Major Facebook Investor Pumps $180 Million into Zynga

Posted Dec 17th 2009 10:30AM by Tom Taulli
Filed under: Next Big Thing, Initial Public Offerings

When it comes to social networking, Mark Pincus is a pioneer. After all, he is the creator of Tribe.net, which got its start back in 2003. Then, in July 2007, he started another social network for games, called Zynga. It's become an addicting service -- and one that has grown like a weed, with popular games like FarmVille, Mafia Wars and Cafe World. There are now about 230 million monthly active users.

The success has also attracted eager investors. In fact, this week Zynga snagged a cool $180 million from Digital Sky Technologies (there was no mention of the valuation on the deal). Based in Russia, the main investor is also a major shareholder in another top social network, Facebook.

Zynga also shows that social networking can generate strong revenues, which are running more than $300 million (on an annualized basis). Although, it is more than just advertising. Zynga has been successful in getting its users to buy so-called virtual goods. These are game items that give your performance a boost (such as buying a potion or a weapon).

As for the investment, it is really a quasi-IPO. The money will help to cash-out the stock options of various employees. At the same time, there will be firepower to get M&A deals done. This is important as bigger players, such as Electronic Arts (ERTS), make deals in the sector (its latest was the $275 million acquisition of Playfish).

However, a real IPO may be inevitable in 2010, especially if the equities markets continue to remain stable.

Tom Taulli advises on business tax preparation and resolving tax problems. He is also the author of a variety of books, including the including The Complete M&A Handbook. His website is at Taulli.com.

Tags: ERTS, Facebook, inthenews, Zynga