Cambridge graduates' tech firm raises $500m

University correspondent(wp):

A five-year old British virtual simulation startup, co-founded by Cambridge computer science graduates, has been valued at more than $1bn after raising $502m (£390m) from Japan’s SoftBank.

The investment in the London-based firm Improbable is thought to be the largest made in a fledgling European tech firm.

Improbable uses cloud-based software to create virtual worlds for use in games as well as large-scale simulations of the real world. The capabilities of the company’s technology have been likened to The Matrix, in which humans plug into a simulated world powered by computers.

The business was co-founded in 2012 by Herman Narula, 29, and Rob Whitehead, 26, who met while studying computer science at the University of Cambridge, and Peter Lipka, 28, an Imperial College graduate who worked at Goldman Sachs before launching Improbable.

The three co-founders hold a majority equity stake in Improbable – meaning they share a paper fortune of more than half a billion dollars – with Narula holding enough voting rights to control the company. They are not taking any cash out of the business as a result of the investment.

SoftBank, which has put its managing director, Deep Nishar, on Improbable’s board, will have only a minority stake in the business. Narula, Improbable’s chief executive, said the company held talks with multiple investors but after a trip to Tokyo it was decided that Softbank had an “alignment of vision that made them the obvious choice”.

Narula and Whitehead, the chief technology officer, met at a dissertation review at Cambridge’s computer lab, where they discovered “a mutual interest in multiplayer games and virtual worlds” that put them on the path to creating the software that underpins Improbable.

“We talked about so many games and so many ideas about how games are made and run,” Narula said. “We believe the next major phase in computing will be the emergence of large-scale virtual worlds.”

Narula was born in Delhi, India; he moved to the UK when he was three and attended Haberdashers’ Aske’s boys school. He taught himself to write code using C++ at 12 and chose to pursue a career in computing rather than entering the family construction business.

After meeting Whitehead, a Liverpudlian who bolstered his student funds by making virtual weapons and selling them on the now defunct world of Second Life, he launched Improbable in 2012, months before graduating from university.

Improbable’s early days followed a familar tech startup path: credit cards were maxed out to buy equipment and a friends and family loan got them through the first couple of years in a converted barn next door to Narula’s family home in north London. Staffers ate, slept and coded there, with Narula and Whitehead reportedly holding interviews in the shower room.

The firm – which is now based in Farringdon, close to the so-called “silicon roundabout” tech hub in Shoreditch, east London – employs about 200 staff. It recently opened offices in San Francisco.

Narula is keen to distance the firm from the stereotypical US tech startup, as satirised in the TV show Silicon Valley, saying the founders seek to cultivate a distinctive British culture.

However, Improbable does offer perks including unlimited holidays, free breakfast and lunch, and a so-called life concierge to “relocate families, organise parties, order pizza and service bikes”.

Before SoftBank’s investment, Improbable raised $20m in 2015 from backers, including US venture capitalist Andreessen Horowitz, which supported Facebook and Twitter, valuing the firm at $100m.

Improbable’s other investors include Horizon Ventures, and a fund run by British tech investor Saul Klein and David Rowan, editor-at-large at Wired magazine.

Improbable’s technology SpatialOS, which enables the creation of massive simulations – “virtual worlds” – is still in beta mode and has not been publicly launched.

The company is working with Bossa Studios on launching a giant multiplayer game called World’s Adrift with one virtual area “the size of Wales”.

The company made a loss of £8m in the year to the end of May 2016, according to the most recently available figures at Companies House. This was up on a 2015 loss of £3.9m. Improbable’s assets were valued at £20m in 2016, up from £10.2m in 2015.

Softbank

Japan’s SoftBank, founded by Masayoshi Son, has developed a taste for UK tech firms after controversially buying Arm Holdings, the Cambridge-based chip designer , after the Brexit vote last year for £24.3bn.

Son, 59, is a serial dealmaker who has never shied away from ruffling feathersin his three decades building the tech to telecoms conglomerate. In 2012, he faced criticism when the company revealed a $22bn plan to take control of US mobile phone network Sprint, in what was the biggest foreign acquisition by a Japanese company at the time.

Son, Japan’s richest man with a $21bn fortune, has built a Softbank investment portfolio that includes Vodafone’s Japanese business, Yahoo Japan and a humanoid robotics unit.

A prescient move to take a $20m position in Jack Ma’s Alibaba paid off after it grew to be worth $65bn after the Chinese e-commerce’s site’s IPO in 2014.

Son, born in Japan and of Korean heritage, shocked investors last year and abruptly lost his heir apparent, former Google high-flyer Nikesh Arora, after reneging on an agreement to hand over the reins on his 60th birthday this August.

He plans to stay on at least another five to 10 years. “I asked myself whether I have run out of energy and ambition,” Son said.

On Friday, it emerged that SoftBank, Sprint’s largest shareholder, and Sprint have had informal contact with T-Mobile owner Deutsche Telekom about a potential merger.