Fortnite Game Drives $1.25B Investment

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Includes: ADSK, AMZN, ATVI, AYX, DIS, EXPE, FLARE, FLEX, GOOG, GOOGL, IBM, INTC, MSFT, SFTBF, SFTBY, SIEGY, STNE, TCEHY, TCTZF, UBER, VWORK
by: VCDeals

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Global secondary transactions in VC-backed companies have skyrocketed in size this year, according to PitchBook. In 2018, 80 deals have involved a total $10.8B in capital invested compared to the 181 deals and $1.6B last year. The year kicked off with the closing of the SoftBank-led (OTCPK:SFTBF, OTCPK:SFTBY) $8B backing in Uber (UBER). Other notable deals: GPI Capital-led $500M in LegalZoom, Silver Lake’s $500M in Credit Karma, and another $600M for Uber.

Fortnite studio: Tencent-affiliated (OTCPK:TCEHY, OTCPK:TCTZF) Epic Games raises $1.25B on the back of its blockbuster game Fortnite. The round included KKR, Iconiq Capital, Kleiner Perkins, and Lightspeed Venture Partners. Tencent is a minority shareholder along with Disney (NYSE:DIS) and Endeavor.

Epic Games creates the Unreal game engine and, until Fortnite, released free-to-play games basically just to show off what the engine can do to potential buyers. Now Epic has been able to cut prices on the engine while still upgrading the technology. The changing tide has allowed Epic to reinvest into esports tournaments like the $100M prize pool for Fortnite competitions.

Competitors: Unity Technologies’ game engine Unity and larger game companies like Activision Blizzard (NASDAQ:ATVI).

Automated machine learning: Intel (NASDAQ:INTC) Capital participated in a $100M Series D funding for automated machine learning company DataRobot. Meritech and Sapphire Ventures led the round, which brought total funding up to $225M. Other participants were DFJ Growth, NEA, and IA Ventures. Meritech’s Rob Ward and Sapphire’s Jai Das have joined the board.

DataRobot develops technology to automate building and operating machine learning models. Customers have built more than 1B models on its machine-learning platform. The new infusion will go towards expanding its product portfolio including automating data science initiatives and continue expanding global operations.

Competitors: Data science and machine-learning platform providers include IBM (NYSE:IBM), Alteryx (NYSE:AYX), and Amazon (NASDAQ:AMZN) Web Services.

Industrial smart robots: Flex (NASDAQ:FLEX) smart robots spin-out Bright Machines came out of stealth with a $179M Series A from Eclipse Ventures. Axios’ Kia Kokalitcheva first reported on the deal in May when the startup was called Auto. At that point, the company had existed for about 10 months and already had 400 employees and “tens of millions of dollars in recognized revenue.”

Bright Machines wants to bring manufacturing companies a software-driven approach to robotics using automation to make AI and machine learning more accessible. The setup involves a subscription model that lets customers put up custom manufacturing lines as needed for lower costs. The startup was founded by former Autodesk (NASDAQ:ADSK) co-CEO Amar Hanspal, and the board is packed with former Autodesk CEO Carl Bass, Flex CEO Mike McNamara, and Seagate CEO Steve Luczo.

WeWork (VWORK) competitor: Knotel raised $60M in a round led by Norwest Venture Partners with participation from Newmark Knight Frank and Bloomberg Beta. Total funding now stands at $160M.

Knotel stands apart from behemoth WeWork by offering flexible work spaces for businesses only and by striking deals with landlords that offer the owner a share in revenue. The startup will use the funds to expand into new markets and to add locations where it already exists. Knotel currently operates in nearly 100 locations in New York, San Francisco, London, and Berlin. Office space has doubled in the last six months to over 1.7M square feet.

Smart thermostats: Amazon participated in a $50M round in German smart thermostat startup Tado. Amazon’s Alexa Fund has previously backed competitor Ecobee and Amazon acquired smart security company Ring. Other investors in the round included E.On and Total Energy Ventures. Total funding now stands at $102M.

Tado’s business is built around pairing the standards smart home functions like turning on/off the AC with your smartphone with deep data analytics of different system manufacturers to modulate controls and offer remote diagnostics. Tado will use the funding to develop new products and expand current service offerings like a boiler maintenance program pairing analysis with a network of 40K heating engineer partners. The company also hopes to deepen utility partnerships to build out energy savings programs.

Data warehouse startup: Siemens’ (OTCPK:SIEGY) VC firm Next47 led and GV (GOOG, GOOGL) took part in a $48M Series B round for data warehouse startup Yellowbrick Data. DFJ, Samsung Ventures, Menlo Ventures, and Third Point Ventures participated. Yellowbrick has now raised a total of $92M.

Yellowbrick has existed for about four years but emerged from stealth in July with a $44M round that included GV. The startup’s platform serves as a repository for holding and querying data to help companies quickly analyze data for trends and patterns. Yellowbrick primarily focuses on on-premises datacenters and private or hybrid clouds but wants to add public clouds in the future. The new funds will help accelerate adoption of its platform for the hybrid cloud.

Competition: Data warehousing is a busy space including Microsoft’s (NASDAQ:MSFT) SQL Data Warehouse, Google’s BigQuery, and Amazon Redshift. Rising startups include Incorta and Snowflake Computing.

Exits: Brazilian fintech StoneCo (NASDAQ:STNE) raised $1.2B in an IPO. The Square competitor counts Alibaba’s Ant Financial and Berkshire Hathaway among its large stakeholders. Expedia acquired hospitality startups Pillow and ApartmentJet.

Exiting: Web Performance software company Cloudflare (FLARE) is reportedly gearing up for a $3.5B IPO next year.

New fund: Tiger Global launched a new fund with $3.75B in committed capital. Private Investment Partners XI will invest in consumer internet and cloud software and direct-to-consumer companies in China, India, and the US. Private Investment, Tiger’s eleventh fund, closed on October 15 after six weeks of marketing.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.