Zynga Inc., the biggest maker of games on Facebook, is in talks to raise funding from T. Rowe Price Group Inc. and Fidelity Investments at a valuation of close to $10 billion, two people familiar with the matter said.
The deal could still fall through, said the people, who declined to be named because the talks are private. The Wall Street Journal reported yesterday that San Francisco-based Zynga is talking to investors about raising $250 million at a valuation of as much as $9 billion.
The rush to invest in the fastest-growing Web companies ahead of their initial share sales is drawing institutional fund managers that don’t traditionally back startups, as well as venture capital firms more versed in new businesses. A large investment in Zynga could give T. Rowe Price and Fidelity an advantage when the startup decides to go public, said Phil Black, co-founder of venture capital firm True Ventures.
“They manage billions of dollars of capital and even in a $100 million IPO their allocation of that probably isn’t near what they would like to have,” said Black, who is based in San Francisco. “A private transaction where they can buy a big chunk of stock -- that’s a good move on their part.”
Goldman Sachs Group Inc. led an investment in Facebook Inc. last month, valuing the social-networking site at $50 billion, and Groupon Inc. raised cash at a $4.75 billion valuation, two people with knowledge with the matter said. T. Rowe Price owns stakes in Twitter Inc. and Angie’s List and, along with Fidelity, previously invested in Slide Inc., which was bought by Google Inc. in 2010.
Dani Dudeck, a spokeswoman for Zynga, declined to comment, as did Robert Benjamin, a spokesman for Baltimore-based T. Rowe Price. Adam Banker, a spokesman for Boston-based Fidelity, declined to comment.
Zynga and the investors may close a deal in the next two months, the people with knowledge of the talks said.
Zynga’s two most-popular games, “CityVille” and “FarmVille,” have 96.3 million and 51.3 million monthly active users, respectively, according to researcher AppData.com. Founded in 2007 by Mark Pincus, the company lets users play its games for free and makes money from purchases of virtual goods.
Zynga is valued at $6.2 billion on secondary exchange SharesPost Inc., equal to the Nasdaq Stock Market value of Electronic Arts Inc., the second-largest game publisher by sales. Zynga is capitalizing on the growth of the virtual goods market, which may jump to $4 billion in the U.S. in 2014 from $2.2 billion this year, according to Atul Bagga, an analyst at ThinkEquity LLC in San Francisco.
Russia’s Digital Sky Technologies led a $180 million investment in Zynga in December 2009. That financing round also included Tiger Global Management LLC, a New York-based hedge fund that later invested in LinkedIn Corp.