7 ms·

Zynga Closes $180MM VC Round

43 points by ed 17y ago

mahmud 17y ago
That won’t stop people making cracks about the Russian Mafia investing in Mafia Wars, one of Zynga’s popular social games, though. Look, this is just unprofessional and racist. I don't know this Usmanov character, but "fraud" charges were routinely levied against dissidents throughout the USSR history.
abalashov 17y ago
(Bias disclaimer - speaking as a native Russian.) What I think is not so obvious to many commentators is that this sort of juggling of outsized investments is an ego / megalomania play on the part of New Russian oligarch backers & small-time industrialists and financiers. The $180m figure has little to no imaginable correlation to any measurable marketability potential, generalised ROI, or anything else that would be deemed a competent valuation process institutionally in the West on something like Farmville. What matters is that the amount be sensational. I think we can all agree $180m is certainly sensational. This is not news to anyone who remembers the Yeltsin era and understands how wealth was concentrated^H^H^H^H^H^H^H^H^H^H^H^Hdistributed in Russia after privatisation and how it is intertwined with state interests. But despite the numerous outlandish personally flavoured investments Russian wealth barons have made in things UK football clubs, lavish yachts, full-service private jets, summer homes on the French Riviera and in southern Spain, etc. this point still eludes most Western observers. Example: http://www.guardian.co.uk/football/2009/jun/15/chelsea-owner-roman-abramovich-yacht http://www.guardian.co.uk/football/2009/jun/15/chelsea-owner... Among numerous others, a key difference between Russia and the US is that in the US, an Anglo-American capitalistic country by heritage, contemporary super-wealth comes from many sources of varying degrees of legitimacy, depending on one's perspective. Certainly among them includes honest entrepreneurial ambition, innovation and professionalism in the transaction of commerce. In Russia there is only one kind of mega-wealth - politically-connected 90s wealth. It is all one big "family," though the term is more meant to emphasise the narrow exclusivity and extreme statistical lopsidedness of the club than to insinuate congenital relation among the actors. This sort of "investment" is not very different from the sort of tribalistic "make it rain" spectacle you saw blowhard masters of local fiefdoms in Dubai pull, or continue to see in other Gulf Arab states, just to point to one widely-recognised example. The constellation of facts inherent in these examples is one of the inescapable cultural idiosyncrasies of the "backward" East from the perspective of free-market development and/or the capitalistically-themed conception of modernity. The all-around point of this seemingly disorganised rant is that all talk of what Zynga did "right" or attempts to "learn" from its "strategy" in relation to the particular size of this investment is pointless sophistry. Yes, FarmVille - what do the kids say these days, "went viral?" - but rational speculation about how this merits a $180m capital infusion will turn you prematurely grey and bald on account of its futility. If you are laying awake wondering how enough value and potential was created to legitimately absorb $180m, you're missing the point entirely -- your thinking is too West Coast, and not enough Near and Middle East. Check these projects out and it will help you get the picture, although my picking on Dubai is purely out of desire to make an analogy with something recently in the news and discussed here: http://en.wikipedia.org/wiki/Burj_Dubai http://en.wikipedia.org/wiki/Burj_Dubai