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SAN FRANCISCO — Unity Software Inc. Chief Executive John Riccitiello was soaked in irony as he prepared for a unique initial public offering.
Unity U, +15.47% , which develops software used to design and monetize videogames, was about to go public during a pandemic that has torn apart plans of all kinds, but it was a simple technology — WiFi — that scattered its carefully laid plans to the winds Thursday night. An ambitious 75-minute live webcast, including the first-ever virtual bell ringing in the 228-year history of the New York Stock Exchange, was in jeopardy because the planned location — a five-star hotel in Sausalito, Calif., with panoramic views of the Golden Gate Bridge — lost its wireless connection.
In the end, it was just another hurdle to manage for Unity’s executive team, which moved the event to Unity’s downtown San Francisco headquarters and still granted MarketWatch exclusive access to its executives for nearly 24 hours as the company went public. The glimpse behind the curtain showed the flexible and exhausting nature of the current IPO process, as the COVID-19 pandemic throws the typical Wall Street takeover out the window.
“I love New York, and I imagined the sloppy drunk excitement [of a traditional IPO], the physical hubbub,” a masked Riccitiello, sitting on a couch on the rooftop of his company’s San Francisco headquarters, said as the sun set Thursday evening.
However, the age of live video, as well as Unity’s bottoms-up culture, played to a virtual event rather than the real thing in lower Manhattan. Pitched by executives as an iconoclastic company whose values are to “be bold” and “in-it together,” Unity’s leaders chose a groundbreaking webcast and unique structure to its IPO.
“What you miss is the pomp and circumstance. I’m not for it anyway,” said Riccitiello, who welcomed his visitor with an elbow bump. Doing things remotely, he added, made the entire process “punctual and tight. Substance was two times better,” he said.
Unity’s successful so-called “UPO” in the throes of a pandemic punctuated a surreal week and year for the IPO market, which has only grown hotter as the pandemic has continued. More than 100 companies went public from June to August in the busiest stretch for IPOs since the dot-com boom ended in 2000, according to Lindsey Bell, chief investment strategist at Ally Invest.
IPO like it’s 1999: Snowflake and other software stocks pop as market nears dot-com-boom levels
The fact that plans changed dramatically wasn’t surprising during a year when nothing has been close to normal and everyone has had to accept disappointment. Some of the setbacks were not pandemic-related, however: Unity’s original request for the U3D ticker symbol was declined because NYSE does not allow numbers.
“I could say I wanted it to be about U, but that would have been a lie,” Riccitiello said. “There is no deep philosophy… though I did want [the ticker symbol] to be clever and suggestive.”
The unusual circumstances presented a “parallel universe” for Riccitiello and his executive team, and may have shown the New York Stock Exchange and other companies a new path for IPOs during the pandemic and beyond. For example, Chief Financial Officer Kim Jabal fervently believes the virtual “roadshow” — which allowed Unity execs to meet hundreds of investors online instead of in-person meetings in multiple cities — is here to stay.
“The roadshow, as we know it, will no longer exist,” Jabal told MarketWatch.
Rather than standing at the bell-ringing platform at the NYSE with a few members of his team, Riccitiello — the former CEO of Electronic Arts Inc. EA, +1.11% — had to pivot. What a team of 40 employees came up with over the past six weeks was a webcast spotlighted by a virtual bell ringing, and which NYSE officials see as a template for future IPO events.
Unity’s ‘marathon’ day
In the hours leading up to the stock’s debut trades, at least a dozen excited and tired employees — several of them wearing Unity-branded masks — gathered on the sixth floor of company headquarters in what they call a “control center” to produce the 75-minute live webcast. Some arrived as early as 3:30 a.m. A cameraman roams the hallways, filming the proceedings to document the day and provide lighting for remote interviews.
“This feels like marathon training, and we’re at the starting line,” one exec offered around 5:30 a.m.
Read more: Unity Software IPO: 5 things to know about the videogame-engine company
A visibly nervous Clive Downie, who as chief marketing officer had much to do with the webcast, was hoping for the best. (By 3 p.m., he’s palpably relieved. “I was quite anxious. It’s something that’s never been done before, and it behaved very well,” he said in the afternoon via a Zoom interview.)
“Commercial breaks” highlight dozens of employees in slick videos, lending an egalitarian touch to the proceedings. At one point, company Chief Technology Officer Brett Bibby appeared live from Copenhagen. It is a remarkably smooth operation for the most part, albeit with an occasional technical hiccup, such as when Riccitiello briefly could not hear a host during interview.
The highlight is a technological feat that plays into Unity’s wheelhouse: A virtual bell ringing at 6:30 a.m. on the West Coast, in which software allowed the faces of Unity’s 3,600-plus employees across 17 countries to be superimposed at the NYSE platform atop Riccitiello’s face as he rang the bell, letting all of them in on the fun.
