Participated · Equity · Apr 2021

Epic Games is the maker of Fortnite and the Unreal Engine, and has expanded Fortnite into a hub of user-generated game modes and brand collaborations. The company is broadening its scope with standalone titles like Lego Fortnite, Rocket Racing and Fortnite Festival and operates a lucrative in-game store for skins and digital goods. Epic will use Unreal Engine and its online social gaming infrastructure to build an “all-new games and entertainment universe” in partnership with Disney. The collaboration will bring characters and storylines from Disney, Marvel, Star Wars, Pixar and others into interoperable experiences tied to Fortnite. Disney’s $1.5 billion equity stake accompanies the partnership and signals a major strategic entry into games for Disney. The project aims to let players “play, watch, shop and engage” and is described as persistent, open and interoperable, with a release timeframe described as “soon(ish).” Epic Games is best known as the maker of Fortnite and as a platform for social, interactive entertainment. The company is partnering with Lego to build a kid-focused metaverse and says the product will prioritize child safety, privacy, and tools that give users control. Epic frames the planned digital experiences as family-friendly spaces that empower children to be creators and explore connections between digital and physical worlds. The company announced a $2 billion capital infusion to accelerate those efforts and support continued growth. Epic emphasized three safety principles for the project: prioritizing children’s well-being, safeguarding privacy, and equipping users with control over their digital experience. There is no timeline or detailed product description yet for the proposed virtual world. Epic Games is best known for the blockbuster Fortnite and also provides core developer tools such as the Unreal Engine, Epic Online Services, and the Epic Games Store. The company says it is focused on building connected social experiences across Fortnite, Rocket League and Fall Guys and on empowering game developers and creators. Epic has been using its cash to acquire studios, including the March acquisition of Mediatonic, maker of Fall Guys. Management, led by controlling shareholder and CEO Tim Sweeney, frames the company’s work as part of a broader Metaverse strategy. Epic has an ongoing legal battle with Apple and Google over in-game payment revenues that has been consuming company attention. The company’s latest fundraise values it at an equity valuation of $28.7 billion. Epic Games operates Fortnite, one of the world’s largest games with over 350 million accounts and 2.5 billion friend connections, and develops Unreal Engine, which is used across games and industries such as film, architecture, automotive, and simulation. Through Unreal Engine, Epic Games Store, and Epic Online Services it provides an end-to-end digital ecosystem for developers and creators to build, distribute, and operate games and other content. The company has over 40 offices worldwide with headquarters in Cary, North Carolina and was founded in 1991. Epic announced a $1.78 billion funding round consisting of primary capital and secondary purchases from employee equity holders, and its post-money equity valuation is $17.3 billion. Investors named in the round include Sony (a previously announced $250 million strategic investment), Baillie Gifford, funds and accounts managed by BlackRock, Fidelity Management & Research Company, Lightspeed Venture Partners, the Ontario Teachers’ Pension Plan Board, funds and accounts advised by T. Rowe Price Associates, David Tepper, and existing investors KKR and Smash Ventures. Epic said the financing will accelerate its efforts to build a new kind of digital ecosystem using real-time 3D technology, services that connect hundreds of millions of people, and a digital storefront offering a fair business model; the company will remain controlled by founder and CEO Tim Sweeney and retain a single class of common stock. Epic Games is the creator of Fortnite and the long-running Unreal game development engine. The company has historically released free-to-play games as a loss leader to showcase its Unreal toolkit. Fortnite’s massive success has allowed Epic to reduce Unreal Engine prices while continuing to upgrade the technology. Epic recently raised $1.25 billion in a new round of financing and has been reinvesting cash into the community, including a $100 million commitment to Fortnite esports competitions. The company’s cultural impact includes dance crazes, merchandise tie-ins, and broader mainstream attention. Tim Sweeney remains in control of the company while new investors have joined its cap table.