The Recent Update on Republic Stated That Digital Eclipse Has Been Fully-Acquired by Atari
Long-time subscriber: Question on Digital Eclipse, Jeff. In the Republic fundraise, we were issued shares of Digital Eclipse, correct? The recent update on Republic stated that DE has been fully acquired by Atari. If the participants in the fundraise were issued shares in DE and are the stakeholders, how could DE be acquired without an offering to the Republic stakeholders in some form of buyout? Wouldn't this normally constitute an "exit" event? Otherwise, it would seem that we only purchased a dividend stream, without actual ownership in DE? Can you enlighten those of us who purchased DE shares? Thank you! — Bart M.
Hi Bart,
I’m glad that you wrote in with this question, given the developments at Digital Eclipse. It is one of the more unique and rare investment opportunities that I’ve come across over the years. And we’ve received quite a few questions about it in recent weeks.
From my original research back in 2021, I wrote:
“What makes today’s opportunity so exciting is we are investing by purchasing “revenue shares.” This is unlike owning a traditional stock, and unlike anything I’ve recommended to date. Yet the returns are on par with exciting small capitalization, high growth technology companies. We can think of this as an opportunity to own a royalty, quite literally a share of future revenue, from today’s company.
This recommendation is unique in that it has all of the upside of a typical private early stage investment, and very little downside at all."
Investors in Digital Eclipse purchased a “share of future revenue.” Or said another way, a portion of royalties generated from sales of the games produced by the investment funds raised.
The reason why this is unusual is that typically in the gaming or movie production business, project financing like this tends to look more like debt financing. An investor would receive a return of 10-15% on invested capital. That’s an okay return, but once we consider that might happen over a two or three year period, it’s not very attractive.
Digital Eclipse, on the other hand, has the potential to return 3-4X the original investment, based on the structure of the royalty agreement.
Royalties will start off small and slow, and then build as new games are released. I encourage investors to have a look at the graphic from Digital Eclipse that provides information about the planned roll out of new games through the second half of 2025. I can’t publish it here, as it is confidential information limited to investors.
As for the Atari acquisition of Digital Eclipse, there is no exit because this was not an equity investment. Most important though, nothing changes. Atari acquired Digital Eclipse and therefore acquired the terms of the royalty (revenue share) agreement related to the Digital Eclipse Reg A+ raise back in 2021.
As per the Digital Eclipse update, “The dividend schedule for investors remains unchanged."
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