Investing in Epic Games | How to Buy Pre-IPO Shares

Epic Games is a software-as-a-service provider and cross-platform game development studio that has been a pioneering force in the industry. The company has been instrumental in transforming the gaming market from a small blip on the map to a staggering  +$455B sector according to recent Statista reports. Today, the company remains a leader in game development tech via its Unreal Engine, and it shows no signs of slowing down.

All of this momentum and notoriety have led investors to seek out Epic Games’ shares. Despite this demand, the company remains privately held. As such, you can’t buy shares from a regular broker. Instead, you must navigate the secondary markets to obtain access to Epic Games pre-IPO shares. Here’s what you need to know.

What is Epic Games?

Epic Games launched as a small shareware developer studio in 1991 in Potomac, Maryland. At the time, the firm was called Potomac Computer Systems. The company’s founder, Timothy Dean Sweeney, wanted to make a place where gamers could find free games, modes, and downloadable content. As part of his strategy, he was sure to cater to both Windows and Mac PC owners, providing the company access to a growing niche market.

Potomac Games’ first release was a shareware adventure game titled ZZT. This DOS-based action-adventure puzzle game was similar to Tetris in that players needed to reorient objects quickly. Notably, the game featured 43 boards, including unique digital creatures and more.

By 1992, Potomac Games changed its name to Epic MegaGames.  During this time, the company focused on game development. It released several titles as shareware, including Jill of the Jungle, One Must Fall 2097, Overkill, Dare to Dream, Jazz Jackrabbit, Epic Pinball,  Solar Winds, Radix:  Fire Fight, and Beyond the Void. Notably, it was at this time that it began publishing third-party games, a decision that would ultimately help drive future success.

Unreal

In 1998, Epic Games unveiled its first-person shooter named Unreal. This game was revolutionary for its time, featuring an immersive 3D world. Notably, it was developed by Epic and Digital Extremes as a joint venture that was published by GT Interactive for Microsoft Windows.

Source – Unreal

What made the launch of Unreal a game changer was that it was the first title to use the Unreal Game Engine. This powerful game modeling software went on to be used in +100 titles in its first iteration. It has since continued to see improvement, offering superior modularity, extensibility, and genre-agnostic design.

New Name and Mission

Fast forward a year, and Epic MegaGames decides on a name change to Epic Games. The decision to rename the company fell in line with the firm’s newfound success. It was at this time that Epic moved its headquarters to Cary, North Carolina. The move allowed the team to maximize its focus and resulted in it delivering some of its most important releases such as Gears of War on Xbox 360. Impressively, Epic’s focus on providing cross-platform gaming helped it secure fans from all the top platforms.

Epic Games Enters Mobile Gaming

In 2010, Epic decided it was time to step into the mobile gaming sector. Mobile gaming was on the rise and the company wanted to ensure it remained relevant in the shifting market. Their release of Infinity Blade for iOS in 2010 marked the company’s official entry into mobile gaming.

Unreal Engine Becomes Available to the Public

Recognizing the demand for the Unreal Engine’s capabilities, the company decided to start offering it as a service to other development studios. The now updated version could handle real-time rendering, physics, and was packed with graphics tools designed to streamline the creation of games, films, automotive design, architecture, and creating simulations.

The Unreal engine helped the company become a software as a service provider, adding a valuable revenue stream and expanding its network. It also led to the expansion of the Unreal Engine gaming technology and the Epic ecosystem. The company was soon flooded with development studios seeking to use the Unreal Engine for their projects.

Fortnite

In 2017, Epic Games raised the bar yet again with the release of Fortnite, which is based on a Japanese film called ‘Battle Royale’ based on a book. The battle royal game pits up to 100 players against each other in different scenarios. The goal is to be the last player standing when the dust clears. The game’s cross-platform capabilities, free-to-play business model, and well-thought-out social elements helped it achieve instant stardom.

Today, Fortnite has become a staple of the gaming community. This cross-media entertainment platform hosts in-game experiences, digital events, and enables anyone to collaborate with brands, artists, and major franchises in a digital metaverse. Impressively, the game has +30M active players and has hosted several successful virtual concerts and cross-media collaborations.

Epic Games Store Launches

In 2018, the Epic Games Store launched. This easy-to-install and navigate games portal streamlines finding and installing your favorite game titles. The platform offers a lot of bonuses, including several free titles with new releases weekly. The launch of the Epic Games Store helped the company provide more support to the developer community.

