Following the news that Yahoo will acquire social sharing platform Tumblr for a massive $1.1 billion in cash, it’s becoming clear that two of these investing svengalis are Bijan Sabet of Spark Capital, and Fred Wilson of Union Square Ventures. They’re the venture capital rockstars of the social web as their jaw-dropping track records shows — they have been very early investors in companies like Twitter, Tumblr and Foursquare. Wilson was also early to Zynga, Etsy and Kickstarter.

David Karp, Founder and CEO, Tumblr paidContent Live 2013 Albert Chau / itsmebert.com

We’ve seen this pattern before. During the networking boom of the late 1990s, it was Vinod Khosla and Promod Haque of Norwest Venture Partners who scored many of the top deals. Khosla was early to the table with companies like Cerent, Siara and Juniper Networks.

For the first wave of the consumer Internet it was John Doerr who owned it all, and later during the search boom, he and Sequoia Capital’s Mike Moritz led the charge by investing in Google. Similarly, the shift to the social web (or post Web 2.0) has been a happy hunting ground for Wilson and Sabet.

While there are others such as David Sze of Greylock and Jim Breyer of Accel Partners who have found success in social with Facebook, the Sabet and Wilson team has a better on-base percentage. And one of the reasons why these two guys have found gold faster than others is because they are active participants in the social web and invest in what they know.

Sabet, who moved up to number 51 on Forbes’ Midas List in 2013, was described by Tumblr’s founder and CEO David Karp as someone who “lives and breathes,” social media, and as Karp’s “mentor, friend and partner from day zero.” Sabet said in a post this morning that he met Karp when he was 19 and “was immediately taken with his passion and drive to create wonderful things.” His other investments include Twitter, Foursquare, OMGPOP (sold to Zynga for $180 million), and thePlatform (acquired by Comcast), as well as RunKeeper, Boxee, Jelly, Lyft and Stack Exchange.

Wilson, who writes the popular blog AVC, is one of the most winning venture investors thus far in the new century. He rose to number 16 on Forbes’ Midas List in 2013. In addition to Tumblr, Wilson has backed Twitter, Zynga, Etsy, Kickstarter, FeedBurner, Lending Club, Zemanta, ComScore and Tacoda (sold to AOL in 2007).

In a sign of the new power of the New York startup ecosystem, Tumblr is run out of New York, and both Wilson and Sabet are East Coasters — Wilson in New York, Sabet in Boston — but of course spend a lot of time in Silicon Valley. It’s through these two investors, who live across the country from Sand Hill Road, that a major chunk of the web’s leading social brands have emerged.

Pulling out lessons from these master’s investing practices, would be a good topic for a book. But I’ll run through just a couple I see that are obvious. Sabet clearly has an eye for finding the passionate creator founder early, and has an ability to see the future. Wilson has long practiced what he has preached, is utterly immersed in social and has a unique way with words. He writes this morning on his blog about one of the cliches of VC investing: “success has a thousand fathers.”

Clearly Sabet and Wilson are two of the main fathers of this morning’s success story.

Updated at 1:20 PM on May 20, with comment from Fred Wilson. Wilson attributed some of the deals to his Union Square venture partners and says that “investment syndicates are a team.”

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The news, in case you missed it, came last Friday when a company called 888 confirmed it will begin operating online poker games as soon as May alongside established casinos like Treasure Island and Caesars. The move comes in response to the federal government’s decision in 2011 that online gambling is no longer illegal if states explicitly permit it; Nevada, New Jersey and Delaware have so far passed laws to allow it.

So why is the 888 news not a big deal? According to a source who works in the gambling industry, 888′s opportunity comes with two major strings attached: it is limited to players physically in the state of Nevada and it only covers poker. The second condition is important because poker depends on player liquidity, which means it is less lucrative for the house than games like roulette or slots.

The source, who did not want to be identified, added that the online gambling industry is focusing instead on developments in New Jersey which has a much larger population (8.8M versus 2.7M in Nevada) and where the state law permits all casino floor games, not just poker.

