How They Started (20 page)

Few startups are valued at $3 billion
two years after they open the doors. But that’s what happened at social gaming company Zynga. The company’s seeming overnight success was possible in part because its founder made his mistakes at earlier startups, before coming up with an idea that would transform the gaming industry.

From early on, Mark Pincus set his sights on business success. The Chicago native graduated in 1988 from the University of Pennsylvania’s Wharton business school, and followed this with a Harvard MBA in 1993. In between, he had a fitful career in finance, going through four jobs in five years.

Employers included investment firm Lazard Freres, consultancy Bain & Company, and Tele-Communications Inc. (now AT&T Capital), where he worked under telecom legend John Malone. Mark recalls he was asked to leave his Bain internship midway through the summer.

“I realized I didn’t have a career working in anyone else’s company,” Mark recalled at the entrepreneur event VatorSplash in 2009.

In 1995, he started FreeLoader, a push-technology news service that delivered customer-selected feeds. His co-founder was Sunil Paul, a technology developer who left $1 million in unvested stock options on the table at his former employer, America Online. Thanks in part to a media blitz Mark orchestrated, FreeLoader quickly became well known.

Sunil’s gamble paid off: in less than a year, the company was acquired for $38 million. Buyer Individual Inc. had initially offered $25 million, but Mark had turned it down.

While the financial windfall was incredible, Mark regretted that his short FreeLoader ownership didn’t let him figure out the company’s true goals. He also had the unhappy experience of working briefly for Individual after the sale. The new owner quickly lost interest and shut down FreeLoader in 1997.

“I realized I didn’t have a career working in anyone else’s company,” Mark recalled at the entrepreneur event VatorSplash in 2009.

Later the same year, together with Stanford grads Cadir Lee and Scott Dale, Mark founded Support.com, which offered computer tech support. Support.com went public at the height of the dot-com boom in 2000 and was renamed SupportSoft Inc.

The problem? Mark wasn’t interested in tech support. And once again, he had lost control, retaining just 15 percent ownership after the IPO. At VatorSplash, he described Support.com’s founding as almost accidental: “Before I knew it, I was the CEO of a large, boring tech-support company.”

Breaking away in early 2003, Mark co-founded Tribe Networks Inc., one of the first social media platforms. Tribe was enabled by a key patent for social network technology, purchased for $700,000 jointly by Mark and Reid Hoffman, founder of LinkedIn. But the platform didn’t catch on. In March 2007, Tribe was sold to an unlikely partner: telecom/networking giant Cisco Systems Inc. Mark and co-founder Paul Martino ended up getting fired from their own startup, recalls Paul, who later became managing partner at investment firm Bullpen Capital.

After Tribe, Mark later recalled, “I stepped back and was more thoughtful. I was around 40. I realized I wanted to start a consumer Internet service that would be around for a long time, and that really mattered. I set my goals high and really wanted to start a company that would be profitable early and not controlled by investors.”

Ironically, both those goals would prove challenging in his next venture. Though Mark had publicly derided other companies that took too much money from investors, his next startup would raise more venture capital than almost any other—a cool $1 billion.

Searching for the next big consumer Internet idea, Mark was drawn to the world of online gaming. People were playing games online in 2006, especially casino games such as poker. But they could play only against the computer or unidentified individuals.

At the time, Facebook had 50 million members. Mark observed that the most common activity on Facebook was viewing friends’ photos. Beyond that and writing updates, there wasn’t much to
do
. To address the problem, Facebook opened up its site to outside developers in 2007, so that new programs could be designed for the platform.

Mark saw his opportunity. His new startup’s software would let users play against their Facebook friends. While most social networks aimed to help people make new connections online, his would offer a new way to connect with
people you already knew
.

The initial goal was to create and launch one social game. Mark decided it would be easier and faster to create a socialized version of a poker game than to create a new game from scratch. It would also be easier to get Facebook users to try a variation on a familiar game. This would turn out to be a canny move; while competitors slaved to create custom games, Mark’s startup would be early out of the gate.

A non-techie himself, Mark began tapping his extensive professional network to find experienced programmers who could create and operate the game. Paul recalls Mark asking him and another Tribe co-founder, Chris Law, to meet him for lunch at a San Francisco coffee shop to discuss his start-up plans.

