Roblox, a 14-year-old, slightly more social, slightly more mature alternative to Minecraft made waves last year when it raised $92M of funding, and now, the company is reportedly raising a new round at a $2.4B valuation. Something’s clearly working — The game is beloved by millions of players and has become a platform for four million developers who have produced forty million games while minting a few teenage millionaires in the process.
Founder Collective isn’t an investor in Roblox, but there are a few elements of the company’s success worth calling out as worthy of study:
Roblox was founded in 2005, four full years before Minecraft was released. If ideas are truly determinative, as many people in the entrepreneurial ecosystem believe, Roblox should have “won” outright. Instead, Minecraft struck a chord and went from experiment to multi-billion dollar acquisition in short order.
Believers in the “Idea Myth” also tend to think that markets are winner take all, but Roblox is a rebuke to that theory, too. Despite a largely overlapping feature set, and a competitor who raced to a lead in public perception, the simple idea of “Digital Legos” has proven expansive enough to launch two multi-billion dollar startups — so far.
Roblox has become an impressive platform for developers, but the company didn’t start offering a revenue share arrangement to developers until 2015, a decade after it was founded. Before Roblox became a platform it had a single-player mode that allowed it to attract the first of its now 64 million users. The company claims it will pay out $70M to developers in 2018, up from a mere $2.5M in 2015. Eric Paley has written about the “Platform Paradox” previously, but the takeaway is that companies should focus on solving specific problems before attempting to become a platform, a principle Roblox seems to embody.
Roblox raised just $9.5M in its first twelve years of operation. Most startups would spend a Series A of that size in a mere 18 months. Roblox and Minecraft together serve as a reminder that tremendous value can be created with very little capital, even in typically capital intensive categories with high acquisition costs. By avoiding the side effects of “Toxic VC,” Roblox was able to join the likes of Unity, Mojang, LootCrate, and other game-related companies that got big before raising a big round.
Congrats to the Roblox team, and our friends at First Round Capital, on leveling up with a counter-cultural approach to capital!
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