Virtual Worlds Management released a report today tracking the virtual worlds-related investments of Q3 2008. Over $148.5 million was invested in 12 companies, not including the undisclosed cost of one investment. That's down from Q2's $161 million invested across 15 companies and $184 million dollars in 23 virtual worlds-related companies in Q1 2008. This brings the total investment in virtual worlds-related companies so far in 2008 is over $493 million.
As has been the trend, the bulk of this quarter's investment is entertainment-related, with $70 million going to Trion to fund development of a fantasy MMOG and a virtual world co-developed alongside an upcoming SciFi channel television show.
"Games and virtual worlds are a hit driven business. As such, you see a barbell approach to investing - lots of small early investments, and a few large investments behind established winners," commented Jeremy Liew, Managing Director at Lightspeed Venture Partners.
Those smaller investments were made across a spectrum of youth-oriented virtual worlds. $35.64 million was invested in seven virtual worlds aimed at kids through teens. That's up significantly from Q1's $16.03 million in eight youth virtual worlds and Q2, which saw no investment targeted at youth worlds.
An additional $14.4 million was invested in Ukash, which offers payment systems for online games and gambling sites as well as virtual worlds, which is of particular interest for developers targeting the under-18 set.
"Kids and teens are the core demographic for virtual worlds, as is reflected by the areas of investment focus," noted Liew. "We're starting to also see some innovation around how to monetize these kids and teens (who don't have credit cards) through alternative payment systems."
Aiming at the older crowd are Hollywood Interactive Group with an investment of $5 million and Yoville, which was acquired for an undisclosed amount by Zynga. Hollywood is developing an online community targeting women 18-34 with an entertainment and celebrity theme. So far virtual worlds haven't gained significant mainstream traction in that demographic, but Hollywood is moving slowly, beginning now with a community and casual games before introducing virtual world elements in early 2009.
Yoville stands out as one of the most successful integrations of a virtual world with social networks, specifically Facebook where it currently registers 2,153,041 monthly active users. For investors looking at exit options for virtual worlds, I believe this marks the first acquisition of a successful virtual world proper (rather than an industry-related company or studio).
The bulk of investments are still being made in early-stage companies, either in stealth mode or developing, but with an economy like the current one, where venture capital overall is predicted to fall short this year, that's a nice light at the end of the tunnel.
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