SoftBank leads $502M investment in U.K. tech startup

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(Bloomberg) -- SoftBank Group Corp. is leading a $502 million investment in Improbable Worlds Ltd., a London-based virtual reality startup, in one of the U.K.’s largest venture capital deals.

The valuation wasn’t disclosed. But SoftBank is buying a non-controlling stake, which would mean Improbable is worth at least $1.04 billion. The deal would rank as the fifth-largest U.K. venture investment in the past decade, according to data compiled by Bloomberg.

Silicon Valley venture capital firm Andreessen Horowitz, Hong Kong-based venture firm Horizon Ventures and Singapore state-owned investment company Temasek Holdings, which participated in a $22 million investment round in Improbable in March 2015, are also committing new funds. The five-year-old startup creates virtual worlds for gaming and massive-scale simulations of the real world.

"Improbable is building breakthrough technologies that are becoming vital and valuable platforms for the global gaming industry," Deep Nishar, managing director of investments at SoftBank, said in a statement. Beyond gaming, Nishar said, SoftBank believed Improbable’s simulation technology could be used to help explore disease, improve cities, understand economies and solve other complex problems. Nishar is joining Improbable’s board.

The investment comes as SoftBank is finalizing its $100 billion Vision Fund, with backers including Apple Inc. and Saudi Arabia. News that SoftBank was negotiating an investment in Improbable was first reported by Bloomberg last month.

SoftBank founder and chief executive officer Masayoshi Son has been trying to establish the Japanese company, which has a history investing in telecommunications and game companies, at the forefront of a host of emerging technologies. In particular, Son has been staking SoftBank’s future on the growth of machine learning, where software is able to learn from data and experience, and the Internet of Things, the idea of connecting everything from home appliances to industrial equipment to the internet. His largest investment in the U.K. to date was the $32 billion purchase of chip designer ARM Holdings Plc last year.

When it was examining possible funders, Improbable’s co-founder and Chief Executive Officer Herman Narula flew to Tokyo to meet Son. "It was amazing to see how much detail they had gotten into in terms of the technology and where it could go and it was amazing to see how aligned their long-term vision was with ours," Narula said in an interview.

He said Improbable also wanted an investor that could provide enough capital for the company to continue to grow without having to sell out. In recent years, many promising European technology startups have been acquired by U.S. tech giants.

"We want to see this through all the way," Narula said. "This this isn’t something we want to look for a short term return on."

Improbable’s software, called SpatialOS, can be used to build vast virtual worlds for massively multi-player online games, which can have thousands of players simultaneously interacting. Two games, Bossa Studios’ Worlds Adrift and Spilt Milk Studios’ Lazarus, built on the SpatialOS platform have been released and Improbable has announced a handful of others under development.

The software -- which operates over Alphabet Inc.’s Google cloud computing platform -- can be used to simulate highly complex and intricate real-world phenomenon too. Immense Simulations, which is building software to manage fleets of driverless cars, has experimented with SpatialOS to create simulations of an entire city’s road network and traffic patterns. The British government has used Improbable’s software to create a simulation of the whole internet to look for bottlenecks and points of vulnerability to help better guard against cyberattacks.

"Our ambition is to literally create the foundation” of massive simulations of the real world, “or totally new realities for people to have new experiences in," Narula said. Achieving that vision was expensive, he said, which is why Improbable needed such a large investment from SoftBank.

"This is as hard and difficult as the work being done in AI and other critical technology leading fields and we need to put this much muscle behind it to make it happen," he said.

Narula said Improbable, which now employs about 180 people in London and San Francisco, planned to use the money from this latest investment to hire both programmers and computer scientists as well as hire more sales and business staff.

The company recently brought on a number of senior executives, including Chief Financial Officer Michael Bannon, who joined from private equity firm TPG, and Rob Miller, who previously worked at King Digital Entertainment Plc. and Activision Blizzard Inc., as chief legal officer.

Improbable was founded in 2012 by Narula and Rob Whitehead, who met when they were studying computer science at the University of Cambridge. The company lost more than eight million pounds ($10.3 million) in the twelve months through May 31, 2016, according to the latest financial information available at U.K. business registry Companies House.

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