products were used by millions of students, and served as the foundation for many 2D physics sandbox games still available today. Dave co-founded Roblox in 2006 with one of his employees at Knowledge Revolution, Eric Cassel, who served as VP of Engineering until he tragically died of cancer in 2013.

Over the last 14+ years in building the company, Dave has held true to his vision, and his developer-first focus has been critical to its success. Last year, Roblox was the fifth most-watched video game on YouTube. Last month, players spent over a billion and half hours on the platform. And in our independent survey of U.S. children ages 9-17 — part of our broader due diligence encompassing several other analyses — we found that 72% of respondents (n=1686) have played Roblox, not just young kids but older teens too.

Roblox has also spent the last couple years moving to non-English markets across Europe, Latin America, and Asia as well. So what comes next?

The metaverse.

People have been talking about the “metaverse” for a very long time, ever since sci-fi writer Neal Stephenson first coined the concept of a global, virtual, persistent space shared by many. While pundits have been distracted by the readiness debates and questions over VR vs. AR, the foundations of a global metaverse have been quietly built in the background… in Roblox. With the company’s focus on safety, persistent identity across worlds, and the ability to easily hop from one immersive experience to the other — tens of millions of which already exist on the Roblox platform — the company is well on their way to making the metaverse a reality. We believe they’re just scratching the surface of the global gaming market of 2.5 billion worldwide gamers, and are only getting started… despite being over a decade and half old.

Where do entrepreneurs who are at a later stage — but who are still doing significant company building — go? That’s why we’re pleased to announce Andreessen Horowitz’s late stage venture investment in Roblox.

We created the Late Stage Venture (LSV) fund precisely for founders like Dave and companies like Roblox. We want to support the companies out there executing on big visions with the growth capital, yet also a venture mindset, that supports their long-term vision and their taking bigger innovation risks.

If early-stage venture is about asking “What if it works?”, later-stage venture is about asking and assessing, “Is it working?” With largely organic user sign-ups, highly recurring purchase behavior, a high margin structure for the platform, and a super strong value proposition for users (who derive hours of entertainment at a lower cost than they can find elsewhere), Roblox is cash flow positive. Roblox is working.

Dave has also brought in an experienced leadership team that can execute on Roblox’s world-changing (or, in this case, world-creating) vision. We’ve gotten to know Dave well before LSV existed. He is the rare kind of entrepreneur who is both a “tell me” CEO — one who can clearly articulate an ambitious vision — and a “show me” CEO — one who can demonstrate through past performance and operational excellence that they are building a great business. We’re excited to invest in him, the team, and the future of gaming through Roblox.

 

The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets) is available at https://a16z.com/investments/.

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