http://en.wikipedia.org/wiki/Burj_Al_Arab http://en.wikipedia.org/wiki/Burj_Al_Arab http://en.wikipedia.org/wiki/Palm_Islands http://en.wikipedia.org/wiki/Palm_Islands The symbolic significance of investing a headline-worthy sum of sovereign wealth in a "key" American "new economy" property as a geopolitical move for domestic consumption cannot be overstated either. It is likely, in fact, to be the far more substantial theme here, as there are more efficient ways to flagrantly and gratuitously display opulence and excess, usually involving something tangible, like a personal resort flotilla mounted on a military destroyer frame. You know, Deliverables 1.0 - bricks and mortar, not clicks and mortar. Now, I know Digital Sky did not put up the $180m by itself; what does that matter? They "led the round" -- you see, they showed "leadership" here, they "took the lead" while Tiger Global, Institutional Venture Partners and Andreessen Horowitz "participated." I acknowledge that the enormous importance of this may be difficult to appreciate if you're not a semi-feudal politician, but work with me. The bottom line here is that Zynga is the unwitting beneficiary of bread and circus games in faraway places that otherwise have no substantive relevance to them intrinsically. There are no valuable business lessons to be learned here and there is no reason for them to be featured in the next Startup School or anything like that, unless the lesson is "get on the radar of Turkmenbashi and see what falls on your lap next time he goes to exercise his golden systems of elimination in his golden commode." [http://en.wikipedia.org/wiki/T%C3%BCrkmenba%C5%9Fy http://en.wikipedia.org/wiki/T%C3%BCrkmenba%C5%9Fy]
- ashu 17y ago
  Every once in a while, a comment comes on HN which just reaffirms my faith in the community. Thanks for taking the time to write this out.
  - abalashov 17y ago
    Why, thank you. To be honest I did not expect to reaffirm anyone's faith in anything except irony -- that is, the irony of people thinking that the "Russian mafia" thing is a joke. :-)
  - mahmud 17y ago
    The prose is just orgasmic, and worthy of a good novel :-)
  - joshuaxls 17y ago
    I don't comment here very often but when I see something so off the mark I have to speak up. This is a short investment for Zynga. They were probably on the cusp of raising more than this amount before the whole "Scamville" story gave them such a headache. They are taking in millions in revenue every day; who knows what the bottom line is, but the investors must have seen it. It really doesn't matter much where the money is from. Trust me, their lawyers ensured this money is clean. I'm really frustrated that the OP has so many upvotes. All you have to do here anymore is sound intelligent? This is a story about Zynga, not geopolitics. Russian, American, Middle Eastern, European, whatever -- Zynga is on fire.
    - abalashov 17y ago
      They were probably on the cusp of raising more than this amount before the whole "Scamville" story gave them such a headache. What is your basis for this assumption? I do not necessarily disagree, by the way - the glut of dull-witted prize bulls in command of large funds jumping at the first sight of anything "viral" is a pretty open secret. Still, I wonder. They are taking in millions in revenue every day; who knows what the bottom line is, but the investors must have seen it. If they are taking in millions in revenue daily at anything resembling a high margin, why would they need anyone's ~$180m? As you suggest, such a condition would afford them the dubious distinction of being "on fire"; do you think the lack of ~$180m is all that stood between the incipient, fledgling status quo of Zynga's ramen-profitable