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'Bejeweled' Creator PopCap Games Raises $22.5 Million

One of the video game industry’s most consistent hitmakers is taking things to the next level. PopCap Games, the creator of titles such as “Bejweled,” “Zuma,” “Bookworm” and “Peggle” – has raised $22.5 million from venture capitalists.

Bejeweled
Bejeweled
Bejeweled

The first round of funding, led by Meritech Capital Partners, represents a minority stake in the company. PopCap said it plans to use the money to fund its ongoing expansion into social gaming and possible acquisitions.

Throughout its 10-year history, PopCap has never had a dud. Its games are consistently praised by critics and devoured by players. “Bejeweled,” for example, has sold more than 25 million copies.

As a result, the company has been profitable since its inception.

“We’re probably more profitable now than we ever have been before,” says Garth Chouteau, vice president of public relations. “This is a case of us looking at an opportunity - and having a war chest can’t hurt.”

That opportunity might lie in the fast-growing field of social network gaming. PopCap has barely dipped its toes in those waters, but the efforts have been encouraging. A version of “Bejeweled” for Facebook found 8 million monthly users with no real marketing in one year, showing a notable demand for the company’s games.

Other casual game companies, such as Zynga (makers of “Mafia Wars”) and Playfish, have already established footholds – which could present a challenge to PopCap.

With the infusion of venture money - particularly from a late-stage investment company like Meritech – whispers have already started about what the future might hold for PopCap. After all, most VCs come in with an exit strategy of either IPO or sale in mind.

Both are possible. PopCap has, in fact, regularly been approached by larger publishing companies about a possible buyout – but has always opted to remain independent. The growing importance of casual games to the industry, though, may put increased pressure on the company.

Beyond the audience of casual gamers Nintendo has brought to the industry, several other companies, including Electronic Arts, Microsoft and Yahoo, have substantial casual gaming arms.

PopCap’s games are on all of those platforms – but to be able to offer them exclusively would be a big coup.

With its track record, PopCap might also be an attractive play for investors. Beyond its significant online presence, its games are sold in more than 20,000 retail locations.

Because it’s privately held, the company does not release precise sales figures. In January, of this year, it did report that 2008 revenue was up 85 percent over 2007 – with the largest growth coming in the fourth quarter. That propelled the company into the list of the industry’s top 20 publishers.

The “Bejeweled” franchise, meanwhile, has generated sales of more than $300 million life to date, along with tens of millions of dollars more in online advertising revenue. It’s a notable number for any game – but even moreso, when you consider that all of PopCap’s games retail for $20 or below – just one-third of what other publishers charge.

But when compared to the revenues of an EA or Activision , it’s a pittance – which could work against the company if it decides to go public. Should PopCap use this money to buy some of its bigger competitors, though, things could quickly change.

“I think investors would rather see some consolidation and the formation of a critical mass – and then you could go public,” says Eric Handler, senior equity analyst for MKM Partners. “Otherwise, what are the valuations and market caps for these companies? They’re pretty small. … [On its own,] would PopCap be able to get a premium multiple? I think it would be difficult.”