• The Wall Street Journal, Thursday, July 24, 2008 11 AM

Zynga, a San Francisco-based startup which makes free poker, puzzle and other casual games for social networking sites, received some heavy financial backing on Wednesday, announcing a $29 million round of funding led by VC heavyweight Kleiner Perkins Caufield & Byers. KPC&B was an early backer of some major Internet winners, including Amazon.com and Google. According to The Wall Street Journal, the firm's backing of Zynga could be taken as a sign that social networking applications are set to become a real moneymaking industry. Until now, Kleiner Perkins has refrained from investing in social applications.

"We have a really high bar when it comes to investments," Kleiner partner John Doerr said, describing the Zynga investment as "special and surprising" because the fund usually invests at an earlier stage. Doerr said he was drawn to Zynga's ability to develop engaging and viral games quickly. "This is not a hits business," he said. "There is quite a science around fine-tuning the product."

With the exception of sector leaders RockYou and Slide, few social application makers make any real money. Even so, investors are lured to social apps because of their fast growth. Gaming is a particularly hot sector within the group, with millions of users downloading games to their profiles that they can play with their friends. Zynga makes money from the sale of advertising and add-ons for its games. It has roughly 18 million users and adds roughly a million new users every two days.

Read the whole story at The Wall Street Journal »