Investors Bet The Farm On Zynga - The UpStream

Investors Bet The Farm On Zynga

posted Sunday Feb 20, 2011 by Jon Wurm

Investors Bet The Farm On Zynga

Zynga, one of the largest social gaming companies, has well over 80 million users and is best known for FarmVille, the WoW equivalent of social games. Despite their great success it seems that Zynga is close to bringing in another $250 million from big-time investors like Fidelity Investments, Morgan Stanley, and T. Rowe Price. According to Zynga, there is no need for the extra capital even after acquiring Challenge Games Inc and once they secure the $250 million, their valuation will fall somewhere between $7 and $10 billion.

To find out why they might even consider raising more outside capital, hit the break.

At least unlike Facebook and Twitter, Zynga is profitable and has found a way to actually make money consistently, so why keep raking in investor capital? One reason is because investor capital is OPM (other people's money). Why use your own cash to pay off early investors and attract new ones when other people are willing to do it? That way even if Zynga pulls the plug on themselves tomorrow, which they won't, other people carry the risk. It also makes sense to capitalize on all the hype, especially if they think their stock is overvalued. At least investors who might be betting the farm on Zynga have a better chance of seeing a return than Facebook and Twitter investors.

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