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Zynga raises a further $180 million

By on December 16, 2009
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Zynga has just announced a new round of funding led by Digital Sky Technologies.

Other new investors include Andreesen Horowitz and Tiger Global while Institutional Venture Partners added to its position in the company. DST recently invested £300 million in Facebook, one third of which was used to buy stock from existing employees.

Zynga says “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”, which means that the new investors are offering Zynga employees the chance to cash out some of their equity similar to the offer made to Facebook employees earlier this year.

The New York Times gives a good summary of the deal and background on the investors.

The deal is interesting both because of its size and because a lot of observers (myself included) expected Zynga to go public in H1 2010. That makes it odd to take such a large round now.

So what might this mean?

  • Firstly, Mark Pincus and the Zynga team know that they are in a landgrab. Anything they can do to accelerate their rush for market share (or slow down their competitors) is worth doing
  • Secondly, at IPO, founders and senior employees often have their shares locked up for a year or more. Institutional investors don’t like to see insiders selling at the same time they are asking for money to help the company grow. This gives employees a chance to see some cash for their hard work to date
  • Thirdly, there used to be a healthy market for “crossover investors” who invested in companies shortly before they went public. The investment was deemed to be relatively low risk (compared to VC) but could help the company raise a premium valuation at IPO.

So my conclusion is that Zynga is still likely to come to market in the first half of 2010. The DST deal accelerates the company’s growth before the IPO; it is not an alternative.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com