December 17, 2009 / 12:49 AM / 10 years ago

UPDATE 2-Zynga gets $180 mln from Russian investor, others

* Zynga gets $180 million investment

* Zynga says money to be used on staff, design studios (Adds Zynga and DST CEO comments)

By David Lawsky and Alexei Oreskovic

SAN FRANCISCO, Dec 16 (Reuters) - Russia’s Digital Sky Technologies, which has a stake in the Facebook social network, and other investors have bought $180 million of securities in social game company Zynga, Zynga’s CEO said on Wednesday.

Chief Executive Mark Pincus said the investment would alleviate pressure to take the company public.

He said revenue had grown at least as quickly as the number of employees, which more than tripled this year. A source familiar with the company said revenue was running at an annualized rate of more than $300 million.

Sources have previously put that “run rate” at $100 million in April and $200 million in October.

Industry analysts have speculated that Zynga could raise $1 billion to $1.2 billion in an IPO.

Pincus would not comment on reports that put the valuation higher, and declined to endorse any figure as accurate.

Zynga makes games played by members of Internet social networks like Facebook and MySpace, and profits by selling add-on tools. The game FishVille, for example, lets players buy virtual food and goods with game cash bought with real-world dollars. Zynga has said it generates 90 percent of its revenue by selling “virtual goods”.

Pincus said the investment would give Zynga most of the advantages of an IPO without having to raise money in public markets. He said it would allow Zynga to hire more staff and buy other game development studios.

Digital Sky is making the majority of the new investment, followed by Andreessen Horowitz and Tiger Global, and Institutional Ventures Partners, a current investor that has added to its position in the company.

Zynga would not disclose the stake of the company sold to the new investors.

This is Russian Internet holding company DST’s second big investment in a U.S. social media company. In May, it invested $200 million for about a 2 percent stake in Facebook, and $100 million in July buying Facebook stock from Facebook employees.

DST, which has investments in Russian Internet companies Mail.ru and Vkontakte.ru, has put some $1 billion into more than 30 companies since its founding in 2005, it has said.

DST CEO Yuri Milner said in a telephone interview on Wednesday, along with Pincus, that DST was entirely equity funded by a combination of Western institutions and some Russian investors and that DST did not have any debt.

As in the Facebook deal, DST’s investment will not give it a representative on Zynga’s board of directors.

Pincus said that had the DST investment happened sooner, he might have been able to bid against Electronic Arts ERTS.O for Playfish, his largest rival.

EA, a publisher of videogames like “Madden NFL”, agreed last month to pay $275 million in cash for Playfish. (Reporting by David Lawsky and Alexei Oreskovic in San Francisco and S. John Tilak in Bangalore; Editing by Lisa Von Ahn)

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