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Summary:

It’s not the IPO that everyone’s been hinting about, but social gamer Zynga has picked up a massive cash injection — $180 million in fundin…

Ning Money Burn
photo: Flickr/purpleslog

It’s not the IPO that everyone’s been hinting about, but social gamer Zynga has picked up a massive cash injection — $180 million in funding — in a round led by Russian investment group Digital Sky Technologies (DST).

Yes, the same investment group that pumped $200 million into Facebook. Yes, the group that is also reportedly eying Aol’s ICQ. DST is clearly banking on social media — be it social games, networks or even just chat platforms — and expressing confidence in U.S.-based companies, in particular, for the long haul.

Zynga also attracted two new investors as part of the deal: Andreessen Horowitz and Tiger Global; previous backer IVP also took a bigger stake. All told, the company has now raised over $234 million in funding.

I can’t even attempt to speculate about a valuation, but it’s clear that the “scammy ads” expose and subsequent class-action lawsuit haven’t tarnished the perception of Zynga’s value within the investment community. The underlying theme seems to be that as long as Zynga continues to develop addictive new games, and somehow, get people to pay for virtual goods, then the ethics behind its revenue-generation don’t matter.

(The NYT does try to connect the dots with the valuation and the ethics behind the investment, noting that DST counts a “prominent Russian billionaire with a criminal record” as one of its major shareholders, and talking to a source that says Zynga’s value could be at least $1.5 billion).

Meanwhile, Zynga’s employees will see tangible, immediate benefits from the new investment, as DST is purchasing some of its stake directly from them. Part of the company’s investment is in “preferred” shares at a higher valuation, but also employee-owned common stock. DST offered Facebook employees a similar option for cashing out when it invested in the social network this summer. Release.

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  1. With the recent spate of VC fundings tending towards ungodly amounts , I just hope we dont see a “social media bubble ” . My future hangs on it :).

  2. Clearly this is bubble time. Zynga’s model is based on their “special sauce” which is simply generating similar games to those already popular and then spending a significant amount of money on facebook ads.Right now, with the help of Facebook Zynga is simply trying to get large enough to “fast follow” any innovative game produced by any company. Ultimately though the biz model is not sustainable and not really defensible — other than “fast follow” and out-spending innovative games.

    lenley.com

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