Pocket Gems Confirms Redpoint Funding, Doesn’t Disclose Additional Details

By Kim-Mai Cutler Comment

Last Friday, we pointed out that Pocket Gems — the maker of top grossing games like Tap Zoo and Tap Petshop — may have raised additional funding from Redpoint Ventures.

The company’s chief executive Daniel Terry confirmed the funding, but didn’t disclose additional details except to say that it happened a few months ago. Our understanding — though this is not confirmed — is that this wasn’t a classic second or late-stage round of venture funding and instead provided the founders liquidity. This is not without precedent in the mobile gaming industry as Rovio’s initial $42 million round from Accel Partners and Atomico Ventures was also secondary, according to sources familiar with the transaction.

Profit margins for many of these types of casual mobile-social games are declining as certain gaming genres have become more competitive and as developers have lost their ability to bring in new customers inexpensively through incentivized downloads on offer walls. That said, several developers may make up for tighter margins with improved monetization and the sheer number of new users that are activating iOS or Android phones each month.

While Pocket Gems had a strong first half of the year with solid and continuous hits like Tap Zoo and Tap Petshop, other competitors are better capitalized. TinyCo, which makes similar titles Tiny Zoo Friends and Tiny Pets, has $18 million in funding from Andreessen Horowitz (which is enough to pay for a $20,000-a-month hiring billboard on Highway 101). Zynga also said today that it is entering the ring with an animal care-taking title called Dream Zoo. Beeline Interactive Inc., a subsidiary of Capcom which has a market capitalization of 138.8 billion yen ($1.78 billion), has Monster Pet Shop. There are also bootstrapped players in the space like Backflip Studios, which has a solid hit in DragonVale, a free-to-play dragon care-taking game that has held onto a slot among the top three grossing apps in the U.S. since the middle of last month.

As for other larger players in the space, we haven’t seen any additional confirmed rounds of funding.

In a panel I moderated today at GDC Austin, TinyCo’s director of business development Jennifer Lu, said the company would still be open to additional financing. Perry Tam, the chief executive of Storm8, another big player in the free-to-play gaming space, had no comment on the company’s rumored $1 billion valuation round.