Is the Online Gaming Sector Driving the Next VC boom?

By Rile at June 8, 2011 | 10:17 am | Print

Is the Online Gaming Sector Driving the Next VC boom?

Is the Online Gaming Sector Driving the Next VC boom?

Amidst all the talk of a bubble in Silicon Valley and sky-high, “irrational” valuations on many of today’s hottest startups such as Facebook and Twitter, it may wind up that when venture capitalists are coming off the sidelines, they are putting their money where people are spending the most time online: playing games with their peers and social networks.

According to industry research group Nielsen, social networks currently gobble up 23 percent of time spent by the average consumer online, with online games taking 10 percent–the two largest chunks of where people are choosing to keep an online presence.

Shoring up those statistics have been significant and headline-grabbing recent VC infusions into gaming sites such as Zynga or kids gaming destination ROBLOX, which pulled in $4 million in venture capital during its second round of financing last week.

Although Zynga, which is best known for producing social networking hits like Farmville, has thus far pulled in $519 million in five rounds of funding, it appears that its smaller competitors are also catching the eye of the VC community–often with overlapping investors looking to cover all their bets in an already crowded, competitive space.

With over 5.7 million unique visitors and 650 million page views per month and growing (ranking it second among most visited online sites for children, only behind Nickelodeon), ROBLOX said it could have taken more money but would “only accept a modest investment” from First Round Capital and ALTOS Ventures because their success thus far “was driving monthly revenues straight through the roof.”

All of this movement is significant.

With VC infusions like this, investors are beginning to ask the question: Is the the online gaming space emerging as its own potentially massive market niche–thereby creating a whole new new business model that allows kids to develop their own virtual game environment online?

And if so, it may not be tech darlings Twitter and Facebook who ultimately wind up with the most long-term investing, but a variety of hybrids who have managed to successfully parlay their gaming into part virtual world, part social hangout.

We’ll all have to stay tuned to see who comes out on top in the end as the frenzied grabbing for VC dollars continues.


Riley McderMid has worked for The New York Times as syndicated reporter where she covered venture capital funding trends across Silicon Valley and the larger start-up community.

In past, she has worked for Markets MediaDeputy Editor, New York. And, also worked for MarketWatch as investment banking reporter where she covered investment banking and private equity trends

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