Year-old start-up Rebel Monkey, a developer of casual multi-player games, briefly emerged from stealth mode Wednesday to snatch $1 million in first-round financing from Redpoint Ventures.
The company, co-founded by Chief Executive Margaret Wallace, who helped launch Skunk Studios in San Francisco, and Nick Fortugno, lead designer of the Diner Dash game, is in one of the hottest sectors of the video-game industry.
A report by Pacific Crest Securities analyst Evan Wilson forecast that casual gaming revenue would nearly double from the $375 million in 2006 to $725 million in 2008. That kind of growth is attracting both entrepreneurs and venture capitalists.
This week, Seattle-based FlowPlay attracted $3.7 million from Intel Capital and Ambient Sound Investments for its virtual world game community. Last month, Mark Pincus, creator of Tribe.net, unveiled the Zynga Game Network, designed to adapt games like blackjack and Battleship for play on the popular social networks Facebook and MySpace. And last year, Walt Disney Company bought children's virtual world Club Penguin in a deal that could total $700 million.
"The trend we're seeing is, especially with younger people, the gap between their real identity and their digital identity is shrinking," said Fouad ElNaggar, principal with Redpoint.
Redpoint, formerly the sole institutional investor in MySpace (bought for $580 million by News Corp.) and now an investor in virtual world Gaia Online, is betting that as the identities merge, people will open their real wallets to buy virtual goods.
"In your personal life, you go on a date, you're going to invest in a nice shirt and a nice pair of shoes," said Mr. ElNaggar, who said that companies are making real money in virtual items. "There are companies doing $100 million in revenue here and in China."
Mr. ElNaggar knows something about dual identities. By day he is a venture capitalist, but by night, he and his brother, Omar, are the Red Stained Lips, as of Wednesday evening the No. 4 ranked band by fans worldwide in the Rock Band video game on the Xbox console.
Scott Raney, a partner at Redpoint, said that portfolio companies like Gaia and Rebel Monkey are progressions from the company's MySpace investment.
"We sold MySpace and looked around and figured out what we wanted to do next," he said. "For us, what appeared to be next was virtual worlds and social gaming."
Mr. Raney and Mr. ElNaggar said they could not reveal details of Rebel Monkey's plans, but said the company is expected to release products in the third quarter.
Casual games are designed for players who want to spend minimal time learning how to play while having maximum flexibility to leave a game and resume later.
U.S. sales of video game software and hardware for both consoles and PCs reached $18.8 billion, 40 percent higher than the $13.5 billion generated in 2006, according to The NPD Group.