How did Animoca Brands transform from being forced to delist to becoming a big winner in the crypto market?

Author: Richard Lee

Animoca Brands was founded in 2014 and is headquartered in Hong Kong. It is the developer of blockchain games such as the sandbox game The Sandbox and the F1 racing game F1 Delta Time. In the current wave of enthusiasm for NFTs and the metaverse, Animoca Brands is considered one of the biggest winners, with The Sandbox being one of the hottest NFT projects. Additionally, it is an early investor in star projects like Axie Infinity developer Sky Mavis, Decentraland, and Dapper Labs, having invested in over 150 NFT/metaverse projects to date.

In fact, Animoca Brands was still a company focused on traditional mobile game development two years ago and was delisted from the Australian Securities Exchange for various reasons. Now, the company has achieved a revenue of $670 million in just the first three quarters of this year, becoming a unicorn in the NFT space.

For most people, Animoca Brands seems like a sudden emergence of a leading player in the crypto industry. So how did it get started, and where is it headed?

1. Resurrection

This company, co-founded by tech entrepreneur Yat Siu in 2014, was not well-known in the mobile game development and publishing industry until it ventured into blockchain at the end of 2017, with its business scope even briefly including e-books.

Animoca Brands went public on the Australian Securities Exchange (hereinafter referred to as "ASX") in January 2015, but its long-term performance was mediocre, and it repeatedly raised funds to supplement its cash flow. According to Crunchbase data, Animoca Brands conducted a total of nine rounds of IPO financing from 2015 to 2019, raising a total of $34.3 million to promote various mobile games, e-books, VR, blockchain games, etc., but the results were minimal at that time.

By the fourth quarter of 2017, its quarterly operating cash flow had been negative. Data showed that the company's stock price fell from a previous high of 0.2 AUD in August 2017 to below 0.01 AUD, a drop of over 95%.

Source: 61finance

In the second half of 2017, under pressure from ASX regarding performance inquiries, Animoca Brands implemented three reforms to cut costs and increase revenue: adjusting executive compensation structures, selling non-core assets, and laying off staff, with all executives taking a 50% pay cut. That year, the company sold 318 of its 524 mobile games for a total of $8 million—most of which were casual games. Additionally, the total number of employees decreased from over 110 to less than 70.

By early November of this year, the company's global employee count had reached 527, and it had become a giant in the NFT space. What happened in between?

The change began in early 2018. Animoca Brands' executive chairman and co-founder Yat Siu told Chain Catcher that at that time, Animoca Brands acquired a game company that had participated in the development of Cryptokitties. Cryptokitties was one of the hottest early blockchain games at the time.

"This was our first foray into blockchain games and NFTs. We immediately realized the power and benefits of this, and how NFTs could bring about a disruptive revolution in the existing gaming industry by providing players with digital ownership," Yat Siu stated. From that point on, Animoca Brands began to focus on NFT-based games.

In January 2018, Animoca Brands signed a one-year licensing and distribution agreement with the development team of Cryptokitties, Axiom Zen. Animoca Brands gained exclusive rights to distribute Cryptokitties in China, receiving 30% of the net revenue.

In August of the same year, Animoca Brands acquired Pixowl, the developer of the user-generated content (UGC) platform The Sandbox, for $4.875 million. According to Animoca Brands' announcement, The Sandbox mobile game had over 1 million monthly active users at that time. Additionally, Pixowl planned to launch a blockchain version of the game.

"We acquired Pixowl and Sandbox for less than $5 million, proving to be a very successful investment," Yat Siu told Chain Catcher.

The Sandbox is currently one of Animoca Brands' most successful projects. As of December 21, the total market capitalization of The Sandbox token SAND was $4.7 billion, ranking 37th in the Coinmarketcap market, with a diluted market cap reaching $15.3 billion. At the same time, The Sandbox's virtual land trading volume remains high, with Republic Realm breaking the virtual land sales price record by purchasing land for $4.3 million on November 30.

Yat Siu told Chain Catcher that this acquisition in 2018 had many opportunities, including that one of Pixowl's supporters, Martin Varsavsky, is a startup friend of Yat Siu, and Pixowl had accumulated experience in brand IP, etc. "But most importantly, Pixowl and its founders had deep insights into blockchain and NFTs." Yat Siu believes these factors allowed the team to gain a leading position in both the blockchain and traditional gaming fields.

In the following October and November, Animoca Brands invested in Decentraland and Dapper Labs, respectively. In January 2018, Animoca Brands partnered with the WAX blockchain to introduce user-generated items for its game The Sandbox on the WAX platform, while both parties exchanged equity, swapping $250,000 worth of company stock for WAX tokens.

By the end of the 2018 fiscal year, Animoca Brands' revenue was still primarily supported by traditional mobile game sales, with cryptocurrency-related investments resulting in a loss of a few million dollars.

In November 2019, Animoca Brands completed another significant investment, leading a $1.465 million financing round for Axie Infinity developer Sky Mavis with $420,000—Axie Infinity had already emerged as a frontrunner in the blockchain gaming revenue rankings at that time. Meanwhile, it also acquired IP rights for sports-related blockchain games and NFTs through partnerships and acquisitions, including F1, Major League Baseball, and the Bundesliga.

At this time, ASX unexpectedly issued an inquiry letter and delisting warning.

According to subsequent disclosures from Animoca Brands, ASX pointed out three issues with the company: internal governance issues, extensive participation in cryptocurrency-related activities, and trading violations. The company did not back down regarding the accusations of participating in crypto activities; however, it acknowledged in its response that there were potentially non-compliant practices in its operations but did not disclose details.

