Zynga Raises $29 Million B Round (Led By Kleiner Perkins) and Buys Virtual-World Facebook App YoVille

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zynga-logo.pngSocial gaming network Zynga just got some serious funding. It raised $29 million in a B round led by Kleiner Perkins. (IVP and prior investors Union Square Ventures, Foundry Group and Avalon Ventures also participated in the round). The company is also announcing the acquisition of YoVille, a virtual-world app for Facebook with 150,000 daily active users. And, along with the cash, new Kleiner partner Bing Gordon is taking a board seat and an operating role at the startup.

Bing recently left Electronic Arts, where he was the chief creative officer and an early employee. But he was already an informal adviser to Zynga, and helped bring the deal to Kleiner. Zynga CEO Mark Pincus says:

He is super-involved in product strategy, brings the gaming DNA to us, and is an amazing CEO coach. He’s already stopped us from doing stupid things.

Like what?

Stupid things like build a PC downloadable MMO game that would cost anywhere from $5 million to $30 million, and would be free to play with virtual goods.

That’s a dig at other gaming startups. Zynga specializes in casual games you can play with your friends on social networks. Some of its hits include Texas Hold’Em (with four million hands of poker played daily), Attack, and Scramble. Al told, they attract 2.9 daily active users across Facebook, MySpace, and other social networks. On Facebook alone, Zynga’s games have 1.6 million daily active users (right behind Slide, RockYou, and SA Ventures).

The company raised $10 million just last January, and Pincus claims he still has all of that money in the bank and is cash-flow positive with 80 employees. But he feels the stakes are about to get higher as the worlds of casual social gaming and online video games collide. That means he will have to spend more money on both production values and marketing. Pincus tells me:

I think in 18 months these games are going to be highly graphical and immersive. You will be able to jump in and have a casual experience of today, and if you want to go deeper you will be able to.

As it becomes harder to get viral growth, you will need marketing.

Zynga uses its most popular games as a distribution mechansim for new games by cross-promoting them. But Zynga is not alone in trying to build a social gaming network. Competitor SGN raised $$15 million last May, and counts Jeff Bezos as an investor. Both are trying to disrupt the current gaming giants (like EA) with lower development costs, lower marketing and distribution costs, and more social gameplay.

Pincus wants to keep his player acquisition costs low, but add in some of the deeper engagement that online multiplayer games enjoy. He is building some of these games now. But he no doubt will do more buying of small fry gaming app startups. (Playfish looks like bait in this area).

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