Tuesday, January 02, 2007

Serious Games: MMOs Raising Millions In Venture Capital

Serious Games and Virtual Worlds: we can't argue the numbers

Via: VentureBeat

D2C Games and Areae are two of the latest game start-ups boasting “next generation” technology, and they've just raised millions of dollars in venture capital.

D2C, of San Mateo, has raised $1.5 million in a first round of funding, but there’s no sign it is moving in the direction of the more recent start-ups, Red 5 and the just-announced Areae. Both of these aim to merge multi-player games with the Internet and its full Web 2.0 glory. For now, D2C doesn't specify what exactly about it is “next generation.”

D2C is is run by Madden Football architect and Glu Mobile founder Scott Orr, and is backed by new Silicon Valley firm Rubicon Ventures, which earlier invested a seed round of $1 million into D2C. All we know is that it is focused on “casual games for a variety of platforms.” It also is a licensed Sony publisher, and plans to offer at least two games next year.

Areae, of San Diego, is also being cagy, but it is overtly trying to merge Web 2.0 with games, just like Red 5. Chief executive Raph Koster told VentureBeat that he has raised a fraction of the $18.5 raised by Red 5. From the sounds of it, Areae got in the low digit millions, though Koster hasn't confirmed.

Investors are Crescendo Venture and Charles River. Koster says he’s working in the virtual world area, but cautions that its different from Second Life. He distances himself from Red 5, saying Red 5 appears to be like a traditional game development studio, allocating most of its capital to developing a single (or perhaps a couple) of titles. While Red 5 says it will take years to develop its games, Koster says we’ll be hearing from Areae in 2007.

Koster is a pioneer in the multiplayer online gaming space. He was lead designer of Ultima Online and the chief creative officer of Sony Online Entertainment, and wants to merge the Web 2.0 and multiplayer game worlds from the outset — but apparently wants to invest a lot of cash into developing a few titles.

Red 5 Studios, a new start-up formed by the team that built popular online game World of Warcraft (WoW), has raised $18.5 million in venture capital to create online games that integrate more social networking aspects from the outset.

The funding comes from Benchmark and Sierra Ventures. Red 5 Studios is based in Aliso Viejo (southern California), not far from the team’s former employer, World of Warcraft’s parent Blizzard. The new company is led by Mark Kern, team leader on developing WoW, and two other Wow creators.

The investment is significant because it comes at a time when gaming has become popular and investors hope to leverage the power provided by social networking on the Web.

The investment is the latest move by Benchmark partner Bill Gurley to invest in interactive entertainment (he is an investor in Jamdat, acquired for $650 million last year, and Second Life, which has become hyped lately). Benchmark Europe is also an investor in Sulake, maker of the popular interactive game Habbo Hotel. Gurley told VentureBeat his interest in the sector began during his travels to China several years ago, when he visted gaming companies Shanda and TenCent, but was unable to invest. He scoured the sector back in the U.S. and became interestng interested in Blizzard’s team, seeing a drive and focus he hadn’t seen in other companies.

Red 5 wants to become the leading studio for popular MMO games (MMO stands for Massive Multiplayer Online games), where thousands of players play at one time.

Historically, Gurley says, the winners in the gaming space have been publishers, rather than independent studios. Gurley says he thinks Red 5 will change that. Red 5 Studios’ first title is under development; it is financed and will be distributed globally by
Webzen, which has given a large sum of money — totaling more than Benchmark’s investment — but it is not an equity investment.

MMOs have so far been a niche sub-sector of the games industry, accounting for less than ten percent of the industry’s developers. But WoW has grabbed the industry’s imagination, Kern said. The Red 5 team will focused on the PC, not the console.