With $180 Million in New Funding, Zynga Settles In For a Protracted Social Gaming War

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. Alexander Tamas. very similar to ivnestment in fb. observed how well they'd done in markets. seen success. mail.ru and our gaming company. seeing success out of combination. seen success from people paying rather than advertising. this should fundamentally in western world. idea had been that users don't pay in western markets. no reason model in asia and russia wouldn't work in western markets. we reached out to them to see happened a little later than that. met with pincus. we team up with founders who have a strong vision, rather than sell it one or two years later. ---- zynga didn't need IPO from a business perspective. only reason to consider was liquidity for investors and early employees. has liquidity that it might have from IPO. can't comment on that. we'd agreed we wouldn't go into detail. we have own social networks. vkontakte. i think in terms of openness in terms of working together. we do facilitate introductions. if that means we intro to copmpany we own in region. don't think it will change anything. won't get involved in operations. natural that people who are bullish on fb. no coincidence you find common investors putting money into fb and zynga. strong belief that disrop. goes to #1 and much less to the others. i think people take out of context, one of investors overall. he is a russian businessmen. don't think there have been any issues. well-respected in russia. we have other investors in DST, like goldman sachs. we have a bunch of minority investors, and he is one. still controlled by 2 founders. pretty agnostic as to location and geography of companies. looking for extremely high growth profile. you'll find very open. zynga is going to be acquisitive in M&A scene going forward. allows you to be quick and efficient. fb never needed the money, zynga never needed, but good for flexibility. zynga org is well ahead of competitors in terms of real know-how. we see that with petville, other games, overtake in similar field. why they have a real competitive. advantage. within overall, they are obv part of the facebook. that relationship is imp. zynga is an imp company for fb overall, because they draw a lot of people to the site every day. i think it's mutual reliance. don't think fb would do anything to really hurt its devs a lot. i don't think people are using it for games overall. enteratinment, social games, a big part of the fun factor. i think that finally part of fb will alwasy be communication. that will always be primary purpose. certain users will come to the site mostly for entertainment factor. fb has carefully constructed ecosystem. taiwan problem limited to smaller countries. vast majority of people use real identities. we're organized as a company, not as a fund. we don't need to distro money to investors. that means we can take 5 10 15 year view on these companies. why it's so important to find founders. perfectly our liquidity as long as run by pincus and zuckerberg. way that people get liquidity is trading in DST shares. there may be a DST IPO, which would give our investors liquidity w/o having to sell shares in DST. right now zynga and fb, really early stages. more like berkshire hathaway than VC. that's what resonated with pincuz and zuck. you'll never have any pressure to sell or go public. won't have to do what's right for biz. that was a big draw. right now zynga market share. if zynga stays market leader, maintains lead, then has tremendous amount of potential. look at tencent, look at user pay. their common wisdom. mobile will be a big opp. but not quite as easy, but infra not there to support viral growth. haven't seen apps go copmletely viral.

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With $180 Million in New Funding, Zynga Settles In For a Protracted Social Gaming War

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