Neil Rimer recalls having early conversations about what became Roblox when he was studying at Stanford in the 1980s. He was college buddies with David Baszucki, the gaming company’s founder and CEO.
More than three decades later that idea has made Baszucki extremely rich — his Roblox stake is worth $ 4.6 billion after the company’s stock market debut on Wednesday. Rimer’s investment firm, Index Ventures, is benefiting handsomely too. Its shares are valued at $ 3.7 billion.
Baszucki and Rimer are two of the biggest winners in Roblox’s direct listing, the latest tech company to go public at a massive valuation and generate hefty paper returns for its founders and venture backers. Snowflake, Palantir, Airbnb and DoorDash all went public from September to December and are now worth between $ 44 billion and $ 110 billion.
Roblox’s biggest outside stakeholder is Altos Ventures, which owns shares worth $ 8.1 billion, followed by Meritech Capital at $ 3.8 billion and then Index. Tiger Global controls a $ 2.8 billion stake, and First Round Capital’s shares are worth $ 2.3 billion. The CEO’s brother, Gregory, is on the board and owns a stake worth $ 1.1 billion.
All of the figures above assume that none of the investors sold shares on Wednesday. It’s possible that some did, as there’s no lock-up period tied to the direct listing.
Baszucki started Roblox in 2004. But he was kicking around the idea long before that, while studying electrical engineering at Stanford. Rimer said Baszucki was obsessed with physics and finding a way to run experiments faster than the physical world would allow. His interests collided with Apple’s introduction of the Macintosh and the first graphical user interface available to consumers.
“He wanted to build an engine that in simple 2D grayscale could mimic real-world physics and allow people to build experiments and then run them,” said Rimer, who majored in history and economics at Stanford, in an interview over Zoom on Wednesday.
Based on that concept, Baszucki started a company called Knowledge Revolution in 1989 and sold it almost a decade later to MSC Software for $ 20 million. A few years later, he came up with Roblox to expand beyond educational use, aiming for a more mainstream audience.
‘Kind of kicked myself’
Rimer says he and Baszucki stayed in touch and he followed the company from its early days. But it wasn’t until 2017 that Index first invested in Roblox, co-leading a $ 92 million round at a valuation of about $ 500 million. The firm followed on with additional investments totaling at least $ 34 million, according to Roblox’s prospectus.
“I kind of kicked myself for not having invested earlier,” Rimer said. “When you’re building something like this it’s not going to look like much for quite a long time.”
For Index, which has billions of dollars under management, the investment became more compelling after Roblox was proving its popularity across multiple platforms while figuring out how to make money along the way. In 2018, which is as far back as its prospectus goes, Roblox generated $ 325 million in revenue. According to research firm SensorTower, Roblox had revenue of $ 45.7 million in 2016.
Rimer may have missed his opportunity to get in at the early stage, but he got there at the right time to take advantage of Roblox’s viral growth.
With kids stuck at home during the pandemic, revenue last year surged 82% to $ 923.9 million, mostly from sales of virtual items within games, after jumping 56% in 2019 to $ 508.4 million. Players spent 30.6 billion hours on the app last year, up 124% from 2019.
Among Roblox’s millions of user-created games are titles that let kids adopt virtual pets, hang out with friends at theme parks and work at a pizza company. It’s all part of Baszucki’s plan to build a so-called metaverse, with users “interacting together by playing, communicating, connecting, making friends, learning, or simply hanging out, all in 3D environments,” as laid out in the prospectus.
Rimer, whose firm previously invested in gaming companies Supercell, Playfish and King, said he doesn’t spend much time in Roblox, though he’s thoroughly entertained by Baszucki’s demos at the quarterly board meetings. Rimer said he attended rapper Lil Nas X’s virtual concert in November, which attracted more than 30 million visitors over two days.
“I found that to be quite an eye-opening experience,” Rimer said. “I could actually see how you can imagine going to concerts this way with friends and family. It didn’t feel contrived. It felt like a good use of the medium.”
David Sze of Greylock Partners led an investment in Roblox in 2018 at a valuation of about $ 2.5 billion. Sze, who previously backed Facebook, LinkedIn and Pandora, wrote in a blog post at the time about how he remembered Baszucki demoing the early versions of Roblox “each year to kids at our school’s Science Fair.”
Greylock’s investment has increased in value by more than 15-fold in under three years.
Sze told CNBC’s “Power Lunch” on Wednesday that, while gaming may be the core of the business now, Roblox is in a position to “realize the idea of the metaverse that was first thought of many many years ago by science fiction writers as a virtual shared space where people can share all kinds of things.”