basement company and Facebook games "going supernova?" Do you think $180m can be reasonably dimensioned, at a high return, in a late round, to a company grossing millions a day? Far it be from me to claim authority in this area; my latest capital-intensive, web-savvy proposal - Social VPN over Twitter using base64/uuencode - was a complete flop. This is a story about Zynga, not geopolitics. As far as Zynga and as far as Americans should be concerned, you are entirely correct. But it is simply naive to dismiss the enormous role played by considerations of "domestic consumption." For example, do you think Putin is really a sworn enemy of the West, or do you think public sabre-rattling is an indispensable element of his popularity and interminable hold on power, despite private cooperation and appeasement on a variety of global objectives with the Bush administration and presumably its successor? Trust me, their lawyers ensured this money is clean. The pristine crispness of the tender - or the bits that represent it - is not in dispute.
paraschopra 17y ago
Someone please pinch me! Is it for real?
- burnout1540 17y ago
  Why are you so surprised? They're profitable and they've shown they can scale (i.e. they can earn a return on each dollar they invest in customer acquisition).
  - paraschopra 17y ago
    But 180 MM is a lot of money. This means that the exit they are expecting would need be at least 10-30x of it, that is 1.8 to 5 billion.
    - drusenko 17y ago
      investors in later rounds are not looking for 10-30x, they are oftentimes happy with a 2-3x return
vaksel 17y ago
perfect example of "crime pays"
- burnout1540 17y ago
  Zynga did have some scammy offers but they only accounted for a minority of their revenue. As of right now they've removed all of their CPA offers and the VCs are surely aware of the ruckus they caused. So while "crime" may have helped Zynga get to where they are now, I don't think it will be a large factor in determining their success going forward.
  - billclerico 17y ago
    agreed. would love to know how all the negative PR affected valuation the fundraising process
  - codexon 17y ago
    The problem is not that Zynga won't be scamming anymore. The problem is that they wouldn't have gotten this far without scams. Is it now acceptable to scam your way into profitability now? Zynga is now telling every startup a resounding Yes.
philk 17y ago
This is a perfect demonstration that you don't need a sophisticated or compelling idea to build a successful start up.
- tonystubblebine 17y ago
  On the other hand, it's a perfect example of how much it matters which parts of your idea are sophisticated and compelling. Here's an interesting take on why Farmville is so successful: http://flyv.typepad.com/warcraft/2009/12/farmville-considered.html http://flyv.typepad.com/warcraft/2009/12/farmville-considere... As a hardcore gamer, you could call it an unsophisticated game. But I think as a product it's very sophisticated about what will encourage casual gamers to spread the word and come back regularly.
- pegobry 17y ago
  Sophisticated idea, no. Sophisticated execution, absolutely. Zynga are extremely smart and dedicated about honing every single aspect of their games to enhance their addictiveness and virality. They didn't beat everyone else who wants their spot by being lucky.
rms 17y ago
Anyone know what the valuation was?
- billclerico 17y ago
  mark has all kinds of weird stock with extra voting rights, so this is purely an economic purchase. not sure how much though
wbd2007 17y ago
wow thats insane!
wbd2007 17y ago
wow thats insane!
dnsworks 17y ago
When Zynga fails, will Mark Pincus need to go into witness protection while hiding from angry Russians?

