CrowdStar, the ninth largest developer on the Facebook platform by monthly actives, is launching a $10 million fund along with incubator YouWeb to scout for promising mobile game developers.
The fund comes at a time when the company is trying to diversify off Facebook and build out a mobile gaming business. CrowdStar recently launched a title focused at female, casual gamers called Top Girl that it has managed to keep in the top 10 grossing U.S. titles on iOS since its launch on June 16.
It also comes at a time when many mobile gaming companies like TinyCo, Glu Mobile and Gamevil have launched funds or contests to find promising IP from third-party developers. It’s partially a way to mitigate the risks of creating new games and also a way to grow a network of titles for distribution and cross-promotion.
StarFund’s game developers will get up to $250,000 in initial funding along with help on marketing and analytics. They’ll also get assistance in cracking international markets. CrowdStar said it may also be interested in ultimately acquiring developers too.
“This fund combines the expertise CrowdStar has in social gaming metrics and design with YouWeb’s ability to select entrepreneurial talent,” said Peter Relan, CrowdStar’s chief executive. “We’ve done social games for many years and that’s why our very first real title did well overnight.” YouWeb is Relan’s incubator and it spawned CrowdStar along with OpenFeint, which was bought by GREE earlier this year for $104 million. YouWeb remains the largest stakeholder in CrowdStar.
What CrowdStar is asking for in return in terms of ownership and licensing is negotiable and determined on a case-by-case basis, Relan said. “This is not a factory approach to churning out startups,” he said.
There are probably a couple of forces driving the creation of these game funds and contests. When Apple cracked down on incentivized installs earlier this year, it didn’t ban developers from cross-promoting their own games — even if they involve virtual currency rewards for downloads. So gaming companies in response are looking for third-party titles they can either own a partial stake in or publish. Then they can use them to serve interstitial ads for their own games.
Secondarily, not all companies in the mobile gaming space have the capital to make outright acquisitions. Zynga — one of the exceptions — reported $965.6 million in cash and cash equivalents on the balance sheet at the end of the first quarter of this year, and it’s used that to buy 15 companies in the past 13 months. With its forthcoming IPO, it will have much more liquid market for its shares, which will help out with acquisitions too. EA has also been very acquisitive in the space with smaller deals like Chillingo and Firemint. It used a $550 million bridge loan to buy PopCap Games for up to $1.3 billion, it said last week.
But for everyone else who doesn’t have that sort of scale or revenue, contests and funds may be a more capital efficient way of competing with giants like EA, Zynga and Gameloft for sourcing new intellectual property. TinyCo was the first to kick off the trend, using $5 million from its revenues and the $18 million it recently raised from Andreessen Horowitz to finance games from third-party developers. Glu also has a development contest for which it will award up to $500,000. South Korea’s Gamevil, which has been publishing titles from small, independent studios for some time, also announced a $10 million fund.