Kara Swisher

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Zynga Raising $500 Million at $10 Billion Valuation

The fast-growing social gaming company Zynga is close to completing a funding round of $500 million, valuing the company at $10 billion, said multiple sources.

The round includes big institutional investors Morgan Stanley, T. Rowe Price, Fidelity Investments, as well as a token investment from existing venture investor Kleiner Perkins, in order to establish the huge valuation.

The big funding is essentially a precursor to an initial public offering.

Zynga has already raised more than $500 million from a panoply of Silicon Valley VCs such as Kleiner and Andreessen Horowitz, as well as Russia’s DST Global.

Their interest has been in Zynga’s explosive growth in social gaming, with such hits as FarmVille, CityVille and Mafia Wars.

The company grew virally, initially due to its close relationship with social networking giant Facebook.

Since then, it has tried to find other ways to distribute its games, although it still depends largely on Facebook’s audience.

While some worry about Zynga’s reliance on Facebook, as well as its sharing some of its revenue, sources said the company’s sales of virtual goods and advertising is closing in on $1 billion and more annually.

The massive valuation for the San Francisco-based Zynga comes after similar rounds by large Wall Street players in social media hotshots.

Facebook raised $1.5 billion from Goldman Sachs and others and social buying site Groupon raised close to $1 billion from T. Rowe Price, Fidelity and others.

The New York Times reported tonight the round was $250 million and named T. Rowe Price and Fidelity as possible investors. Earlier this week, The Wall Street Journal also had the round at $250 million.

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There’s a lot of attention and PR around Marissa, but their product lineup just kind of blows.

— Om Malik on Bloomberg TV, talking about Yahoo, the September issue of Vogue Magazine, and our overdependence on Google