In the bigger picture, even New Jersey is unlikely to be a game changer given that online gaming companies still have to cater to players on a state by state basis.

“It’s like taking the stock exchange and dividing it by 50. You have to ring fence players, and then account for whether the legal age is 18 or 21,” said the source, adding that the industry is crossing their fingers for a big state to come on board. “If Texas or California falls, that would be a more interesting thing.”

The online gaming industry, which was chased out of the United States in 2006, is also hoping for a bigger breakthrough in the form of new federal legislation that would establish unified rules and protocols across the country.

The outcome is important because potentially hundreds of millions of dollars are at stake for online gaming giants like Bwin that currently operate in Britain and elsewhere, and for fading social gaming sites like Zynga that are desperate for a new revenue stream. Finally, casino centers like Atlantic City are desperate to get a piece of the online action to make up for business they’ve lost to other states and venues.

(Image by  Doug Stevensvia Shutterstock)

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Chrapaty’s move isn’t a complete surprise, given that (a) cloud storage is hot, (b) Zynga is not and (c) Chrapaty has served as Nirvanix’s executive board chairwoman since November.

Chrapaty has the infrastructure chops to lead a company keen on expanding clouds. At Zynga, she oversaw the company’s switch from Amazon Web Services to its own specialized cloud. Earlier, she was in charge as Microsoft expanded its data center footprint. She has also been president and chief operating officer of E*Trade and senior vice president of the Collaboration Software Group at Cisco.

Based in San Diego, Nirvanix has racked up more than 1,200 customers and $70 million in venture funding. Backers include Khosla Ventures and Intel Capital. Peddling as it does public, private and hybrid clouds and cloud gateways for enterprises, it sees competitors in many directions, including Amazon and Microsoft on the public front, Dropbox and Box in the smaller-business area, and EMC and NetApp on the legacy-vendor stage.

Chrapaty nevertheless sounded optimistic as she talked about her new gig. “What I’m excited about for Nirvanix is we actually offer this unique solution that’s both public- and private-cloud based, highly available, secure for the enterprise, but also variable deployment models,” she said. “So we’re meeting a unique need for the Fortune 1000 companies.”

In the coming months, Nirvanix will make some decisions about expand its focus to products other than storage, which could distinguish it, but Chrapaty declined to go into detail about the possibilities. We’re eager to see the game plan, as it could bring more enterprises into the cloud-storage fold and make Nirvanix a bigger player.

What will come of Zynga? That’s a whole other story. Chrapaty is the latest executive to leave the one-time social-gaming star, and the stock has lingered under $4 since August.

Zynga on Monday sent a statement from its chief operations officer, David Ko, naming Chrapaty’s successor:

“We thank Debra for her leadership and contributions to Zynga over the past years and wish her luck in her future endeavors. Today, I am proud to announce that Dorion Carroll is moving into the role of Chief Information Officer effective immediately. Dorion is a 25-year engineering veteran with deep experience developing products and services as well as scaling teams from start-up phase to large companies. As one of our Zynga Fellows, Dorion has provided direction, leadership and management across numerous technology and products teams at Zynga over the past 3 years as well as being one of our most senior technology leaders. Our global network of players relies on the exceptional talent of our technology teams and the services they provide. We look forward to Dorion’s leadership to bring even more prioritization and focus to these teams.”

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According to CEO Brandon Ramsey, a former engineer at Yahoo and Zynga, Fanhood is aimed at the millions of Americans who make casual sports bets with friends for fun and bragging rights. He claims the site, which relies on Facebook’s platform, has 50,000 active users who can use virtual currency tokens to bet on everything from the Superbowl to NHL hockey games.

“It’s the same kind of psychology as taking $5 from a friend,” said Ramsey, claiming that Fanhood’s message boards and ongoing tallies of bet outcomes will keep users coming back. He adds virtual currency sales can sustain Fanhood because, unlike social games like Farmville, it doesn’t need fresh content — the sports matches supply that.

While Fanhood may succeed with virtual betting and sports chatter (much like the thriving fantasy sports industry), a big payoff would come through real money betting — a New York Times report pegged online betting as worth between $6 and $100 billion. But, for sports, this is a longshot at best.

