Zynga Competitor Crowdstar Raises First Round of Funding. Ever!

Back when the business was easy, CrowdStar was able to grow organically, making hit games for Facebook, such as Happy Aquarium and Happy Pets.

Founded in 2008, it was one of the first gaming companies to feed off of Facebook’s social graph, which allowed companies to endlessly post messages on players’ walls to get the word out about their games.

Flash forward to 2011 and the frothy days are over.

Facebook has scaled back the amount of viral activity allowed, due to all the complaints, and now the Burlingame, Calif.-based company has decided to raise $23 million in capital to fuel its next stage of growth.

The round is a big deal for the fifth largest game company on Facebook because it represents its first ever. That’s quite the accomplishment given its position compared to others.

For instance, CrowdStar registers roughly 29 million users a month vs. Zynga, which enjoys the top position by a wide margin with 248 million users. Electronic Arts, which purchased Playfish for $275 million in 2009, has 32.7 million monthly users, according to AppData.

As a YouWeb incubated company, CrowdStar previously had raised no formal capital. Contrast that to Zynga, which has raised somewhere around $1 billion if you count a nearly $500 million injection that has not yet been officially announced.

The company’s first round was led by Intel Capital and Time Warner, along with participation from China’s The9 and NVInvestments. Vivi Nevo, the largest individual shareholder in Time Warner with lots of ties to Hollywood, also invested.

“We’ve built six to seven substantial properties that have done well and we got the audience when customer acquisition was fairly easy,” said Peter Relan, the company’s CEO and co-founder. “We were able to be profitable and fund the growth to 100 people organically.”

Relan declined to specify the company’s valuation or its revenues, which he said was in the “tens of millions.” No matter how much it is, it’s not enough to support his lofty ambitions for 2011.

By the end of the year, the company plans to double the number of employees it has to 200, hiring game developers, artists, producers and business analysts. It also wants to expand to mobile and other social networks around the world. Relan says the goal is to double the company’s revenues with only 50 percent coming from Facebook by year end.

“We are a Facebook social games company turning into a multi-platform global company,” he said. “It’s a very profitable business, but it can’t fund all that growth.”

CrowdStar said that it will launch four to five more games this year, two of which will be on mobile and the rest on Facebook. Additionally, it will launch two to three of its current game titles overseas this year in a few countries.

Relan said by pursuing both mobile and international growth, he’s confident that he’ll find audiences that are equivalent in size to Facebook. He’s targeting such social networks as Renren in China, The9, a game network in China, and OpenFeint’s social network on mobile phones.

Relan said he carefully picked the mix of investors.

Intel will be active in the tablet market, which may be a big market going forward for social gaming, and Time Warner will be able to contribute as social games increasingly integrate brands, such as GagaVille on FarmVille, and Playfish’s integration of celebrity chef Jamie Oliver in Restaurant City.

Last year, there were rumors that Microsoft was interested in purchasing CrowdStar.

Relan declined to comment on those rumors but said he’s thrilled to be an independent company. “We’ve been independent and historically we’ve never even had an investor to tell us what to do. We are a fiercely independent and motivated company that really enjoys the cultural freedom of creativity. We can do what we want, and that’s a rare luxury.”

By staying independent and by not raising money before, Relan also says he maintained lots of financial flexibility.

“With Zynga setting the trend, it’s a great thing to follow on. There will be people who think it is too inexpensive–I don’t know if it is–but it’s a great thing to be seen as inexpensive.”

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— Phil Zimmerman, PGP inventor and Silent Circle co-founder, in an interview with Om Malik