By Ryan Olson

With more than 7 million players around the world paying recurring fees to play, Blizzard Entertainment’s mega-hit game World of Warcraft (WoW) has come to define a genre that continues to shatter records for massively-multiplayer online (MMO) games (see Why Warcraft Rules the World).

On Monday, California game development startup Red 5 Studios proved the clout of Blizzard alumni and the appeal of the market for massively-multiplayer online games (MMOs), announcing the completion of an $18.5 million Series A funding round co-led by Benchmark Capital and Sierra Ventures.

According to Red 5 President and CEO Mark Kern, the cash will be used to build a creative team targeting the MMO market—one he believes is still in its earliest stages. “There [is] an opportunity here bigger than any one company could cover,” he said.

An experienced developer, Mr. Kern spent some seven years at Blizzard, working as a producer on games including Diablo II and Starcraft: Brood War. Now he thinks he has the secret sauce needed to create his own studio capable of putting together hit games.

Investors are understandably supportive. “We want to create a studio with an infrastructure to produce a great series of titles,” said Jeff Loomans, partner, Sierra Ventures. “Where creative [talent] is critical, you have to have the best,” he said.

Red 5 started by building a roster of industry heavyweights. Founded in September 2005, the company’s list of employees includes a number of WoW alumni. Former WoW Art Director William Petras and Blizzard Korea co-founder Taewon Yun join Mr. Kern, a former WoW team lead. Red 5 is in the midst of working on its first game, a new MMO title financed and set to be distributed globally by South Korea’s Webzen.

Reality Check

Despite the fact that Red 5 boasts a team loaded with experience from a marquee game developer, the company is entering what has become a hyper-competitive market. “You have to view any MMO project with a healthy amount of skepticism,” said DFC Intelligence analyst Alexis Madrigal. “Very few teams have been able to follow up a big MMO hit with another one.” Sony’s EverQuest 2 couldn’t match the success of the first installment, while successors to NCSoft’s Lineage have also struggled.

Mr. Kern said Red 5 isn’t trying to make WoW 2.0, but is instead planning to take the best parts of the highly-successful game and combine them with emerging trends like social networking. “WoW eliminated the pain and made leveling your character fun,” he said. We’re really focused on ways to bring the social aspect in.”

MMOs draw legions of fans interested in making the game an integral part of their lifestyle, and Mr. Kern and his development team plan to find more ways to do that.

Benchmark Capital’s Bill Gurley agrees, explaining that giving gamers more tools to get involved in a given title can be a great way to build a player base. “The entire gaming industry is thinking more and more about user-generated content,” he said, referring to other online communities like Second Life—produced by Benchmark portfolio company Linden Lab.

If you’re going to reinvent the wheel, best start with those who sold it to the world. “Who better to design an MMO than the people who made WoW?” Mr. Madrigal said. Investors are undoubtedly thinking the same thing.