Like Zynga Poker, Fanhood is only legal because players can’t cash out. If they could, these sites would be violating federal laws that forbid online betting unless states permit it.

In recent months, the prospects for social gaming companies have brightened as Nevada, New Jersey and Delaware have legalized online gambling. The process, however, is far from smooth sailing. Companies still must navigate established casino interests and, in the case of poker, assemble a critical mass of players (you can only gamble across state lines if all states involved permit it).

The legal challenge is even bigger when it comes to sports betting. According to Jim Gatto, a lawyer who specializes in gambling issues, the federal government deliberately excluded sports when they loosened online gambling rules in 2011. The reason, he said, is that sports depend on human action for the result — meaning there is an incentive to fix the results when there’s money on the outcome (history, including the NBA, shows he’s right).

This means Fanhood and other social sports betting sites will have to be content with virtual currency for the foreseeable future. There is also a chance too, of course, that a casino or other large gambling company will acquire them in the hopes of luring casual sports betters to a gambling site.

(Image by Jerry Sharp via Shutterstock)

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Nevada’s governor signed the law on Thursday with bipartisan support and described it as a “new frontier” for the gambling industry. The law came about after the federal government in late 2011 decided to change its policy and permit online gambling to take place in states that explicitly permit it.

The new policy is significant in light of research that predicts online gambling will be worth $100 billion worldwide on mobile devices alone by 2017. This potential market has attracted the established casino industry as well as tech companies that are vying to make gambling games or process back-end betting operations.

The new U.S. gambling rules are also a potential lifeline to social game maker Zynga which has seen its titles like Farmville and Mafia Wars stutter. And since being cast adrift by Facebook last year, Zynga has seen its shares fall around 80 percent.

The Nevada law, however, is unlikely to change Zynga’s fortunes anytime soon as it only applies to internet users in the state. The law is also primarily intended not to help social gaming sites but to ensure that Vegas casinos have a first-mover advantage in providing operational support when — and if — other states follow suit. As the Las Vegas Review-Journal reports, the Nevada law is written to keep out companies that already have existing player data. The story in question refers to “illegal operations” and those who “operated online gaming with U.S. patrons” — it’s unclear if this refers to organizations like Full Tilt Poker who broke the law in the past or to any company with gaming data.

The upshot is that the U.S. will, at best, have a patchwork of states in the foreseeable future where online gambling is permitted. If big states sit it out, it will not be easy for companies to guarantee that online poker tables are full. It also means operational headaches and potential criminal penalties for the game makers which must ensure, for example, that a player in Colorado doesn’t slip into a Nevada-based poker game.

The bottom line is that full-scale online gambling is still far on the horizon as the U.S. regulatory process shakes out. In the meantime, the winners and losers among Zynga and other tech companies like Big Fish are likely to be determined in the U.K. and elsewhere.

This story was updated at 12pm PT to clarify how the law may favor Nevada companies.

(Image by Beto Chagas via Shutterstock)

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We saw a preview of DerbyJackpot in November and now the pony game is live in 25 states. It works by letting players put small bets on horse races around the country and then letting them watch the race through a live video feed. Unlike the complicated race forms of real-world horse-betting, DerbyJackpot has a cartoon-like feel that invites casual players to make a simple “Granny Bet” starting at $1 or even a ten-cent “Dime Bet” on multiple horses. It looks like this:

As you can see above, the site also has social media features that lets friends or co-workers banter online as they wait for Old Dobbin to cross the finish line. Players can pay into their account with credit card or through online payment system Dwolla, which lets them cash out instantly; for now, the maximum bet is $20.

DerbyJackpot has a frivolous feel but it’s backed by serious economists and computer scientists as well as a mysterious “billionaire investor.” It is also playing for high stakes because the U.S. online gaming and gambling industry now stands at a strange crossroads.

Recall that, a few years back, the U.S. government cracked down on offshore poker operations like Full Tilt Poker, leaving American players with few outlets for online gambling. At the same time, flailing online social gaming companies like Zynga are hoping that gambling will save their skin as users tire of inane activities like Farmville.

