Social Media December 17, 2009, 12:31AM EST

Zynga Enlarges Its War Chest

Armed with $180 million in fresh funding, the online game maker wants to buy servers, make acquisitions, and stuff the pockets of employees and investors

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Russian investment group Digital Sky Technologies grabbed the spotlight of the D: All Things Digital conference in May with the announcement that it was investing $200 million in Facebook. But behind the scenes of the San Diego summit, DST was laying the groundwork for its next big U.S. play. Through a mutual friend, DST partner Alexander Tamas held a meeting with Mark Pincus, whose gaming startup Zynga would soon become the talk of Silicon Valley.

The encounter paid off. On Dec. 15, Zynga said it would take $180 million in funding from DST and other investors, including the fund maintained by Web pioneer Marc Andreessen. Analysts say that's a lot of funding for a profitable company that has barely touched the $39 million in venture money it raised in 2008.

With its new millions, Zynga plans to spend heavily on technology equipment and, potentially, acquisitions to outmuscle new challengers in the rapidly growing online gaming world. In particular, the company has its sights set on Electronic Arts (ERTS), the video game publisher that in November made a big push into online gaming with its $300 million acquisition of Playfish. "This opportunity is going to be bigger than any of us estimate, and I want to have a big enough chip stack so we can keep scaling," Zynga CEO Pincus says in an interview. At the same time, the injection of funds keeps at bay for now what many view as inevitable for Zynga: an initial public offering.

Millions of Gamers

The maker of popular free games like FarmVille and Mafia Wars, played between friends on Facebook and by users of Apple's (AAPL) iPhone, Zynga is swiftly building a huge community of gamers. Currently, more than 230 million people play at least one Zynga game a month. Many spend real money on so-called virtual goods, such as decor and kitchen appliances for restaurants in make-believe Café World.

Supporting tens of millions of online gamers each day is costly. Unlike games that are downloaded to a computer, such as World of Warcraft, Zynga's applications are run almost entirely on Web servers that are maintained by Zynga. "It's not infrequent that [Zynga games] experience glitches of one sort or another," says Lewis Ward, analyst at research firm IDC. That's probably why the company is looking to ramp up spending on expensive data centers that keep the games running smoothly around the clock. Technology to support security and network operations centers, which help manage and monitor Web traffic, are also on the shopping list, says Pincus. "I have to write a lot of big checks for things that don't sound sexy," he adds.