Outspark raises $8.3 million for casual online role-playing games

Showing that the game sector is still vibrant for venture investment, Outspark has raised $8.3 million in a third round of funding for its casual online role-playing games.

The San Francisco company will use the money to expand on a global basis. Outspark has 5.4 million unique monthly visitors who play its five “free to play games,” which are free online role-playing games where players can buy additional capabilities in the game, dubbed virtual goods, with real money.

About 10 percent or so of the players buy virtual goods, and, on average, those who purchase things spend $50 a month. Outspark is one of the early successes in the U.S. for this model, which is doing well in China, and that’s why it was able to raise money in a tough environment, said David Katsujin Chao, general partner at DCM and one of Outspark’s investors.

“What we’re talking about here is the future business model for games,” said Katsujin Chao. “While VCs tend to shy away from one-hit wonders, Outspark is interesting as a publishing platform play.”

While the second quarter was sluggish for all venture investment, game companies fared well. Eight virtual goods companies raised $237 million in the second quarter, according to Engage Digital. Of course, that number is inflated because Engage counted the $200 million raised by Facebook, which has a virtual goods economy on its site. Still, it shows that virtual goods are hot, even in the U.S. market, Chao said.

“We have had rapid user and revenue growth,” said Susan Choe, chief executive of Outspark. “We are starting to see potential for investments, partnership and acquisitions.”

Choe said she sensed that, while there was a venture capital slowdown in the second quarter, Outspark was able to raise money because VCs were investing in companies that have gotten fundings in the past.

Outspark was founded in January, 2007 with the goal of importing free-to-play online games from Asia into the North American market. Outspark launched its first game in December, 2007, and now has five games. Choe said the company is lining up five or six more. Some are coming from partners among third-party developers and traditional media companies, Choe said. The company now has 50 employees.

The competition is heating up in the U.S. as big companies such as Electronic Arts and Sony Online Entertainment embrace the virtual goods model. Sony Online has more than 3 million registered users for its Free Realms game, a free-to-play game with a virtual goods model, which launched three months ago. Other rivals include Korea’s Nexon, Gaia Online and Habbo.

“We knew the market giants would wake up and jump in,” said Choe. “It will be interesting to watch in the next 12 to 18 months.”

Choe said the company might expand into other markets, such as Europe, now that it has raised money. Its web distribution partners include BestBuy, Yahoo Games, YouTube, Xfire, and Meebo.

New investor Syncom Venture Partners led the financing with participation from SBI Investment and Mille Plateaux. Previous investors in the company include DCM, Tencent and Altos Ventures. The new round brings the total raised to date to roughly $20 million.