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Google Leads Investment in Social-Networking Game Startup Kabam

Google Invests in Social-Networking Startup Kabam
Kabam CEO Kevin Chou says the company has created "hard-core games that have a very distinctly social flavor." Photographer: Noah Berger/Bloomberg

Kabam Inc., the maker of Facebook games such as “Kingdoms of Camelot,” is getting $85 million in a financing round led by Google Inc.’s venture arm, helping the startup expand in Asia, hire developers and make acquisitions.

The investment, co-led by Pinnacle Ventures, values Kabam at about $500 million, according to two people with knowledge of the deal who asked not to be named because the valuation is private. The Redwood City, California-based company has raised $125 million since it was founded in 2006.

Kabam lets users play its games for free on Facebook, similar to the approach Zynga Inc. has used to reach a multibillion-dollar valuation. Both companies make money by charging for virtual items -- a market that’s expected to more than double to $20.3 billion in 2014, from $9.3 billion last year, according to ThinkEquity LLC. The difference with Kabam: It’s targeting so-called hard-core gamers, who spend hours pursuing complex adventures, often on video-game consoles.

“We’ve created hard-core games that have a very distinctly social flavor,” Kabam Chief Executive Officer Kevin Chou said in an interview. “Compared to buying the latest console game and having to pay upfront at a retail store, they pay only if we deliver them entertainment value.”

The latest investment also includes financing from Performance Equity Management LLC and SK Telecom Ventures, a unit of South Korea’s largest mobile-phone company. Kabam’s earlier investors -- Intel Capital, Canaan Partners and Redpoint Ventures -- also contributed to the round. Chou, 31, declined to comment on the valuation.

Formerly Watercooler

Started five years ago as Watercooler, the company changed its name to Kabam in 2010, when it shifted its business from sports and media to social games. The size of its workforce has jumped to 400 from 25 early last year.

In February, Kabam signed a lease for 25,000 square feet of office space in downtown San Francisco, where the company aims to hire at least 150 people.

Kabam has a roster of four games -- “Dragons of Atlantis,” “Kingdoms of Camelot,” “Glory of Rome” and “Global Warfare” -- with five more expected by the end of the year. Each game lets users play with their friends on Facebook and other social networks.

In terms of customers, Kabam is a fraction the size of San Francisco-based Zynga. Kabam has 7.2 million monthly active users, compared with 248 million for Zynga, the biggest U.S. social game company, according to research firm

‘Dragons of Atlantis’

Kabam’s most popular application is “Dragons of Atlantis,” which it acquired in October with the purchase of game developer WonderHill. That game has 4 million users, while “CityVille,” Zynga’s top application, has 90 million.

Kabam’s business relies on converting a higher percentage of players into paying users and having them spend more money within the games. It’s attracting consumers who have been major players of action titles, such as Activision Blizzard Inc.’s “Call of Duty” and “World of Warcraft.”

“Kabam focuses on a different niche than your traditional social-gaming players,” said Joe Kraus, a partner at Google Ventures in Mountain View, California, who is a new member of Kabam’s board. “Traditional social-gaming companies focus on more casual games and more lightly engaged players.”

‘Steroid Injection’

Purchases within games range from $1 to about $50, Chou said. The virtual goods let players build their armies faster and acquire more powerful weapons. One tool allows players to strengthen their forces for a 24-hour period, or as Chou describes it, provide a brief “steroid injection.” The company uses Web data to estimate the kinds of items each user would want and how much they would be willing to pay.

In addition to hiring game developers in San Francisco, Kabam is planning to bolster its presence in Asia, with help from SK Telecom. Social games have taken off there, promoted by Tencent Holdings Ltd., China’s biggest Internet company, which has captured 29 percent of that country’s online games market.

Kabam is also in the process of building a data center in Las Vegas and hiring the necessary people to manage the bandwidth required for streaming 3-D games and running applications that have thousands of people playing simultaneously.

“It requires a world-class team,” Chou said.

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