More Layoffs And Downsizing At Vostu, South America’s One-Time Frontrunner in Gaming

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Vostu, the onetime darling of the social gaming world in South America, appears to have just had a fresh round of layoffs over the last few weeks.

Multiple sources who have worked with the company said that Vostu laid off about 100 people and is now down to somewhere between 50 and 70 employees. Vostu has not replied to multiple requests for comment.

This is a huge decline for the company, which took at least $46 million in funding from investors including Accel Partners, Tiger Technology Global, Intel Capital and General Catalyst. At the end of 2011, the company had around 580 employees spread across Sao Paulo, Buenos Aires and New York and claimed that 25 percent of Internet users in Brazil played Vostu games.

So the company’s headcount is now about one-tenth of what it was two years ago. The company had an earlier round of layoffs around the same time last year.

It looks like a perfect storm of factors created headwinds for the company. Orkut’s gradual decline to Facebook in Brazil meant that Vostu had to play on a more competitive field against established social gaming companies from the U.S. and Europe. The company apparently started spending in an ROI-negative way on marketing and user acquisition on the Facebook platform, according to one source. According to app tracking site AppData, Vostu has about 2.3 million monthly active users (or about 1/100th of what Zynga has on the platform).

The Facebook platform has also changed dramatically over the last two to three years, in curbing virality for certain kinds of games. Many developers like Kabam and Zynga have transitioned to focusing on mobile platforms to reduce their exposure to Facebook, although other companies like King.com and Wooga have thrived in this new environment.

At the same time, Zynga’s weak post-IPO performance has put a damper on valuations and large-scale acquisitions across the board for the gaming industry. That meant that any expectations for an exit had to be seriously downscaled. Two sources said that the company had been negotiating a sale for either the whole company or a fraction of it as of last month.

There were also internal management and political issues with the engineering and product teams unable to come to a consensus on specs that would work for various games. That left the company organizationally unable to add features or service games in a way that would keep players engaged.

“Essentially, Vostu was unable to take risks and that brought the company down,” says one source.

Two of Vostu’s co-founders Mario Schlosser and Daniel Kafie left their positions as chief scientist and CEO early last year, while Matias Recchia and Andres Bernasconi were left in charge. It looks like Bernasconi just left this month while Recchia departed last month, according to their LinkedIn profiles.

They may be room for hope, though. Brazilian news site Apertura, which first reported the layoffs, said that Kafie may be back in the ring as CEO. One of our sources said this was possible and if that’s the case, Vostu would be “in good hands.”

“I have lot of trust in Daniel Kafie,” they said. “They will reinvent the business of this company.”