43 points by ed 17y ago

That won’t stop people making cracks about the Russian Mafia investing in Mafia Wars, one of Zynga’s popular social games, though. Look, this is just unprofessional and racist. I don't know this Usmanov character, but "fraud" charges were routinely levied against dissidents throughout the USSR history.

abalashov 17y ago

(Bias disclaimer - speaking as a native Russian.) What I think is not so obvious to many commentators is that this sort of juggling of outsized investments is an ego / megalomania play on the part of New Russian oligarch backers & small-time industrialists and financiers. The $180m figure has little to no imaginable correlation to any measurable marketability potential, generalised ROI, or anything else that would be deemed a competent valuation process institutionally in the West on something like Farmville. What matters is that the amount be sensational. I think we can all agree $180m is certainly sensational. This is not news to anyone who remembers the Yeltsin era and understands how wealth was concentrated^H^H^H^H^H^H^H^H^H^H^H^Hdistributed in Russia after privatisation and how it is intertwined with state interests. But despite the numerous outlandish personally flavoured investments Russian wealth barons have made in things UK football clubs, lavish yachts, full-service private jets, summer homes on the French Riviera and in southern Spain, etc. this point still eludes most Western observers. Example: http://www.guardian.co.uk/football/2009/jun/15/chelsea-owner-roman-abramovich-yacht http://www.guardian.co.uk/football/2009/jun/15/chelsea-owner... Among numerous others, a key difference between Russia and the US is that in the US, an Anglo-American capitalistic country by heritage, contemporary super-wealth comes from many sources of varying degrees of legitimacy, depending on one's perspective. Certainly among them includes honest entrepreneurial ambition, innovation and professionalism in the transaction of commerce. In Russia there is only one kind of mega-wealth - politically-connected 90s wealth. It is all one big "family," though the term is more meant to emphasise the narrow exclusivity and extreme statistical lopsidedness of the club than to insinuate congenital relation among the actors. This sort of "investment" is not very different from the sort of tribalistic "make it rain" spectacle you saw blowhard masters of local fiefdoms in Dubai pull, or continue to see in other Gulf Arab states, just to point to one widely-recognised example. The constellation of facts inherent in these examples is one of the inescapable cultural idiosyncrasies of the "backward" East from the perspective of free-market development and/or the capitalistically-themed conception of modernity. The all-around point of this seemingly disorganised rant is that all talk of what Zynga did "right" or attempts to "learn" from its "strategy" in relation to the particular size of this investment is pointless sophistry. Yes, FarmVille - what do the kids say these days, "went viral?" - but rational speculation about how this merits a $180m capital infusion will turn you prematurely grey and bald on account of its futility. If you are laying awake wondering how enough value and potential was created to legitimately absorb $180m, you're missing the point entirely -- your thinking is too West Coast, and not enough Near and Middle East. Check these projects out and it will help you get the picture, although my picking on Dubai is purely out of desire to make an analogy with something recently in the news and discussed here: http://en.wikipedia.org/wiki/Burj_Dubai http://en.wikipedia.org/wiki/Burj_Dubai http://en.wikipedia.org/wiki/Burj_Al_Arab http://en.wikipedia.org/wiki/Burj_Al_Arab http://en.wikipedia.org/wiki/Palm_Islands http://en.wikipedia.org/wiki/Palm_Islands The symbolic significance of investing a headline-worthy sum of sovereign wealth in a "key" American "new economy" property as a geopolitical move for domestic consumption cannot be overstated either. It is likely, in fact, to be the far more substantial theme here, as there are more efficient ways to flagrantly and gratuitously display opulence and excess, usually involving something tangible, like a personal resort flotilla mounted on a military destroyer frame. You know, Deliverables 1.0 - bricks and mortar, not clicks and mortar. Now, I know Digital Sky did not put up the $180m by itself; what does that matter? They "led the round" -- you see, they showed "leadership" here, they "took the lead" while Tiger Global, Institutional Venture Partners and Andreessen Horowitz "participated." I acknowledge that the enormous importance of this may be difficult to appreciate if you're not a semi-feudal politician, but work with me. The bottom line here is that Zynga is the unwitting beneficiary of bread and circus games in faraway places that otherwise have no substantive relevance to them intrinsically. There are no valuable business lessons to be learned here and there is no reason for them to be featured in the next Startup School or anything like that, unless the lesson is "get on the radar of Turkmenbashi and see what falls on your lap next time he goes to exercise his golden systems of elimination in his golden commode." [http://en.wikipedia.org/wiki/T%C3%BCrkmenba%C5%9Fy http://en.wikipedia.org/wiki/T%C3%BCrkmenba%C5%9Fy]

