Zynga raises USD180m from Facebook investor

Wed Dec 16 2009, 16:27 PM

Social gaming firm Zynga has raised a massive USD180m in a funding round led by Russian investor Digital Sky Technologies (DST), which backs Facebook. Reports claim privately-held Zynga, responsible for the popular online games FarmVille, PetVille and Café World, could now have a valuation of between USD1.5bn and USD3bn.

Deal Details

New York-based hedge fund Tiger Global and US-based VC firm Andreessen Horowitz also contributed to the round, joining return investor Institutional Venture Partners. Collectively the group has agreed to buy USD180m of the company's securities.

"A portion of the investment will be used to fuel Zynga's growth and the rest will be used to facilitate liquidity for employees and investors," says the games company, in a statement. According to a New York Timesreport, DST is investing directly in Zynga, as well as buying stock from shareholders. This will allow shareholders to cash-in on the firm's huge growth ahead of an IPO.  

The deal is the latest of several recent social tech investments from DST. In July, the firm injected a reported USD100m into Facebook to increase its share in the company to 3.5%. Three months later the firm attempted to raise its Facebook stake even higher, and earlier this month the firm was said to be in talks with AOL about buying its instant-messaging service ICQ.

"We share in Zynga’s mission of connecting people through games and believe they are in a solid position with their team, offerings and market share to succeed in a dramatic way," says DST chief Yuri Milner. "Our earlier investment in Facebook and now in Zynga underscores our premise that social networking and social entertainment will define the next generation of the web."

Zynga has more than 230m monthly users for its range of online games, which are typically accessed through social networks such as Facebook. Though the games are free to play, virtual goods such as FarmVille’s tractors can be purchased for real money. Zynga estimates that 90% of its revenue comes from these virtual transactions.

Though the private company does not issue financial results, the New York Times estimates its revenue is USD250m per year and "growing quickly". Based on this figure, the paper estimates that Zynga is worth up to USD3bn.

This is higher than previous estimates. In November, Terry Schallich, capital markets chief at Pacific Crest Securities, estimated that Zynga would fetch around USD1bn if it went public in the middle of next year. The estimate was based on the USD400m that Electronic Arts paid to acquire social gaming rival Playfish earlier the same month.

As well as bolstering Zynga's finances, the latest round of funding is a vote of confidence in the firm's potential. Over recent months the firm pledged to scrap ad-based offers in its games following a heated debate about the role of the misleading or "scammy" deals. The new funding means Zynga has raised an estimated USD219m in total.