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The company allowed employees to sell 15% of their holdings on day one, a big departure from the usual six-month lockup period.

Image: Unity
Unity’s unusual IPO was a huge success, raising more than $1.3 billion
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Unity’s unusual IPO was a huge success, raising more than $1.3 billion

"The perception is that [Epic Games is] a bigger competitor than they are," says CFO Kim Jabal.

In a busy week for IPOs, game-engine maker Unity brought the week to a close. It listed on Friday morning, with shares immediately surging more than 30% from its IPO price. That values the company at nearly $20 billion, overtaking rival Epic Games' most recent private valuation of $17.3 billion.

Unity raised more than $1.3 billion in the IPO, which may come in useful given the company's lofty ambitions. Unity started out as a tool to allow game developers to quickly and easily launch games, benefiting in particular from the smartphone boom. "We democratized game development," CFO Kim Jabal told Protocol.

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But it's now got its sights set on the rest of the world. Unity's tech is already used by architects, film studios and car designers, who use the software to model projects before they're built. In its S-1 filing, the company estimated that there was a $17 billion market opportunity for its solutions beyond the gaming industry. Jabal said it was a challenge deciding which vertical to focus on, but said a lot of development can help strengthen most businesses: "Fundamentally, the core investments we're making to make the product better apply both to gaming and other industries."

Based on the warm reception to its listing, investors seem to think Unity can pull that off. But the stock's pop, though large, was smaller than other tech companies' in recent weeks. That might be more reflective of Unity's unusual IPO process than tepid demand, though. Unlike a typical IPO, where bankers chat to investors to try to gauge demand and set a price based on that, Unity "asked investors to give us their interest at different prices in different quantities specifically," Jabal said.

The team then looked at those bids to decide how to price the offering. "We wanted [the process] to be data oriented," Jabal said, adding that "we had 100% visibility into the demand curve." She declined to say whether part of the reason for choosing this method was to avoid a massive pop, instead saying, "I will just reiterate that we were looking for the best outcome from a financial perspective … so you can, I guess, draw your own conclusions."

The process was similar to Google's "dutch auction" back in 2004 — indeed, Jabal worked at Google at the time, and Lise Buyer, who helped architect that listing, advised Unity. But there were some differences: Google's process was more automated than Unity's, where the ultimate price was handpicked. (Though some reports say the same happened at Google, when investors threatened to drop out at the last minute.) "We felt that this was sort of a balance," Jabal said. "It's not so scientific and perfect down to the, you know, totally machine based; we wanted to have some discretion."

It's not the only way Unity's IPO differed from most. The company allowed employees to sell 15% of their holdings on day one, a big departure from the usual six-month lockup period.

Whether those employees win out in the long term now depends on whether Unity can overcome the significant challenges ahead. In its S-1, it highlighted the effect privacy regulation could have on its ad business, along with the impact of Apple's move to kill IDFA. That plays into a broader challenge: Unity is very reliant on maintaining access to Apple and Google's platforms, and as Epic Games' fight with Apple shows, that access is not guaranteed.

Still, Epic's woes could help Unity, if developers decide that using Epic's Unreal products are no longer worth the risk. Jabal downplayed the competition from Epic, though, saying "I think the perception is that they're a bigger competitor than they are." Epic, she said, has "a different focus. They're focused on the metaverse, we're focused on tools for creators." Unity's biggest competitors, Jabal thinks, are companies that build their own engines and services, and Cocos, which is particularly popular in China.

Whatever the long-term outcome, some early investors will be particularly pleased today. Sequoia stood to make the most from the listing, with its 24.1% stake in Unity now worth around $5 billion, while Silver Lake owns 18.2%. Plenty of justification for them to kick back with some games for the weekend, then.

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