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Playfish this week announced a whopping $17m funding round, led by internet-focused VCs Accel Partners and Index Ventures.

In doing so, the London-based developer of games for social networks will have provided encouragement for other startups seeking funding. While this deal has been in the pipeline for a few months it proves that the VCs aren’t entirely hunkering down.

Playfish has done exceptionally well in a short space of time. Headed up by CEO Kristian Segerstrale, the company is possibly the largest of its type, by usage. It has attracted 20m registered users who get through a staggering 2bn minutes of gameplay a month (some perspective: the company informs me that this is “almost half the time Americans watch YouTube a month").

As part of the deal Ben Holmes, of Index Ventures, has joined the board and I asked him to explain more about Playfish as well as the VC’s current view on the economic climate.

So what's Playfish all about, and why did Index invest?

Social gaming is the next stage in the evolution of games. By taking games to where people already are, the business model of the gaming industry is turned on its head. Marketing and development budgets can be dramatically lower for social games and a much broader demographic can be accessed via social networks.

Playfish has rapidly established a leading position in the market with four games already in the top 10 Facebook games. This traction combined with an exceptional team encouraged Index Ventures to invest.
How will the investment be used by Playfish? Can you give us a quick overview of the business model and roadmap?

Funds will be used to develop new titles and further improve the existing titles. Other gaming platforms besides Facebook will probably also be targeted.

Depending on the specific game title, users pay for virtual goods or premium subscriptions. Some games also carry advertising and sponsorship.

Has there been any resistance to in-game advertising from Facebook users?

Not so far. If advertising is relevant and tightly integrated, it can be additive to the gameplay experience. That is the goal of the company.

Users understand that companies developing these games ultimately have to monetize them and Playfish needs to do so in a way that doesn’t impact users enjoyment or their propensity to share and promote the games to their friends.

What effect will the economic downturn have on the level of VC investment?

Good ideas and good companies will be able to develop and flourish even in tough markets. The capital is out there for strong technology and teams and Index Ventures is very active in looking for great opportunities to invest in. 

We believe that when times are tough, people will think twice before starting a company which means that only the committed ones actually take the leap, leading to greater innovation and opportunities. 

Generally we are advising our portfolio companies to be conservative about growth prospects and if necessary to adjust costs to ensure they can reach profitability without having to tap capital markets for more funds.

Chris Lake is editor in chief at E-consultancy and can be found Twittering here .

Chris Lake

Published 30 October, 2008 by Chris Lake

Chris Lake is CEO at EmpiricalProof, and former Director of Content at Econsultancy. Follow him on Twitter, Google+ or connect via Linkedin.

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