While Paul and Chris awaited Mark’s arrival, a horrific car crash took place outside. Paul rushed out to find Mark emerging from a totaled BMW he’d been test-driving. The salesman screamed at the other vehicle’s driver, who had run a red light. But Mark strolled into the restaurant clad in his usual work attire—a hoodie and jeans—and sat down as if nothing had happened.

“He was literally almost killed,” Paul recalls. “I say, ‘Do you want to go to the hospital?’ and he says, ‘No, I want to tell you about this start-up idea I have. Could you hire me a dude to write a poker app?’”

Paul and Chris loved Mark’s social game idea. Chris had done research at Tribe on Korean social network sites that sold virtual “gifts” users could give to friends. Mark’s social games would offer a platform for selling such virtual goods.

Another new wrinkle: unlike traditional online and console games, where players paid to purchase a game, these games would be free. Only players who chose to purchase upgrades or virtual items would pay.

The initial goal was to create and launch one social game. Mark decided it would be easier and faster to create a socialized version of a poker game than create a new game from scratch. This would turn out to be a canny move.

At first, Mark funded the new venture himself. The founding team consisted of Eric Schiermeyer, Michael Luxton, Steve Schoettler, Andrew Trader, and Justin Waldron. Nineteen-year-old Justin was a computer science student at the University of Connecticut, whom Eric recruited to serve as lead engineer.

Michael and Eric came from eUniverse (now Intermix Media). Andrew had been the CEO of Utah Street Networks, which operated Tribe.net. Server engineer Steve had worked with Mark on a short-lived project after Tribe sold. Other key early hires were Mark’s co-founders from Support.com, Scott Dale and Cadir Lee, as well as Kyle Stewart, another Support.com veteran.

In June 2007, work began on
Texas HoldEm Poker
(later known as
Zynga Poker
). The team worked remotely for several months, staying in touch via Skype and AOL Instant Messenger. Justin was on summer vacation from college and living in Connecticut, while Mark and the rest of the team were scattered in various California locales. Steve was working out of a converted-garage home office in Menlo Park, and sometimes Michael—who lived in nearby Sunnyvale—would join him there. But for the most part, it was a virtual team.

Zynga’s
Texas HoldEm
was launched on Facebook that fall. Facebook users took to the game quickly. Paul recalls that within a few months Mark told him Zynga was pulling in $1 million monthly. A key innovative feature of the game platform was a “social bar” that showed users what other games their friends played.

Seeing encouraging initial results, the team took an office at the Chip Factory, an office building Mark owned in San Francisco’s Potrero Hill neighborhood. The staff grew quickly to 27, as Zynga hired more game developers and introduced socialized versions of other games, including blackjack, and its own versions of popular tabletop games Risk, Boggle, and Battleship.

“For me it wasn’t the initial numbers that convinced me [to move to San Francisco],” Justin later wrote, “but the feeling that what we had created was fundamentally different than what gaming had been, and would therefore be completely disruptive. It felt like the first time you used Facebook or any other product that you now can’t imagine living without.”

As Mark sought investors for the growing business, there was a problem: the startup had yet to be incorporated and was operating informally as Presidio Media. It was time to solidify the business structure and pick a name to brand the business.

Mark looked no farther than his beloved pet American bulldog, Zinga, who accompanied Mark nearly everywhere. The name comes from an African word for a beautiful female warrior. The domain name Zinga.com was already taken, so with a spelling change, the name became Zynga in February 2008. Zinga’s profile would also become the company logo.

Zynga’s logo features the profile of Mark’s beloved pet American bulldog, Zinga.

The combination of Mark’s previous start-up track record and the poker game’s early success made pitching investors easy. In February 2008, Zynga raised $10 million in Series A financing, with the round led by Union Square Ventures. Participants included Paul Martino, LinkedIn’s Hoffman, MTV founder Bob Pittman, Facebook investor Peter Thiel, and Foundry Group.

One possible funder that didn’t get on board was gaming industry leader Electronic Arts. Paul says Mark was nearly laughed out of the building. The games were all
free
?

“A lot of people didn’t believe it—that you could build a company with that as a revenue model,” recalls Steve, who’s now founder of education startup Junyo. “But we knew we were on to something.”

There was an upside to the EA meeting—Mark met EA executive William “Bing” Gordon, who immediately grasped how social gaming would shake up the industry. Gordon told Mark his goal should be to create an Internet treasure—the sort of company that provides something so useful, customers can hardly remember life without it. A Google. A Blackberry. A Facebook. Mark realized that was exactly what he wanted to do with Zynga.