20VC Unity 3D's David Helgason on Building a $bn Business, Getting Funded By Sequoia and Powering The Pokemon Revolution

In this episode of "20 Minutes VC," host Harry Stebbings interviews David Helgason, founder and board member of Unity 3D, following Unity's substantial $181 million Series C funding, which valued the company at $1.5 billion. Helgason discusses the early challenges of starting Unity, including multiple rejections from venture capitalists before securing investment from Sequoia Capital, and his decision to focus on programming, which he had a passion for. He also touches on the impact of the App Store's rise on Unity's growth, Unity's venture into VR and AR platforms, and the importance of diverse monetization strategies in the gaming industry. Additionally, Helgason reflects on the company's journey, from borrowing money to building a profitable business and the decision to remain independent in the face of acquisition offers, attributing much of Unity's success to the democratization of game development.

• Unity 3D is a platform revolutionizing the gaming industry by enabling studios of all sizes to create games and monetize them.
• David Helgason co-founded Unity in 2003 and served as CEO until 2014, leading the company through several funding rounds.
• Unity recently raised $181 million in Series C funding, valuing the company at $1.5 billion.

Now, today's show is immensely pertinent as we welcome David Helgeson, founder and now board member at Unity three D. Now, the pertinentness lies in the fact that just last week Unity raised $181,000,000 in series C funding, with the company's valuation reported to be $1.5 billion.

This quote introduces David Helgason and highlights the recent success of Unity 3D in securing substantial Series C funding, emphasizing the company's growth and market impact.

• David Helgason is Icelandic by birth and began programming at the age of eleven.
• He has a diverse educational background, having studied subjects like psychology, Arabic, physics, and computer science, but did not complete a bachelor's degree.
• Helgason's curiosity led him back to programming, where he found his passion and patience, ultimately leading him to found several companies, including Unity 3D.

I was programming since I was like eleven or something. I wasn't like the most genius at programmers, but I was pretty damn good and sort of built a little bit of a kind of fleshling career of that after high school.

This quote provides insight into Helgason's early interest in programming and self-assessment of his skills, which laid the foundation for his future career in technology and entrepreneurship.

• Helgason and his co-founders initially aimed to create games but discovered a passion for the technology they were developing.
• They recognized the potential of their user-friendly platform in an industry lacking in this aspect.
• The idea of democratizing game development became the company's founding principle.
• They anticipated the rise of indie game developers and positioned Unity 3D to empower that movement.

So we were building this technology to make the game and building and building and building. Eventually we sort of realized that we had a passion for the tech and that we built kind of a platform that didn't do much, but it had some nice aspects and it was usable, like it was user friendly.

This quote describes the pivot from game development to technology development, highlighting the co-founders' realization of their platform's potential due to its user-friendly nature.

• The early years for Unity 3D involved building the technology and platform, which was a challenging process.
• The co-founders maintained a positive outlook despite difficulties, driven by their belief in the platform's potential and the idea of democratizing game development.
• Co-founder Nicholas Francis predicted the rise of indie game developers, which aligned with the company's vision to support and power this emerging sector.

And we sort of went that direction basically with the idea that we would power that revolution, which we didn't create it, but we were definitely part of helping it further, which is wonderful.

This quote captures the essence of Unity 3D's mission to facilitate and support the revolution of indie game development, acknowledging the company's role in advancing this sector.## Decentralization of Gaming

• The App Store has facilitated a shift from gaming being dominated by key players to being accessible to everyone.
• This change parallels the impact of home studios on the music industry and digital video on filmmaking.
• The App Store, alongside tools like Unity, has revolutionized gaming by enabling wide distribution.

"One of the sort of ideas also that the company was founded on was that tools can revolutionize industries." "And the bit we missed, actually, is that distribution is kind of the other part." "Apple kind of revolutionized that with the App Store."

These quotes highlight the foundational belief that tools can transform industries and acknowledge the overlooked importance of distribution. The App Store's impact on gaming distribution is likened to a revolution.

• Unity's growth was significantly boosted by the launch of the iPhone and the App Store.
• The App Store provided an unprecedented distribution platform, aiding Unity's rise.
• Unity capitalized on the mobile gaming market, which was less focused on by traditional console gaming companies.

"No, the rise of the iPhone first and the App Store and that was just kind of the perfect. I think in space travel they call it gravity lift for us." "We were kind of the only player there for quite a while, of course, because all the money was in console gaming."

These quotes express how Unity's success was intertwined with the rise of the iPhone and the App Store, providing a "gravity lift" for the company's growth. Unity filled a niche in mobile gaming that was not the main focus for console gaming companies.

• Console gaming has not ended despite rumors and expectations.
• Console platforms have adapted by opening up more and becoming more accessible.
• A diverse gaming industry with various revenue streams is considered healthy for all stakeholders.

