Mobile esports company Skillz has begun trading on the New York Stock Exchange to become the latest company to take advantage a boom in the game industry.
The company will have a multibillion-dollar valuation as it public through a quick initial public offering process known as a special public acquisition company (SPAC). This has become a popular way for fast-moving companies to go public without all the hassle of a traditional IPO. SPACs are set up by managers who raise money in a blind shell company, and the investors don’t know what they’re putting their mon
Skillz is technically merging with Flying Eagle Acquisition, which is led by the same financial team that brought DraftKings public through a SPAC.
It’s a big day for the three-time founder, CEO Andrew Paradise. He launched the San Francisco startup launched in 2012 with a simple proposition and stuck to it, Paradise said in an earlier interview with GamesBeat. Skillz provides a platform to turn any mobile game on iOS and Android into one you can play with friends or strangers for cash, prizes, or points. And it enables esports tournaments for games that integrate its platform.
In its most recent third quarter ended September 30, the company reported revenues of $60 million, and it has reported higher engagement thanks to the pandemic, much like the rest of the game industry.
Skillz has a relatively small base of 2.7 million monthly active users, but the keyword on that is active. In 2020, Skillz expects to power more than 2 billion tournaments, including 500 million paid entry tournaments, and facilitate $1.6 billion in paid entry fees generating $225 million in revenue. The average revenue per user is $6.93.
The SPAC called Flying Eagle Acquisition, headed by Bethesda owner ZeniMax and DraftKings SPAC veteran Harry Sloan, raised $690 million as a publicly traded entity. It is acquiring Skillz, at which point the public shell company will essentially become Skillz. On top of that, institutional investors put money into the new company using private investments in a public company (PIPE). In this case, institutions invested more money in PIPEs, giving Skillz access to even more money.
Paradise is a serial entrepreneur who began as an inventor. He started web media and advertising company Double Picture in 2008 and later sold it to MPA. In 2010, he founded AisleBuyer, a virtual shopping assistant that created a mobile self-checkout system. He sold that to Intuit in 2012 for an estimated $80 million to $100 million. Then he teamed up with Casey Chafkin to cofound Skillz. They brought in some engineers who took big pay cuts to build the platform.
There were some “near-death experiences” along the way, Paradise acknowledged. Many people were initially skeptical since conventional wisdom was that esports would do best on hardcore platforms such as PCs and consoles. Mobile seemed too casual.
But mobile esports caught on in a huge way. Skillz took a cut of the transactions on its platform and made ad revenue as well. It took more than 36 months for the company to generate its first $50 million annual run rate or the money it generated in the trailing 12 months. But it took just eight more months to hit a $100 million run rate in May 2017.
By 2018, Skillz had hit a $400 million run rate. Rivals like Sony and Amazon took Skillz on, but they faltered. Skillz continued to grow, and it now has more than 200 employees.
Skillz plans to use the proceeds to accelerate growth in domestic and international markets, support marketing efforts, and provide additional working capital.
LionTree Advisors and Jefferies are acting as financial advisors to Skillz, and Winston & Strawn is acting as a legal advisor. Goldman Sachs is acting as financial advisor to Flying Eagle and the exclusive placement agent for the PIPE. White & Case is acting as a legal advisor to Flying Eagle.
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