$101M Invested in 13 Virtual Worlds-Related Companies in Q4 2008

Virtual Worlds Management released a report today tracking the virtual worlds-related investments of Q4 2008. Over $101 million has been invested in 13 companies, bringing the total investment for the virtual worlds industry in 2008 to over $594 million.

The number, while significant, continues a downward trend for investment in the space over 2008: Investments have declined from $184 million in Q1 to Q2's $161 millions to Q3's $148.5 million and now the most drastic drop.  Overall the year was in decline, down from 2007’s $1,405,840,000 which was bolstered by a potentially $700 million Disney acquisition of Club Penguin and $110 million Intel acquisition of Havok.   Just Q4 of 2007 brought $425 million to the industry with $300 million going to ZeniMax Media. The decline, though, is about on par with overall U.S. investment, which Forbes recently reported declined by 71% in Q4 2008 compared to Q4 2007.

2008 and Q4 in particular saw smaller investments in both gaming-oriented virtual worlds companies and broader, open-ended developers. That may be less a reflection on the virtual worlds industry in particular than the larger economic climate, with venture capital slowing down across the board.

While many venture capitalists are predicting a continued slowdown in 2009, especially in the media and entertainment sector, the new year has already brought several investments. The trend they seem to be carrying is a more intense search for companies that are either close to profitability or well on their way. Just as in the Web 2.0 community, it seems like investors are less interested in waiting for otherwise solid products to develop an audience.

In Q4, almost $40 million went to GoFish ($22.5 million)  and PlaySpan ($16.8 million), two relatively established companies aimed at monetizing other communities. GoFish represents a wide range of sites, including many youth virtual worlds, and PlaySpan develops and operates tools for publisher-supported real-money transactions. TwoFish, which also develops platforms for virtual economies, raised its own $4.5 million.

The second largest investment at $17 million went to PlayFish, which develops social games for use on other networks and communities. While it includes one lightweight virtual world, PetSociety, in its portfolio, it has also diversified with a range of casual games.

Notable in their absence are the kids worlds themselves. While Q3 saw $35.64 million was invested in seven virtual worlds aimed at kids through teens, Q4 saw only two. Playdo raised approximately $4.3 million for a youth-oriented social world/casual MMO, but it has the advantage of several years of history and products. Wix.com, which plans to develop a kids world with Cartoon Doll Emporium, also raised $3.5 million, but has other offerings as well.

Instead, investors appear to continue their interest in branching out to older demographics. FooMojo, which has a successful Facebook app for virtual pets, raised $9.9 million and is planning a virtual world to target adults.  Metaplace, which allows users to develop worlds from the ground up, also received $6.7 million. Due to its nature as a toolset as well as a community, Metaplace could draw or impact a broad range of demographics, but seems slanted towards adults for the present.

Perhaps most importantly, Metaplace's, I believe, is the only pre-revenue investment on the list, and it's already a ways into a private beta. With the harsh economy looming larger than ever, it seems like more and more focus is being put on unique niches and markets, established business opportunities, and quick-to-market strategies.

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