"I mean, there's sort of that rumor and expectation, but I mean, the console guys kind of reinvented themselves." "Seems to be no end to that, which I think is good because frankly, for the game industry, having a lot of different ways of making money, a lot of different types of products is just really healthy for everybody."

The speaker dismisses the notion that console gaming is ending, pointing out that console platforms have evolved and that diversity in the gaming industry is beneficial.

• Apple's introduction of paid search and subscriptions to the App Store could diversify monetization strategies in the gaming industry.
• The industry has been leaning towards a monoculture with a heavy reliance on microtransactions.
• The changes could revive more traditional monetization models, like subscriptions, which were common in older MMOs.

"It's really just healthy for the ecosystem to have many different ways of monetizing." "It's really wonderful that we may be able to see a world where this kind of slightly old fashioned, by now subscription relationship to their customers."

The quotes discuss the potential benefits of Apple's App Store changes, suggesting they could lead to a healthier ecosystem with diverse monetization methods, including a revival of subscription models.

• Unity's initial pricing was naively decided, inspired by the Macromedia (now Adobe) business model.
• An article by Joel Spolsky on software pricing influenced their approach, suggesting two price ranges: under $1,000 and over $100,000.
• Unity chose the lower price range and has maintained similar pricing, transitioning to a subscription model over time.

"We picked the Macromedia business model, which is sort of like, morphed into the Adobe business model, which was professional software, roughly a user." "And he had written this kind of a blog about software pricing."

These quotes explain Unity's early pricing strategy, which was based on existing models and informed by insights from a prominent software blogger, Joel Spolsky.

• Unity pursued a multiplatform strategy early on, supporting an extensive range of platforms.
• The company invested years of engineering to maintain this competitive advantage.
• VR and AR are seen as exciting but currently small platforms, divided into mobile VR, room scale VR, and mobile AR.

"When many platforms, we went multiplatform extremely early and dramatically so." "With VR and AR, which is sort of a number of platforms, you can sort of split it into mobile VR, room scale VR, and then AR, which has to be mobile."

The speaker discusses Unity's strategic decision to support a wide array of platforms from an early stage, and how they are approaching the nascent VR and AR markets. They categorize VR and AR into specific types, indicating Unity's nuanced understanding of these platforms.## Developer Platform Adoption

• Developer adoption is crucial in the early lifecycle of a platform.
• Growth in developer numbers typically slows down as the platform matures.
• Being present on emerging platforms like VR early is important due to customer demand.

"the developer adoption of that platform is actually completes the lentil. And the upside, the growth of developers happens early in the platform's lifecycle and then slows down before the platform has finished growing. So for this reason, VR is very important to us. Our customers want to be there and so we have to be there early. So we went there early."

The quote emphasizes the importance of early adoption for developers on new platforms, using VR as an example, to meet customer expectations and capitalize on growth opportunities.

• AR is considered to be in a more nascent stage than VR with fewer devices and more prototypes.
• AR is anticipated to be massive, particularly for business uses, in contrast to VR's entertainment focus.

"AR is sort of slightly further out yet, right? Even fewer devices are in the market. It's more prototypey than VR. It's going to be massive. It's going to be massive in a very different way."

The quote discusses the potential of AR technology and its expected significant impact on businesses, despite its current early stage of development compared to VR.

• The fundraising journey involved initial failures at securing venture capital.
• The company resorted to borrowing money and building a profitable business through traditional means.
• The industry was small and the market was undeveloped, which justified investors' reluctance.

"we tried and failed to raise venture capital... we went and borrowed money from somebody's father, from the bank, and then we sort of just built a profitable business in the sort of old fashioned way back in the day."

The quote narrates the initial challenges faced in fundraising, leading to reliance on personal loans and self-sustaining growth.

• The company was perceived as a small, unconventional team without industry veteran status.
• Despite early growth indicators, the company had limited customers and cash flow, which made fundraising difficult.

"Just like we were this small kind of weirdo team out of Copenhagen, and we were not even game industry veterans and we had few customers. And the growth was kind of there."

This quote reflects on the company's humble beginnings and the challenges faced due to market perception and financial constraints.

• Hiring a banker to assist with fundraising was a key strategic move.
• The financial model created with the banker's help was instrumental for several years.
• The company's visibility increased with the launch on the App Store, attracting U.S. VC interest.

"So when we sort of had become this kind of 1015 people, we decided, okay, now we have to raise venture capital. We hired a banker... The App Store opens up, we launched for that. And that's when the Silicon Valley and the US VC started noticing us."

The quote details the strategic decision to hire a banker for fundraising and how launching on the App Store played a role in gaining VC attention.

• Meeting Diane Green, a seasoned entrepreneur, was a pivotal moment.
• Diane Green's endorsement and introductions to top-tier VCs like Sequoia were crucial.
• The company's existing term sheets and performance made the pitch to Sequoia less daunting.