Into this void have stepped companies like Doubledown, Betable and DerbyJackpot, which are partnering with casino companies in the hopes of turning gamers into gamblers. For now, most of the action is taking place in the U.K. and other countries while the companies badger state governments to change the gambling laws.

The companies got a glimpse of hope last year when the Department of Justice changed its position and said it would permit online gambling in states — so long as states in question passed laws for the gambling to take place within their borders. For now, that’s not happening and, we’re guessing, not much is going to change so long as powerful politicians like Nevada’s Harry Reid and New Jersey’s Chris Christie can protect their home states’ casino interests.

In the case of DerbyJackpot, the company has found a legal loophole because the laws are different when it comes to betting on horses. This because, unlike casinos, there is no “house” and players only bet against each other; in DerbyJackpot, the odds for each race are set by the track in question. While some professional off-track-betting parlors are offering online bets, DerbyJackpot says it’s the only one to target small-scale casual gamers. The company offers a mobile site too and hopes to partner with Facebook in the future.

The site is live in 25 states and, the founders say, it will soon be in about 12 others. Alaska, Arizona, California, Hawaii, New Jersey, Nevada, North Carolina, South Carolina, Utah, and Virginia are among the states that restrict online horse betting.

(Image by Alexia Khruscheva via Shutterstock)

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The database in question is MemSQL, the eponymous offering from a startup company by former Facebook employees Eric Frenkiel and Nikita Shamgunov. The company, which launched in June, speeds up database operations by using in-memory storage and its own unique technique for converting SQL into C++, similar to what Facebook does for its PHP code. Frenkiel told me that other big-name customers already using the product include JPMorgan Chase, Hitachi and NY Life.

As of early January, Dan McCaffrey, GM of platform and analytics engineering at Zynga, told me that MemSQL was already storing about 70 billion rows of game data — from the server and database logs right up to social interactions. Right now, the biggest use of the MemSQL system is analyzing data from servers and databases about an application is performing. Compared with the company’s previous MySQL setup, McCaffrey said, “we can detect problems quickly and react to them much more quickly.”

Is a more personal Mafia Wars coming?

However, the deployment is just a few months old, and McCaffrey’s team has bigger plans for its new database. Among them is the ability to make decisions based on user behavior in real-time, rather than having to rely on pre-computed user segmentation and sampled datasets. That would mean applications could offer more-personalized decisions around in-game purchases or other recommendations, while Zynga’s burgeoning ad network could serve more-targeted and more-timely ads.

Both of these uses are important. Ninety-five percent of Zynga’s revenue currently comes from in-game purchases, although McCaffrey said it expects ad revenue to make up the lion’s share by 2015. Presently, Zynga pre-computes its user classifications nightly using its Vertica analytics system. If analysts want to query streaming data in real time, they can only do so against a sampled dataset that’s small enough to fit in memory.

With nearly 100 MemSQL nodes deployed already, Zynga can now store weeks worth of game data in memory versus merely days worth in its previous MySQL-plus-Membase setup.

In addition to improving the analytic process, the new database could help inspire entirely new types of games. McCaffrey noted that Zynga doesn’t have many games in which players interact simultaneously (most rely on players taking turns), nor does it have many multiplayer games. And although McCaffrey didn’t address the issue, one has to imagine Zynga’s expected foray into online gambling will also benefit from having a bigger, faster database to manage those real-time — and real-money — transactions.

One of the goals in the engineering group, he said, is “trying to introduce things that also get our game designers to think differently.”

Of course, a database alone isn’t going to make Zynga profitable and because MemSQL is commercially available, it’s hardly a trade secret. And as McCaffrey noted, although the experience has been good this far, MemSQL is still a small company and there’s a lot of work to do if it’s going to expand its presence throughout Zynga. But Zynga’s excitement about around a new database — and, in theory, it could have chosen any one of a number of new options — at least illustrates how critical the right technologies can be when trying to run a big business at web scale.

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