This pirate just scored $3.5 million in VC funds

Daniel James loves to show up at video game events dressed as a pirate. The CEO of Three Rings has announced he has scored a $3.5 million bounty in a venture funding round.

I visited Three Rings offices in an airy San Francisco loft years back when it had just four people and was at work on Puzzle Pirates, a casual online puzzle game. That game turned out to be a hit and helped the company generate $4 million in revenue in 2007. About $1 million of that was from subscriptions, but more than $3 million was from virtual currency.

Puzzle Pirates initially launched with a typical online game subscription model but it switched its emphasis to virtual currency a few years back where you can buy things in 20 cent or 25 cent micro-transactions. The games has an estimated 3 million user, and Three Rings also has a wild west called Bang! Howdy.

The success of that model has helped propel the company to 30 employees and is planning its new social networking game world, Whirled, where users will be able to create their own avatars, games, rooms, music, and pets. (Three Rings, by the way, is named after the Elven rings of power in The Lord of the Rings. Maybe someday they’ll get a shot at making an LOTR game). Whirled is in alpha testing now.

James was fairly outspoken at the Casual Games Summit at the recent Game Developers Conference in San Francisco. He talked about how the virtual currency model is so much more convenient for gamers and would be the main model for games in a decade. He also said that he believes games will eventually make TV go bye bye.

The round itself is fairly old from last summer. True Ventures provided $3 million, and a small piece came from Chance Technologies, the Accel seed fund run by Richard Wolpert. Existing investors also contributed; previous funding came from Amicus Capital, Mercury Capital Partners and angels.

There are a wide variety of companies reaping revenues in the micro-transaction model for their casual online games, including Nexon, Neopets,  Habbo Hotel, Gaia Online and others.