Zynga gets Challenge Games as Austin office

Social gaming startup worth reported $5 billion possibly paid at least $20.5M for short-form gamers

Over the weekend an SEC filing surfaced showing that Zynga may have paid at least $20.5 million for Challenge Games, a developer of online games largely fueled by virtual goods. Zynga would not comment on the transaction's financial details.

Founded in 2006, Challenge Games sought to create Web-based "short-form" games (Warstorm, Ponzi, etc.) intended to be played in 3-10 minute increments, in opposition to games that require huge time commitments like World of Warcraft. It should come as no surprise that Zynga itself develops the same kind of short-form games for social sites and other platforms.

In its approximately four year run, Challenge Games raised $14.5 million in two rounds in 2008, from Sequoia Capital, Globespan Capital Partners, and other investors.

The acquisition served mostly to open up a new office for Zynga in Austin, where Challenge Games was based.

"Austin is an ideal location to extend our studio operations with its rich talent in the games business,” said Mike Verdu, senior vice president of games at Zynga. “We look forward to building out our Zynga Austin studio with the best and brightest in the industry as we continue to bring social games to more users worldwide.”

Based in San Francisco, Zynga also has offices in Baltimore, Los Angeles, Bangalore, and Beijing.

The social gaming startup has been making headlines frequently lately, as it aggressively expands its services to new platforms and with new relationships. In mid-May, Facebook and Zynga announced a five-year strategic partnership to expand the use of Facebook Credits in Zynga games. A week later, Zynga made another deal to deliver its games to Yahoo's 600 million member global network.

With over 200 million monthly members, Zynga would trade at a $5 billion dollar market cap if it were public today, according to an April-published report by SecondShares.