Smith & Tinker raises $29 million to launch Nanovor web game and toy

In the biggest venture funding for a game company this year, Smith & Tinker disclosed today that it has raised $29 million to date for its line of interactive games and toys that combine both web and handheld gadget play for a generation of kids who have grown up with the Internet.

The investors in the second round, which closed in July, include Alsop Louie Partners, DCM, Foundry Group, Leo Capital Holdings and billionaire Paul Allen’s Vulcan Capital. The $29 million figure includes both the seed round from Alsop Louie and the latest round.

The funding shows how much money you can raise for a game company if you’re a serial entrepreneur like Jordan Weisman, who has started a number of successful game and toy companies. But none have fused the Internet with a child’s toy as his new company, Smith & Tinker, has with its Nanovor franchise.

“This is a big swing in some big markets,” said Joe Lawandus, president of Smith & Tinker. “With that come both big risks and big upsides.”

Nanovor, as we wrote a couple of weeks ago with the launch of its online version, is a modern take on Pokemon-like creature battles. In the game, a boy and his scientist friend discover that silicon chips are infused with tiny nano-sized creatures dubbed Nanovors. They come to life inside computer hardware when electricity pulses through the chips.

You can collect Nanovors, connect with your friends online, and fight multiplayer online battles on the PC. Come October, you will be able to buy a $49 handheld Nanoscope at stores such as Target, Best Buy, Toys ‘R Us and Amazon.com. With that custom-designed handheld, you can battle your friends and then upload the results online via a universal serial bus (USB) connection to your computer. The company is beginning a big TV ad campaign in September. I let my nephew and other youngsters play with a Nanoscope, and they played it continuously. It’s targeted at boys ages eight to 12.

As you can see from this description, the Bellevue, Wash., company, currently with 50 employees, is making a huge bet on its first major launch. Gen Isayama, a partner at DCM, said in an interview that company needed to raise a large round because costs can add up with a hybrid web-toy product. But he said he was excited about it because Smith & Tinker is the first big North American twist on the hybrid toy game that has proven so successful with Asian properties such as Pokemon, Insect King, Bakugan, and Yu-Gi-Oh!

Lawandus said all of the momentum started after Weisman secured his first round of seed funding from Alsop Louie, which was co-founded by game pioneer Gilman Louie. After that, the company was able to line up a seasoned team of executives, partners and advisors. Among the advisors are Steve Arnold, former general manager of George Lucas’ game company, LucasArts; Jim Whims, a former Sony game executive and co-founder of Worlds of Wonder; and Randy Rissman, former head of toy maker Tiger Electronics.

Isayama said the deal was also attractive because the Nanovor technology — the web site and the Nanoscope gadgets — can become a platform for a bunch of different games. Lawandus said that the company needed most of its money to fund the development of the core online game. While putting money into hardware and TV commercials is also expensive, it wasn’t prohibitively so. Some investors cautioned Smith & Tinker to be less ambitious, but Weisman wanted to do something that transported the toy industry into a new era.

Most game companies have raised far less money lately, mostly in the name of capital efficiency. Before this deal, the previous biggest game-related deal was a $15 million round raised by Offerpal Media, a special offer monetization firm. Last year, the money was much more plentiful. Game and virtual world companies raised $936.8 million in 2008, with China’s 9You raising $100 million. Lawandus said he hopes the $29 million will be enough to take the company to profitability.

If Weisman succeeds, his startup will grab a piece of the multibillion-dollar market for hybrid toys and games — which is dominated now by players such as Nintendo, UB Funkeys, and Webkinz

As we noted in our last story, Weisman has a long history in games. He started making toys and games in 1980, when he founded FASA, which made the Shadowrun and BattleTech toy and game franchises. He founded Virtual World Entertainment, a virtual reality franchise, in 1987 and sold the company to Disney in 1992. He started a video game version of FASA, FASA Interactive, in 1995 and sold it to Microsoft in 1999.

In 2000, he founded WizKids, which made a variety of fantasy games like Pirates of the Spanish Main, and sold that to Topps in 2004. And in 2003, he founded 42 Entertainment, which made alternate reality games such as ilovebees, an award-winning treasure hunt style game that Microsoft used to promote the launch of Halo 2.

If it is successful here, Smith & Tinker may launch it in Asia.