Undead Labs goes employee-owned, secures publishing deal for State of Decay 3

Undead Labs is now employee-owned, financed by cash on hand and publishing money rather than outside investors, CEO Philip Holt told GamesIndustry.biz following Microsoft's July decision to divest the State of Decay maker it acquired in 2018.

Holt had limited warning before the public announcement. He describes a "deeply unsettling" period inside the studio, where staff feared unemployment and the possibility that State of Decay 3 would never ship. His response was radical transparency. "There was a period of time where it was a weekly update to the whole company," he says, paired with "pretty direct and candid conversations" with employees. "I think it settled people down, and I think it strengthened the bonds of trust that we have with each other."

How did the studio fund its independence?

Microsoft initially sought an acquirer. Holt believed the studio's proximity to shipping State of Decay 3, which carries a 2027 release window, made a credible employee-ownership offer possible. Investor talks stalled because the pre-revenue studio attracted financiers seeking majority control. "I'm working for a financier," Holt says of those terms. So the studio shifted to seeking publishing money instead.

That search carried real doubt. "I was almost like, if State of Decay 3 can't find its way to finishing, there's something really deeply wrong with the industry," he says. The studio eventually signed an agreement with an unnamed publisher. "Between the cash balance that we had on hand and publishing money, we're able to finish the game on our own without any investors coming in," says Holt. "We have taken no outside investors, which I think is pretty remarkable."

The new corporate vehicle is a Delaware C corporation that acquired Undead Labs, with equity now being issued to all employees. Holt holds no majority stake. The company created multiple stock classes with super-voting rights, letting him retain voting control from a minority position. That structure frees more shares for staff. Employees can currently only sell shares back to the company, though a future sale would trigger a windfall and dividends remain possible.

What does the ownership change mean for the team?

Holt frames equity as motivation. "People are working for themselves. They're not really working for a taskmaster that sits somewhere else." He adds: "Great games are made by teams that are absolutely dedicated, committed to the game itself. You can't command commitment. You earn it, you can only earn it."

Independence came with cuts. The studio made a "significant number" of layoffs in September, though Holt declines to give figures. "Because of some decisions made way upstream from them, they're now out of work," he says. "Reducing it to a statistic sort of dehumanises the impact of it."

Undead Labs now operates below its pre-divestment headcount of just over a hundred, across offices in Seattle, Champaign, Illinois and Orlando, Florida, plus remote staff in California and North Carolina.

Why has State of Decay 3 taken so long?

A 2020 trailer masked the reality: only a handful of people worked on the sequel while most of the team supported State of Decay 2 until 2024. A "pretty significant pivot" away from founder Jeff Strain's MMO vision reset development. "We basically rewrote the entire State of Decay game, and we will not do that again," says Holt, who saw MMO development "swallow people whole" during his time at ArenaNet. The current game dates roughly from late 2022 or 2023.

Around 8,000 players are currently testing State of Decay 3, and a post-launch roadmap is in development. The studio keeps co-development partners, including the UK's Wushu Studios, and Holt argues external partners hold institutional knowledge worth investing in long term, citing Xbox content officer Matt Booty's maxim that shipping together is the top predictor of success.

On broad hardware compatibility amid $1,000-plus consoles, Holt says the studio wants "our minimum spec to be as broad as we can make it", since State of Decay has never been a hardware-selling franchise.

On Microsoft, he is blunt: "I haven't really spent much time thinking about Microsoft." He notes only that the company "appears to be coalescing around their mega franchises". Holt rejects the growth-multiple logic of investors: "I don't need a four or five X on invested capital. The thing that drives us is entertaining our players."

The unnamed publisher and the 2027 release window are the signals to watch: both will determine whether this rare employee-owned model survives contact with the market.