3dfx: The Zynga of the 1990s

An InvestorPlace Q&A with 3dfx co-founder Scott Sellers

   

Scott Sellers is the CEO and co-founder of Azul Systems, which builds sophisticated software technology for the Java language. Even with a primary rival as tough as Oracle (NASDAQ:ORCL), he has been able to create a strong growth company. Customers include Credit Suisse (NYSE:CS), Farmers Insurance, BT Group (NYSE:BT) and Puma.

Scott also is the co-founder of 3dfx, which he took public during the 1990s. Kind of like Zynga, the company innovated the gaming industry — and benefited nicely before the company was bought out by Nvidia (NASDAQ:NVDA) in 2000.

What was the experience like? Well, I had a chance to interview him on the topic:

Q: What was the idea for 3dfx? What were the main growth drivers?

A: We started 3dfx in 1995 with the vision that 3D graphics was poised to become mainstream, and we wanted to build a company to be a leader in consumer 3D graphics. The founders (myself, Gary Tarolli, and Ross Smith) had all come from Silicon Graphics (SGI), where we had worked on some really innovative 3D products and technology for high-end customers like movie studios and military simulations. We developed an architecture where literally we delivered the same capabilities of those high-end SGI products — which cost upwards of $1 million — down into a couple of semiconductor chips that we sold for about $100. Before 3dfx, home computers were limited to two-dimensional graphics only.

The main drivers of our growth at 3dfx were really the games which ran on our products. There were a couple of “killer apps” which had a dramatic impact on sales. The original “Tomb Raider” game was one of the first which took full advantage of 3dfx technology, and the novel concept of the game combined with great 3D visual effects really made it popular. But the title, however, which really catapulted 3dfx was Id Software’s “Quake.” First-person shooter games were really gaining in popularity then, and the graphics in “Quake” when run on 3dfx were truly mind-boggling for the time.

Q: What was the IPO process like back then? What was the size of the IPO and the overall performance? Was the IPO a good move — in hindsight?

A: The IPO process back then was fairly straightforward. We brought in eight to nine investment banking firms for the “bake-off.” Bankers are all good about pitching their own particular merits, and all of them could make claims to being the No. 1 by some measure. Choosing the right banker to represent us was obviously very critical to a successful IPO, and we ultimately chose a combination of boutique investment banks (Robertson Stephens, Montgomery Securities) and a larger bank, UBS (NYSE:UBS), to underwrite our IPO.

We had a lot of fun on the road show leading up to the IPO. While most companies going public used basic slides, we prepared a 3D visual simulation and projected it from a computer running a 3dfx graphics board. It was very unique and very well received. We were over-subscribed and ended up raising around $35 million, with a follow-on $45 million offering a year later. I recall our stock price roughly doubled in its first year.

In hindsight, I believe the IPO was the right move for 3dfx. We were growing very quickly, and needed additional capital to fund our R&D efforts and inventory buys. We felt that if we didn’t make these investments, some of our bigger competitors would eventually catch up. Being a public company also gave us the girth and credibility to make two strategic acquisitions that allowed us to continue our rapid growth.

Q: You eventually sold the company. What was that process like?

A: Selling 3dfx was a very interesting experience. We had two of our competitors very interested in acquiring us, with a third also expressing interest. Each had different primary reasons why they wanted to buy us: One wanted our products, technology and patents; the other one primarily wanted our people (we had built an incredibly strong engineering team), and that meant each offer was very different. It was a very dynamic process, and our “final” decision to accept the buyout even changed at the very last minute. Ultimately it worked out for the best for everyone, as consolidation was much needed in the market during that time.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.


Article printed from InvestorPlace Media, http://investorplace.com/ipo-playbook/3dfx-zynga-scott-sellers-ipo-azul-systems/.

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