Why Rich Levandov Invested Early in Zynga, and Why It Took Off—Lessons Every Entrepreneur Should Consider

11/3/10Follow @bbuderi

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how the deal came together in mid-to-late 2007. Even though Facebook could be considered part of the Internet group above, Levandov saw it emerging as a huge platform all by itself—and he was actively “looking at the Facebook platform as a place to build [other] businesses.”

The other part of the coincidence is that Pincus and Levandov were actually old friends. They had met back in the mid-1990s, when Levandov worked at AOL along with Sunil Paul, who’s now a cleantech investor at Spring Ventures in San Francisco. Paul and Pincus teamed up in 1995 to form FreeLoader, an early Web content downloading service that was acquired less than a year later by Individual for $38 million. Levandov says he was asked to co-found FreeLoader, but instead decided to go into the venture business at Softbank Technology Ventures (where he worked before joining Masthead). But he and Pincus stayed in touch. “I liked him a lot—great character, really smart, one of the best entrepreneurs I’ve ever met,” says Levandov.

The Zynga Idea—The Avalon partner says his old friend told him in mid-2007—shortly after Facebook announced it was opening its API to third-party developers—that he wanted to start a social gaming company on the Facebook platform. As Levandov relates the core insight: a couple hundred million people were playing casual games online—and they were NOT hard core gamers, they were ordinary folks. That meant a vast, and potentially limitless market. “But the problem with those was people either played alone or played with strangers, which was kind of weird. The history of games was that was something you do with friends,” he says.

That’s where his view of Facebook as a platform for building companies meshed completely with Pincus’s idea. After all, Facebook is all about gathering friends. And blending that with social gaming was the magic of Pincus’s idea. In Levandov’s words, “Here’s friends, here’s the connective tissue between friends, and there’s nothing really to do on Facebook after you’ve done your messages and posted your pictures—so the big insight was, ‘Let’s do a social gaming company, and then people can play games with their friends.’ And boom, it just took off.”

Seed Investing Philosophy—Of seed investing, Levandov says, “It’s important to do it quick.” The old venture model of thinking about a deal for several months just won’t work in this day and age, he says. That’s because “you can form companies quicker, and they build faster—so a lot of times the entrepreneurs need to keep going,” he says. “The process of three to six months of getting through big partnership meetings is just not market appropriate anymore.” Or, put another way, he says, “Due diligence is information you studiously gather if you want to kill a deal—or information you avoid if you want to do a deal.”

He chose avoidance. “When I saw Zynga, from the time I saw Mark to the time I decided to invest, was probably like an hour. You don’t see that level of passion that often.” It helped that he, Feld, and Wilson also knew each other well from days in venture together in the mid-1990s. “That was like the band getting back together, because I was with those two guys at Softbank in ’96,” Levandov says. (Levandov and Feld were at Softbank, and Softbank was an investor at the time in Wilson’s Flatiron Partners fund, according to Levandov.)

Beyond Gaming, a Marketing and Promotion Insight—While the core insight behind Zynga—marrying social gaming to Facebook friends—was brilliant, what struck me from talking with Levandov was that there was another layer to Zynga that was critical to … Next Page »

Bob is Xconomy's founder and editor in chief. You can e-mail him at bbuderi@xconomy.com, call him at 617.500.5926. Follow @bbuderi

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