Source – Epic Games

Epic Online Services

The Epic Online services platform was built to help streamline integrating game services into new titles. The platform offers access to prebuilt modules such as voice chat, achievements, matchmaking, live ops, and more. It allows your game to easily connect friends across platforms and even supports a variety of login methods including PlayStation, Xbox, Switch, Facebook, Google, Apple, Steam, and Epic account credentials.

Unreal Engine 5 Launch and Capabilities

In April 2022, the Unreal Engine 5 update was released. The updated software now supports in-depth light graphics via Lumen and has a more efficient virtualized geometric system called Nanite. The Unreal Engine 5 boosts graphics to a new level without degrading the performance of games. Its advanced capabilities have helped it branch into other industries.

Epic Games Store Expands to Android

This year, Epic Games finally expanded its gaming support to Android devices.  This maneuver was seen as a major milestone as Android powers billions of devices currently. Adding the system to the Epic ecosystem has helped to further the company’s market penetration and helped it to acquire several popular Android gaming studios into its network.

Historical Funding Rounds

Summary of Epic Games Funding:

Total Funding: Epic Games secured $8.13B across 9 funding rounds

Largest Round: Epic Games’ largest funding round secured $2B in April 2022.

Investors: A total of 76 institutional investors and 2 Angel investors back Epic Games

Latest Round: The latest funding round raised $1.5B and was a Series F round held on February 7, 2024.

Funding Rounds Breakdown:

• 8 Late-Stage
• 1 Grant

Key Investors:

Epic Games has received funding from The Walt Disney Company, Sony, Fidelity Investments, Baillie Gifford, Ontario Teachers’ Pension Plan, BlackRock, AllianceBernstein, Franklin Templeton Investments, KKR, Luxor Capital Group, Altimeter Capital, Park West Asset Management, Appaloosa Management, Lightspeed Venture Partners, KKR, David Tepper, Smash Capital, European Union, KKR, Iconiq Capital, Kleiner Perkins, AXiomatic, Vulcan Capital, Smash Ventures, and Smash Capital.

Why Invest in Epic Games?

There are many reasons why you may find Epic Games to be a good addition to your portfolio. For one, it’s an industry leader in a multi-billion dollar tech sector. Currently, Epic Games ranks 1st among 900 active competitors. It consistently holds its own against Unity, Ubisoft, Activision, and Electronic Arts.

Epic Games’ Role in Shaping the Gaming Industry

It would be impossible to envision the gaming sector without the contributions that Epic Games has made. The firm’s Unreal Engine is a core component of many of today’s most popular gaming titles. Recognizing this fact, Unreal hasn’t shied away from developers. Evidence of its support is clear as the company has shared its Unreal Engine source code on Github alongside a suite of development tools.

Developer Friendly Approach

At its core, the Unreal gaming engine streamlines development. The protocol makes it easy for companies to integrate key options like multiplayer, matchmaking, and cross-platform gameplay. These tools were created to serve developers and asset creators. Additionally, the company offers support for toolmakers, completing their ecosystem.

Epic Developer Community and Marketplace

The Epic developer community and marketplace enable creative minds to work together and create the best games possible. The marketplace includes a variety of resources for Unreal Engine development. Additionally, there are lots of manuals, training videos, and other users you can speak with directly to ensure your project takes flight.

Evolving Business Model

Epic Games has proven time after time that it’s willing to alter its approach to accommodate new market demands. The firm showcased this willingness when it pivoted from software to game development, and then into its Unreal Engine as a service. This flexibility is one of the main reasons the company always appears a step ahead of the competition.

Funding and Investor data sourced from Tracxn

1. Pre-IPO Secondary Marketplace

Secondary markets are purpose-built exchanges that connect pre-IPO shareholders with potential investors. These marketplaces can offer these assets because they work closely with employees, early-stage investors, and venture capitalists, who are crucial to the company’s pre-IPO growth.

Investing in pre-IPO shares of Epic Games could offer strong returns if the company’s valuation increases following its IPO. It’s common for company valuations to increase following an IPO. As such, it makes sense to add pre-IPO shares to your portfolio before the firm announces plans to go public.