New York Stock Exchange
“The virtual bell-ringing is a manifestation of the world moving to real-time interactive 3-D,” Riccitiello said. “This is not a pyramid, top-down organization. It is bottom-up.”
John Tuttle, vice chairman and chief commercial officer of NYSE, which worked for months with Unity on the virtual bell-ringing presentation, told MarketWatch he was thrilled with the result. So much so, in fact, he hopes to duplicate the digital feat with NYSE’s current list of companies and future IPOs.
“I was glued to it,” he said.
Read more: Unity stock surges in IPO debut — ‘This is not a normal company,’ CEO says
The IPO price was set at $52 on Thursday night, and Jabal and Riccitiello oversaw pricing and allocation rather than rely on investment banks. Under their plan, investors submitted bids for a certain price and number of shares they desired. Unity executives then chose a price based on where those bids landed. Investors who submitted an offer below that price, wouldn’t receive shares. Unity execs decided to allocate to investors who put in bids at or above the final price.
By around 7 a.m. on Friday, word circulated that shares would debut at $57 to $59 a share. That price quickly moved as bids come in, though, and by about 8:30 a.m. Pacific, the opening price has increased to $74 to $76, and demand was hot. To commemorate the first trade, Riccitiello and Jabal posed for a photo in front of a high-resolution TV screen showing a CNBC broadcast quoting a price of $74 to $76, below. It was an “Alice in Wonderland” moment. The first trade occurs just minutes later, at $75.
Unity Software
The rapid escalation in price would not be a surprise to those who have watched the IPO market as it heated up all week. Unity had already increased its target from a range of $34 to $42 to the $52 IPO price it eventually landed on, after seeing explosive IPOs from Snowflake Inc. SNOW, +0.68% and JFrog Ltd. FROG, +3.46% earlier in the week. Unity eventually ended its first day of trading 32.5% higher than the IPO price at $68.88. Its debut brought in $1.3 billion at a valuation of $13.7 billion.
Read more: Snowflake IPO surge makes it the priciest tech stock by a mile
The structure of Unity’s unique IPO sidesteps the typical lockdown period for most employees, which added to the festive nature of Friday’s proceedings. Developed with input from underwriter Credit Suisse and consultant Lise Buyer, the plan allowed workers to sell as much 15% of shares on the first day of trading, when they typically would have to wait months to sell.
“Some have worked hard as long as 15 years, and should be allowed to sell,” Jabal said. “The traditional IPO feels a lot about the investors, and not the employees. We wanted to create a process that felt innovative and data-driven.”
A second window for employee stock sales will take place sometime in November, after Unity announces its fiscal second-quarter results, Jabal said.
“The idea here is to get as many people involved as possible,” Timoni West, director of XR tools at Unity, told MarketWatch after participating on a panel with three other women as part of the 75-minute webcast.
The virtual UPO employee experience was a natural fit for Unity. Unity estimates its gaming engine, a software system that provides a framework in which developers can build their games, was in 53% of the top 1,000 mobile games on Apple Inc.’s AAPL, -0.10% App Store and Alphabet Inc.’s GOOGL, +0.84% GOOG, +1.20% Google Play in 2019. “Pokémon Go” and “Iron Man VR” are among the games developed using Unity’s software, which is also used for games published by EA, Take-Two Interactive Software Inc. TTWO, +0.33% , and others.
The product is similar to the Unreal Engine from Epic Games Inc., whose legal imbroglio with Apple has raised the profile of Unity. Unity filed its S-1 with the Securities and Exchange Commission on Aug. 24, shortly after Epic was booted from both app stores for disputing the 30% cut those tech giants get from carrying games like “Fortnite.” In its S-1, Unity said it believes it addresses a total market of about $29 billion “across both gaming and other industries.”
For more: ‘Fortnite’s’ impact could be Epic on antitrust investigations of Big Tech
At noon, pizza and salad was served to replenish execs and staff, adding some normalcy to a long day. For several hours, Riccitiello, Jabal, and other execs toggled between Skype and Zoom for interviews with seven TV broadcast affiliates and at least a dozen print and online outlets. Nonstop media appearances remain the main task of top executives during an IPO christening, and a draining experience.
MarketWatch
“These things make me nervous,” Jabal confides, before nailing a TV hit. An appearance by Riccitiello on Fox Business is abbreviated by a President Trump press conference.
All in all, an exhausted team of company executives, technicians, and marketing folks were thrilled with Friday’s outcome and celebrate back on the rooftop with Champagne, wine and cake, above.
“We should all be very proud. Today we made history and we did it the Unity way,” Riccitiello said in a toast to 25 employees and family members to end a marathon day. “Thank you everyone for your hard work in getting us to this moment.”
