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Facebook investor buys into Zynga

Russian DST leads $180m investment in largest social gaming group in the world

the russian group that invested $200m (£122m) in Facebook earlier this year, has backed social networking further by spending almost as much on a social gaming company.

Digital Sky Technologies (DST) has teamed up with other investors to spend $180m in Zynga, the games group with more than 230 million monthly users on social networks. This shows further support for the social gaming industry, coming shortly after rival Playfish was sold to Electronic Arts, the video game group, for $300m.

DST is the most significant new investor in Zynga but will not hold a seat on the board. The US hedge fund Tiger Global and Andreessen Horowitz were also new investors, while Institutional Venture Partners increased its stake.

DST's chief executive, Yuri Milner, said the move showed his company believes that Zynga's strategy of connecting people through gaming would succeed in a "dramatic way".

"Our earlier investment in Facebook and now in Zynga underscores our premise that social networking and social entertainment will define the next generation of the web," Mr Milner said. "We invest in sector leaders. We are concerned about how the group is doing in five years rather than one year."

DST, which is 35 per cent owned by Alisher Usmanov, the Russian billionaire linked to a bid for the football club Arsenal, expects social gaming to "transform in the next few years".

Zynga was founded two years ago and has grown to become the largest social gaming company in the world. Those on social networking sites including Facebook, MySpace, Bebo, Friendster and Tagged can play Zynga's games. They are also available via Yahoo and the iPhone.

The company, whose investors include LinkedIn's chairman Reid Hoffman, has developed games included Café World, Zynga Poker and Mafia Wars. Its top seller so far has been FarmVille, where players essentially build and maintain a virtual farm.

The games are free to play, but they make money from users buying virtual goods such as tractors for their farms or home decorations. Zynga, which revealed that the recently announced PetVille was its fastest growing online game, said more than a million users bought virtual goods from Zynga games. These account for 90 per cent of the company's revenue, which is reportedly around $250m. DST expects the use of micropayments to boom in the West where it stands at $1bn and to follow China, where the market was worth about $7bn.

Mark Pincus, founder and chief executive of Zynga, said: "We are excited about our relationship with DST as they are a global player dedicated to creating services that are meaningful to consumers in the long term." He added: "The investment from DST allows us to continue delivering on the promise of social games for consumers, making fun the biggest way for people to interact."

DST, which is based in Moscow, took a 2 per cent stake in Facebook in May, and the investment valued it at $10bn. Mr Milner said DST was happy with its investment in the social networking phenomenon. "We had our own projections for the business, and they have outperformed each and every one," he said.