Secondary marketplaces have many requirements. Here are some concerns you should be made aware of:

Eligibility: This approach requires you to be an accredited investor, meaning you will have to show at least $1M in liquid assets to qualify for access.

2. Private Equity Firms

Private equity firms gain access to pre-IPO shares during investment rounds. They then offer these shares to high-net-worth accredited investors with a commission. Notably, private equity firms are known to have extra stipulations, including blocking the sale of shares for years in some cases.

3. Employee Equity Sales

Many consider employee equity sales as the best way to acquire pre-IPO shares in Epic Games. This method of acquiring pre-IPO shares requires you to connect with former employees. It’s common for companies to issue shares as part of an incentive package. Notably, this profit-sharing method has become more popular, leading to more pre-IPO share opportunities for investors.

Private Transactions: There are a lot of hoops you will need to jump through to complete a private pre-IPO transaction, including creating specific legal agreements, conducting valuations, and setting in place any limitations on the transfer of the asset.

Brokerage: Brokers will take a lot of the confusion out of the pre-IPO process. These professionals can guide you through each step, ensuring full compliance and avoiding common errors untrained professionals make.

There are several risks that you should consider before jumping into the pre-IPO shares investment arena. Here are the top concerns:

Liquidity Risk

If you are looking for an asset that you can sell right away, pre-IPO shares are not the best option.

These investments can include sales and transfer clauses that prevent the transfer of the asset until certain criteria, such as the IPO’s completion, are met. It’s even common for pre-IPO shares to require you to wait years before gaining the ability to sell your assets.

Finding a Broker

If you meet the requirements and are comfortable with the risks, several platforms offer access to pre-IPO opportunities:

Forge Global: One of the largest private stock marketplaces, offering shares in late-stage startups like SpaceX, Stripe, and Databricks. Minimums typically start around $100,000.

EquityZen: A popular platform allowing accredited investors to buy into private companies with minimums as low as $5,000. Past offerings include companies like Discord and UiPath.

Rainmaker Securities: A full-service broker that helps source and negotiate private share sales, including opportunities in companies like OpenAI, Stripe, and Palantir.

Hiive: A newer platform with live bid/ask pricing for hundreds of private companies. Transparent and low-fee, with minimums starting around $25,000.

MicroVentures: Offers pooled access to late-stage companies through special purpose vehicles (SPVs), including past investments in SpaceX and Instacart.

EquityBee: Allows investors to fund employee stock option exercises at startups, often at discounted valuations, with minimums around $10,000.

Augment: A digital-first marketplace showing real-time pricing for pre-IPO shares, targeting tech-savvy investors and offering lower transaction fees.

StartEngine Private: Launched in late 2023, this platform offers accredited investors access to Regulation D offerings in later-stage, venture-backed companies. In its first nine months, it generated $16.5 million in revenue, with average investments around $32,000

Important: Always perform thorough due diligence and consult a financial advisor before investing in private company shares.

Valuation of Epic Games and Future IPO

Epic Games received a valuation of $32B  on April 13, 2023. The company secured this value via a combination of factors including pioneering its Unreal Engine technology and sharing it with the community. Epic Games has also been pivotal in establishing new business models.

The company quickly realized that charging a large upfront fee hindered adoption of its Unreal Engine. Wisely, it decided to switch to a subscription-based model, which helped it to secure massive support from new development studios, leading to its Unicorn status.

If Epic Games goes public, it has the potential to host one of the largest gaming IPOs of all time. The company has support from major institutions, entertainment firms, and gaming studios. As such, it’s ideally positioned to capitalize on its successes and its current positioning. Those holding Epic Games Pre-IPO shares hope to see gains due to these demands.

Investing in Epic Games Pre-IPO Shares | Conclusion

Epic Games remains a central player in the gaming industry. Investing in the company could open the door for future returns as it currently leads the market. It’s Unreal Engine and network have led many investors to speculate that it will see impressive long-term growth.

Importantly, you should consult a financial expert before making any pre-IPO investment decisions. Particular stipulations make Pre-IPO shares riskier than traditional options. If you complete these tasks and can qualify for Epic Games shares, there’s a good chance that you may see sizable rewards for your decision in the future.

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Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or investment advice. Pre-IPO shares are typically available only to accredited investors and carry significant risk. Always perform thorough due diligence and consult a financial advisor or legal expert before making investment decisions.