In March 2020, ASX officially removed Animoca Brands from the listing due to "a lack of sufficient resources, systems, and controls to fulfill its obligations under listing rules." At that time, the company's total market capitalization was $124 million.

In fact, the impact of delisting was more reputational than financial—during five years of public fundraising, its stock price rarely saw significant increases. Delisting instead provided Animoca Brands with the space to operate without the worry of violating public company rules, allowing it to gradually enter the deep waters of the NFT field.

In 2020, Animoca Brands focused more on developing and expanding its own assets: The Sandbox publicly issued the SAND token and launched on Binance, while its F1 Delta Time game introduced the REVV token, and ecological activities such as NFT staking mining and NFT auctions were also launched from time to time.

On the other hand, Animoca Brands has acquired at least nine crypto companies in recent years, including the NFT marketplace QUIDD, the sports NFT ecosystem Lympo, the prediction market project Prosper, independent game developer Blowfish Studios, and NFT solution provider Bondly.

Currently, at least eight subsidiaries of Animoca Brands have issued tokens, but apart from The Sandbox, which was acquired, other projects have performed modestly in terms of market influence and token prices. Next, Animoca Brands plans to launch the AAA blockchain game Phantom Galaxies next year and collaborate with the well-known NFT project Bored Ape Yacht Club to launch a new game in the second quarter of next year.

2. More like an NFT a16z than a game developer

In the first three years of the crypto circle, Animoca Brands was like any novice in transformation, expanding its resource network and building internally. Recently, the company has been extending its reach into the crypto industry through extensive investments, building a vast ecosystem around NFTs and the metaverse.

Number of investments by Animoca Brands each quarter in recent years. Data source: Crunchbase

Entering 2021, Animoca Brands' investment pace has noticeably accelerated. As of December 24, Animoca Brands had made at least 81 public investments related to crypto, including well-known projects like Yield Guild Games, Bloktopia, GuildFi, ConsenSys, and DeHorizon. Moreover, the number of investments in the fourth quarter accounted for 51% of the total for the year, with leading projects accounting for over 36%.

In December, Animoca Brands also launched a $200 million blockchain game investment fund in collaboration with BSC, and the frequency of future investments may continue to maintain a fast pace. Currently, the company's official website shows that it has invested in over 150 NFT/metaverse projects.

Yat Siu told Chain Catcher that he believes projects related to the metaverse are more likely to drive mainstream adoption in the blockchain space. "NFTs represent the best opportunity to realize an open metaverse," Yat Siu stated.

In 2021, Animoca Brands' investment scale and number of leading investments significantly increased, averaging one investment every six days. This is closely related to Animoca's revenue growth and the acquisition of large-scale financing.

Source: Animoca Brands official website

According to the financial report released by Animoca Brands in early December, the total revenue for Animoca Brands from January to September this year was $670 million, with 79% of the revenue coming from investments and digital asset gains, approximately $529.6 million. By the end of November, the company held digital assets worth approximately $15.87 billion, including $112.1 million in mainstream tokens like BTC, ETH, USDC, and $456.3 million in third-party liquidity assets like AXS and FLOW, with most of the remainder being ecosystem tokens like SAND.

Additionally, Animoca Brands received several rounds of significant funding in May, July, and October this year, with star capital from both crypto and traditional sectors, including Coinbase Ventures, Samsung Ventures, Sequoia China, and Blue Pool, even attracting investment from Ubisoft's venture capital arm, with the latest round valuing the company at $2.2 billion.

In a blog post by Animoca Brands in March this year discussing "Why Invest in Yield Guild Games," Yat Siu attributed the company's aggressive investment behavior to the "ecosystem argument." This logic suggests that Animoca Brands invests in builders of the NFT ecosystem, even if they are competitors, ultimately benefiting as a producer of blockchain games and NFTs from the ecosystem.

"We believe that true digital ownership (virtual property rights) is the cornerstone of the entire open virtual world: ownership of digital assets can control them, leading to economic freedom and unlocking economic opportunities, paving the way for GameFi opportunities and a fairer society," Animoca Brands stated on its official website.

In its external declarations, Yat Siu's investment choices are often guided by "values." Yat Siu told Chain Catcher that Animoca Brands prioritizes investments in projects that develop an "open metaverse," rather than teams that set boundaries and barriers like Apple and Google.

In an interview with Decrypt, Yat Siu stated that he sees a confrontation brewing between the open, decentralized digital world and tech giants. For instance, at the end of October, the Web 2.0 social media giant Facebook used its name change as an opportunity to depict the virtual extended kingdom it is attempting to build.

Compared to regulatory policies, Yat Siu believes that tech giants like Facebook and Tencent, which typically monopolize data ownership, are the real "threat." Animoca Brands' "eager" investments aim to accelerate the emergence of that previous open metaverse.

In fact, Animoca Brands' investment style is easily reminiscent of a16z, both raising high stakes and investing frequently, weaving a vast network of resources and relationships within the crypto ecosystem. Currently, many emerging crypto projects are backed by these leading venture capital firms.

However, this investment style is also attracting some criticism. For example, the founder of Twitter recently tweeted that Web3 is not actually owned by users but by venture capital firms (VCs) and their LPs (limited partners), suggesting that Web3 is ultimately a centralized entity with a different label, even implying that a16z controls the Web3 concept.

In his view, venture capital firms actually control a large share of tokens in many Web3 projects and reap huge profits, falling far short of their vision and contradicting the spirit of Bitcoin. They should use their massive profits to fund true freedom and open-source software.

Such statements have sparked considerable dissent in the crypto industry, but undoubtedly provide us with more perspectives to consider, namely how venture capital firms can balance institutional interests with public interests. Given the significant controversy, a16z, Animoca Brands, and other venture capital firms may need to reassess this issue.