London-based metaverse startup Improbable has turned its first profit after a choppy period at the startup which saw it sell off parts of the business and make layoffs.
Improbable announced today that it made a pre-tax profit of £13m in 2023, according to the company’s latest financial results, shared with Sifted ahead of wider publication. It follows the company reducing its losses, from £150m in 2021, to £19m in 2022.
While revenues fell from £78m in 2022 to £66m in 2023, the company leapt into the black thanks to the sales of two of its subsidiaries, multiplayer games services company The Multiplayer Group (MPG) and its defence business.
It’s going to be doubling down launching and developing companies to exit — which founder and CEO Herman Narula tells Sifted could be the company’s biggest earner going forward.
“We’re quite happy to take profit from asset sales when companies have matured — and it’s likely that that’ll dwarf our overall revenue,” says Narula.
Path to profitability
Founded in 2012, Improbable rose to prominence in 2017 when it raised a $502m round from investors including Andreessen Horowitz and SoftBank to develop its platform for third parties to build virtual worlds.
In 2022, after raising £100m and hitting a valuation of $3bn, the company started to make cutbacks, laying off a reported 10% of its 950-strong workforce. It also closed down Improbable’s operations in China and sold two game development studios.
The company said it was targeting profitability that year, The metaverse startup now tells Sifted, however, it didn’t hit that goal due to the crypto market suffering — where lots of its customers, and therefore revenue opportunities, are based — as well as the costs of restructuring the business.
“We’ve been restructuring how we operate into this new model. We’ve been juggling that while trying to grow revenue,” Narula says. “Trying to do both of those things at once was like playing while changing the pieces.”
Improbable has since made around 60 more layoffs, the company tells Sifted. It also sold off parts of the business as it shifted to focusing on the metaverse and venture building.
At the end of 2023, Improbable sold MPG for £76.5m — whose workforce it grew sixfold to 360 employees after acquiring it for £30m in 2019. Its defence arm was also acquired for an undisclosed sum earlier that year — which Sifted understands brought in less money than the MPG sale.
Going forward the company’s revenue for 2024 will come from “contracts and activities” from ventures it has built or owns a stake in.
Venture building
So far, Improbable has launched and invested in seven startups, including metaverse infrastructure company Msquared — which raised $150m in 2022 from investors including Andreessen Horowitz and SoftBank.
It will look to build startups in sectors like AI, blockchain and the metaverse, investing across infrastructure companies that serve as platforms for businesses and those with a consumer focus.
While the company hasn’t set aside a fixed amount to invest in startups, Narula tells Sifted it doesn’t anticipate backing more than four to five startups a year — and it will only hit those numbers if it sees “enormous quality” in the market.
Improbable has £185m cash in the bank to play with, which Narula says would equate to a “multi-year” runway even if the company had no revenue. The business also won’t ever need to tap investors for capital again, he adds.
But the Improbable’s balance sheet could continue to swing between the red and black over in the coming years because of the nature of deriving most of its earnings from the sale of ventures, says Narula.
“It’s going to look a bit spiky,” he tells Sifted. “It can be unpredictable when you see the right opportunity to realise profit or value from an asset. There will be some blowout years and others which are not as good.”
Read the orginal article: https://sifted.eu/articles/improbable-profit-venture-building-news/
