In the largest funding to date in social gaming, leading developer Zynga Tuesday night announced it has raised $180 million from a group of investors led by Russian investor Digital Sky Technologies. Some of the money will be used for expansion, but some will also be used to let employees and investors sell a portion of their stock.
The significance of the move, as we covered on Inside Social Games, is that the company is not planning to go public any time soon. With revenue of more than $200 million this year, and the new funding money available for internal growth or acquisitions, it does not have a clear reason to expose itself to the demands of the public markets. In an interview with DST partner Alexander Tamas, he reiterated to us that Zynga — like Facebook — didn’t need the money, but rather wanted to provide liquidity for employees and investors.
The funding will also play an important role in fending off what appears to be increasing competition.
One rival, Playfish, was purchased by gaming giant Electronic Arts earlier this fall in a deal worth up to $400 million. Now, Playfish’s executives are taking leading roles within EA. Not only do they have EA’s money, engineering talent, and marketing muscle, at their disposal, but also EA’s long list of gaming franchises. Perhaps next year we will see versions of, say, FIFA, Madden, or The Sims emerge as Facebook apps, or as sites that allow people to play with friends Facebook Connect.
Another long-time competitor, Playdom, has also recently raised a significant $43 million round with the intention of continuing to grow from its core user base on MySpace on to Facebook.
Meanwhile, a crop of new social gaming rivals have emerged, notably CrowdStar. That company has been able to generate a string of games in the last few months that have grown to millions of users.
And not to be forgotten, other traditional gaming companies are also seeing some good results. Popcap Games, for example, has seen a solid success in the Facebook version of its classic Bejeweled Blitz game. Other gaming companies, from Asian massive multiplayer online game developers to casual and Flash game developers, and virtual worlds, all are increasing their experimentation with social gaming on Facebook.
If Zynga is going to go public, it will need to prove to the market that its popularity and its revenue streams are here to stay. Satiated employees and money in the bank are two key ways for it to accomplish this. Look for it to buy more small game developers that fit into its strategic goals.
“Zynga is going to be acquisitive in the merger and acquisition scene going forward,” Tamas tells us.
Raising the money from DST also firms up the connection between Zynga and Facebook itself. The group of investors that DST led includes hedge fund Tiger Global, Institutional Venture Partners and Andreessen Horowitz. Not only is DST a major investor in Facebook, but Marc Andreessen, the cofounder of Andreessen Horowitz, is also on Facebook’s board of directors.
To dig deeper into the virtual goods market, check out our new report: Inside Virtual Goods: The US Virtual Goods Market 2009 – 2010.