ashu 17y ago
Every once in a while, a comment comes on HN which just reaffirms my faith in the community. Thanks for taking the time to write this out.
- abalashov 17y ago
  Why, thank you. To be honest I did not expect to reaffirm anyone's faith in anything except irony -- that is, the irony of people thinking that the "Russian mafia" thing is a joke. :-)
- mahmud 17y ago
  The prose is just orgasmic, and worthy of a good novel :-)
- joshuaxls 17y ago
  I don't comment here very often but when I see something so off the mark I have to speak up. This is a short investment for Zynga. They were probably on the cusp of raising more than this amount before the whole "Scamville" story gave them such a headache. They are taking in millions in revenue every day; who knows what the bottom line is, but the investors must have seen it. It really doesn't matter much where the money is from. Trust me, their lawyers ensured this money is clean. I'm really frustrated that the OP has so many upvotes. All you have to do here anymore is sound intelligent? This is a story about Zynga, not geopolitics. Russian, American, Middle Eastern, European, whatever -- Zynga is on fire.
  - abalashov 17y ago
    They were probably on the cusp of raising more than this amount before the whole "Scamville" story gave them such a headache. What is your basis for this assumption? I do not necessarily disagree, by the way - the glut of dull-witted prize bulls in command of large funds jumping at the first sight of anything "viral" is a pretty open secret. Still, I wonder. They are taking in millions in revenue every day; who knows what the bottom line is, but the investors must have seen it. If they are taking in millions in revenue daily at anything resembling a high margin, why would they need anyone's ~$180m? As you suggest, such a condition would afford them the dubious distinction of being "on fire"; do you think the lack of ~$180m is all that stood between the incipient, fledgling status quo of Zynga's ramen-profitable basement company and Facebook games "going supernova?" Do you think $180m can be reasonably dimensioned, at a high return, in a late round, to a company grossing millions a day? Far it be from me to claim authority in this area; my latest capital-intensive, web-savvy proposal - Social VPN over Twitter using base64/uuencode - was a complete flop. This is a story about Zynga, not geopolitics. As far as Zynga and as far as Americans should be concerned, you are entirely correct. But it is simply naive to dismiss the enormous role played by considerations of "domestic consumption." For example, do you think Putin is really a sworn enemy of the West, or do you think public sabre-rattling is an indispensable element of his popularity and interminable hold on power, despite private cooperation and appeasement on a variety of global objectives with the Bush administration and presumably its successor? Trust me, their lawyers ensured this money is clean. The pristine crispness of the tender - or the bits that represent it - is not in dispute.

paraschopra 17y ago

Someone please pinch me! Is it for real?

burnout1540 17y ago
Why are you so surprised? They're profitable and they've shown they can scale (i.e. they can earn a return on each dollar they invest in customer acquisition).
- paraschopra 17y ago
  But 180 MM is a lot of money. This means that the exit they are expecting would need be at least 10-30x of it, that is 1.8 to 5 billion.
  - drusenko 17y ago
    investors in later rounds are not looking for 10-30x, they are oftentimes happy with a 2-3x return

vaksel 17y ago

perfect example of "crime pays"

burnout1540 17y ago
Zynga did have some scammy offers but they only accounted for a minority of their revenue. As of right now they've removed all of their CPA offers and the VCs are surely aware of the ruckus they caused. So while "crime" may have helped Zynga get to where they are now, I don't think it will be a large factor in determining their success going forward.
- billclerico 17y ago
  agreed. would love to know how all the negative PR affected valuation the fundraising process
- codexon 17y ago
  The problem is not that Zynga won't be scamming anymore. The problem is that they wouldn't have gotten this far without scams. Is it now acceptable to scam your way into profitability now? Zynga is now telling every startup a resounding Yes.

philk 17y ago

This is a perfect demonstration that you don't need a sophisticated or compelling idea to build a successful start up.

tonystubblebine 17y ago
On the other hand, it's a perfect example of how much it matters which parts of your idea are sophisticated and compelling. Here's an interesting take on why Farmville is so successful: http://flyv.typepad.com/warcraft/2009/12/farmville-considered.html http://flyv.typepad.com/warcraft/2009/12/farmville-considere... As a hardcore gamer, you could call it an unsophisticated game. But I think as a product it's very sophisticated about what will encourage casual gamers to spread the word and come back regularly.
pegobry 17y ago
Sophisticated idea, no. Sophisticated execution, absolutely. Zynga are extremely smart and dedicated about honing every single aspect of their games to enhance their addictiveness and virality. They didn't beat everyone else who wants their spot by being lucky.

rms 17y ago

Anyone know what the valuation was?

billclerico 17y ago
mark has all kinds of weird stock with extra voting rights, so this is purely an economic purchase. not sure how much though

wbd2007 17y ago

wow thats insane!

wbd2007 17y ago

wow thats insane!

dnsworks 17y ago

When Zynga fails, will Mark Pincus need to go into witness protection while hiding from angry Russians?