Roblox is now worth $30 billion, more than 7X its valuation from 11 months ago. The CEO told employees why this will be good for them.

  • Roblox is now valued at close to $30 billion after closing a monster round of venture capital funding. The company also announced plans to go public through a direct listing.
  • In an email to employees seen by Insider, CEO David Baszucki said that the new funding and direct listing are part of a strategy to secure the best possible outcome for early investors and employees.
  • The company was previously going to go public through an initial public offering but it tabled those plans in December, after the blockbuster debuts of DoorDash and Airbnb.
  • Visit Business Insider's homepage for more stories.

Roblox, the online gaming engine that's popular with kids and teens, has lassoed new venture capital funding that gives it a near $30 billion valuation. The next stop is to become a public company, it said on Wednesday.

The CEO told employees on Wednesday that the deal is part of a newly revised game plan to provide the best possible financial outcome for shareholders including employees.

In an email seen by Insider, Roblox's chief David Baszucki wrote that the company has bagged plans for an initial public offering and will pursue a rare but increasingly popular alternative: a direct listing. The company also said it would do a direct listing in the press release announcing the funding. 

"As I shared before the break, we've been taking a closer look at ways to improve our specific listing process for employees, shareholders, and future investors. Based on that work, today we announced that we intend to go public by a direct listing on the New York Stock Exchange," Baszucki wrote in the email. "We have concluded that a direct listing is the best path for Roblox as we believe it will create a more market-based relationship for all our stakeholders."

On Wednesday, the company said it had raised $520 million in a Series H funding round led by Altimeter Capital and Dragoneer Investment Group, bringing its total financing to around $855 million. This new round values the company at $29.5 billion, it said.

Roblox's latest cash grab shows it's trying to bypass the issues with going public through an IPO, which has been criticized as a "free giveaway" to the underwriting banks.

That's because this deal increased the company's valuation sevenfold from its last funding 11 months ago, when private investors valued the company at $4 billion. Roblox's shiny new sticker price has reset expectations around what its shares are worth ahead of the first day of trading.

In a direct listing, a company doesn't set a price range. Instead, the stock exchange creates a "reference price" based on how much private investors paid just before the stock starts trading. 

Such a setup means employees and early investors looking to cash out have no idea what price they'll get until the day of the first trade. The company's financial advisers will gather up the orders and then communicate to the sellers what the demand is, so they can sell more if they like the price.

Read more: A Morgan Stanley trading desk headed up by a former NFL quarterback will play a central role in Palantir's and Asana's public debuts. Here's an inside look at how it'll all go down.

Alice Wilkinson (7) adds a face mask to her character on the game 'Roblox' at her home in Manchester, as the spread of the coronavirus disease (COVID-19) continues, Manchester, Britain, April 5, 2020.Phil Noble/Reuters

A bigger price for shares

The funding deal is good news for Roblox's earliest investors and employees. Now, the reference price will take into account the $45 a share that investors Altimeter Capital and Dragoneer Investment Group just paid, although a reference price is a guide, not a guarantee.

In December, Roblox had publicly shared its S-1 in preparation for a more traditional IPO. But then it hit the pause button, hoping to fetch a higher share price for the company after seeing how Airbnb and DoorDash left millions of dollars on the table in their trading debuts, an anonymous source told Reuters.

In other words, the companies sold their initial shares to institutional investors for a much lower price than public investors were willing to pay. The price of the shares skyrocketed when trading commenced, meaning that first day of trading "pop" put money into the pockets of the new investors, not the company or the existing shareholders.

Read more: DoorDash's IPO made its founders into billionaires. But VC Bill Gurley says it was mostly a 'free giveaway' to the banks.

The other benefit that Baszuck pointed out in his email: a direct listing allows existing shareholders to sell right away, unlike an IPO which typically has a "lock up" period preventing them from selling. The idea is to create scarcity and keep the share price higher during that time. By registering all outstanding shares right out the gate, Baszucki said they avoid "artificially" limiting supply. 

"Direct listings take into account supply and demand in an efficient manner, which should lead to less volatility and more market-based pricing," he wrote.

The company will also skip the time-suck and paperwork drudgery of a roadshow, a process of traveling around with the underwriting bank pitching the company to prospective institutional investors.

With a direct listing, shares are not sold to institutional investors at a set price before the public can buy them. 

"Direct listings create a market where future investors, both big and small, can buy shares at the same price," Baszucki wrote.

He did not clarify Roblox's timeline for going public.

Are you a Roblox insider with insight to share? Contact Melia Russell via email at mrussell@insider.com or on Signal at (603) 913-3085. Open DMs on Twitter @meliarobin.

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