Zynga Failures Sober Up Venture Capitalists


Post-Zynga, the game investment market has become less interested in frothy valuations.

Zynga’s recent financial debacle has at least done this much good: according to luminaries from the likes of Blumberg Capital, GameStop Digital Ventures, Scale Venture Partners and Sing Tel Innov8, the venture capitalists who thought nothing of dumping millions into the market have suddenly sobered up.

The group was speaking at a YetiZen conference and, when asked whether Zynga’s stock collapse had brought down valuations for all game company start-ups, the group’s unanimous conclusion was yes. Moreover the Zynga disaster had also killed off at least some of the industry’s tendency to “frothy” valuations; claims made with little to back them up, in other words.

“There were a lot of these big party rounds,” said Chris Gottschalk of Blumberg, “where people weren’t even meeting the entrepreneur and putting money behind it.” Those days are done, according to the panel; now it’s a much more sober market. “I think that was a unique time and a unique environment,” said Gottschalk. “We definitely won’t be seeing that become as much of a strategy as it was.”

The tendency for game companies to froth was, in some ways, understandable, claimed Chris Petrovic of GameStop. “Once an idea gains momentum,” Petrovic said, “it’s hard to get these companies that are in the process of being acquired away from that line of thinking.”

“Ultimately, for yourself and your investors,” Petrovic added, “you want to sell at the highest possible bid.”

Source: Venture Beat

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