The Rise of User-Generated Games: Why Investors are Backing Creators Over Traditional Developers

The success of user-generated games on platforms such as Roblox has led to a surge in investment from venture capital firms and publishers, according to Double Black Capital. The firm has worked on several deals involving Roblox, Unreal Engine Fortnite, and Minecraft, with Roblox being the most prominent. Buyers are primarily comprised of Roblox-native developer/publishers, private equity investors, and mid-market publishers seeking value in the user-generated content (UGC) space. Dealmaking in Roblox has accelerated in recent years, with investors overcoming initial concerns about the platform. Double Black co-founder Andrew Porat notes that four or five years ago, AAA publishers were hesitant to invest in UGC, but now they are taking a closer look. The firm predicts that major publishers like Electronic Arts, Take-Two, or Scopely will soon make significant acquisitions in the Roblox space. Currently, the main buyers are big UGC firms, private equity, and investors, although the latter often struggle to understand the unique aspects of Roblox, such as the 70% revenue share with the platform. Porat emphasizes that despite the challenges, UGC acquisitions are moving quickly, with deal timelines ranging from one to two months, compared to six to eight months in traditional gaming. The earnout periods are also shorter, typically lasting two to three months. Investors are attracted to the low operating costs and high revenue potential of UGC games, with some titles generating $10 million in annual revenue after being developed for under $50,000. Double Black's involvement in the UGC space began with a deal involving a 20-something Roblox developer, and since then, the firm has navigated numerous deals between private equity lawyers and teenage developers. The firm notes that while there are compliance issues and a need for professionalization, the UGC space offers a unique opportunity for investors. Porat believes that investors are not concerned about Roblox's moderation issues or the potential for its youth audience to age out of the platform, as the community attached to each game is often massive. Instead, investors see the value in bringing their expertise to UGC companies, which are often founded by teenagers or 20-year-olds. For creators looking to sell, Keane advises setting up a professional company and seeking legal help. The firm is working on deals involving Minecraft, UEFN, and GTA UGC, and sees a growing trend of mid-sized publishers investing in the UGC space as an easier bet than traditional PC and console games.