"I ran into her. She got really excited and offered to be an angel investor in the company. And then when I told her I wanted to raise a real round, she introduced me to a couple of top tier vcs, including Sequoia..."

The quote recounts the fortuitous encounter with Diane Green and how her support and connections led to significant venture capital opportunities.

• Timing of pitching to preferred VCs can be strategic.
• The transparency of the VC world can lead to information about rejections spreading.
• Top VCs are often better at recognizing and betting on companies with potential.

"Yes, there is an argument for that. It is a very transparent world, or like sort of leaky world. So you meet a lot of people, they start turning it down. That can leak out."

The quote suggests that pitching to desired VCs later in the process can be beneficial but also acknowledges the risk of negative information circulating in the VC community.

• The selection of VCs was somewhat reciprocal, with top VCs showing interest in the company.
• After numerous rejections, the company received multiple term sheets, favoring those from prestigious VCs.
• The best VCs are characterized by their courage and ability to recognize companies with great potential.

"We got 45 rejections or so, and then in the end we had five term sheets and it was very biased towards the better vcs. We had two very good vcs and then sort of like a handful of lesser ones, and we had pitched very broadly."

This quote reflects on the extensive rejection experience before finally securing term sheets, with a preference for top-tier VCs who were able to see the company's potential.## Decision to Stay Independent

• The company had a foundational idea to democratize game development.
• Acquisition offers were evaluated against the company's core mission.
• Decisions to remain independent were easy when acquirers' interests did not align.
• A sense of pride and belief in the company's direction influenced the decision to not sell.

"And we're sort of pretty much run on this idea that we wanted to democratize game development."

This quote explains the company's guiding principle, which is to make game development accessible to more people, and how this principle influenced their decision-making regarding potential acquisitions.

"There was a couple of times when we could have probably made some money, but the acquirer was clearly not aligned with that idea."

Here, it is highlighted that financial gain was not the sole consideration for the company; alignment with their vision was a key factor in rejecting acquisition offers.

• Books outside the business genre, like "Guns, Germs, and Steel," have influenced strategic thinking.
• "Guns, Germs, and Steel" provides a macro view of historical competition, which can be applied to business.
• Business-focused literature like "Blue Ocean Strategy" also shaped thinking but to a lesser extent.

"Guns, germs and steel just kind of lays out a view of the history of the world through technology and germs."

The quote indicates that the book offered a broad perspective on historical developments, which helped in shaping a strategic mindset towards business competition.

"It is just a book that stuck in my brain because it's just kind of a big, kind of macro view of how kind of, in this book's case, kind of civilizations kind of compete in sort of big systemic ways."

This quote emphasizes the impact of understanding large-scale historical competition on the approach to modern business competition.

• Striving for a monopoly is a common goal in startups.
• Actual monopolies are rare, and competition along the way is inevitable.
• Competition is believed to keep companies efficient and focused.

"But, yeah, you're striving for monopoly every day."

This quote succinctly captures the entrepreneurial ambition to dominate a market, which is a common goal among startups.

• Pride in the company's growth and the hiring of key early employees.
• Acknowledgement of luck alongside hard work and good decisions.
• Transitioned from CEO to an advisory role within the company.
• The company has grown to over 1000 employees and is performing well.

"We worked unbelievably hard. We hired some absolutely wonderful people also very early on that were sort of instrumental in making the company work."

This quote reflects on the hard work and importance of early hires in the success of the company.

"I stepped back from the CEO more than a year and a half ago."

The quote indicates a shift in the speaker's role within the company, moving from CEO to a more advisory position.

• Diane Green has been a significant mentor in building a real software company.
• Mentoring involved guidance on both product decisions and business decisions.

"But no question it was Diane Green."

This quote identifies Diane Green as the most influential mentor for the speaker, highlighting the importance of mentorship in career development.

• No plans to start another company due to ongoing involvement with Unity.
• Unity offers a fulfilling environment with projects and innovative teams.
• Engagement with startups and entrepreneurs provides inspiration.

"Almost certainly not. Plus, unity keeps me busy."

This quote indicates a commitment to Unity and suggests that starting a new company is unlikely due to the demands of current engagements.

"I love working with crazy entrepreneurs that are working hard and creating new things."

The speaker expresses enthusiasm for supporting and collaborating with entrepreneurs, indicating a passion for innovation and startup culture.

• Thanks to David for sharing his journey and the rise of Unity 3D.
• Encouragement for listeners to follow the podcast and sign up for newsletters.
• Promotion of DesignCrowd as a resource for entrepreneurs and startups.

"I told you that was a fun episode with David."

Harry Stebbings expresses gratitude to David for participating in the podcast and sharing valuable insights.

"They are the online marketplace for custom graphic, logo and web design and they help startups, entrepreneurs, web developers and even agencies outsource design projects."

This quote promotes DesignCrowd as a useful service for the podcast's entrepreneurial audience, highlighting its benefits for design needs.