

Zynga Closes $180MM VC Round - ed
http://www.techcrunch.com/2009/12/15/zynga-takes-180-million-venture-round-cue-russian-mafia-jokes/

======
abalashov
(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...](http://www.guardian.co.uk/football/2009/jun/15/chelsea-owner-roman-
abramovich-yacht)

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_Al_Arab>

<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>]

~~~
ashu
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.

~~~
joshuaxls
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
_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.

~~~
drusenko
This is complete conjecture, but one of the key reasons may be to cash-out the
founders/employees. Companies don't usually cash out their own founders, but
investors sure as hell have the right to buy the founder's shares if they
want. If they're making so much money but don't have a sale in the near
future, the founders might have decided to take a significant stake off the
table...

~~~
Xichekolas
Mark Pincus, for his part, made it very clear that he wasn't in this one to
cash out. (Watch his talk from Startup School). He wants to lead the next
mega-company.

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

~~~
pegobry
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.

------
mahmud
_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.

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paraschopra
Someone please pinch me! Is it for real?

~~~
burnout1540
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
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
investors in later rounds are not looking for 10-30x, they are oftentimes
happy with a 2-3x return

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rms
Anyone know what the valuation was?

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

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vaksel
perfect example of "crime pays"

~~~
burnout1540
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.

~~~
codexon
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.

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

------
wbd2007
wow thats insane!

