Gaia Gets More Cash as Money Pours Into Virtual Worlds

With Web 2.0 fever finally starting to wane, the investor community has been pumping some serious dollars into virtual worlds and MMOGs — about $345 million in 39 virtual worlds in the first six months of 2008. And the third quarter has started off with a bang, with veteran (it was started in 2003) virtual world/online community Gaia Online announcing that it has raised $11 million in Series C funding from Institutional Venture Partners. Gaia raised $12 million last year from DAG Ventures, Benchmark Capital and Redpoint Ventures; its funding now totals $32 million. Interestingly, none of the older investors participated in the latest round. The new money indicates that the San Jose, Calif.-based company might not be profitable just yet.

Last year, when Disney acquired Club Penguin for about $700 million, the conventional wisdom was that Gaia would be the next one to get snapped up. Since then, we’ve heard rumors that the company was talking to quite a few suitors.

The reason there has been an increased investor interest in virtual worlds is because the sector captures a highly lucrative younger demographic, notably teenagers. eMarketer expects the number of teen Internet users visiting virtual worlds to rise to 20 million by 2011 — from just 8.2 million in 2007. And unlike the demographic of the traditional gaming business, which is facing a crisis of attention, teens tend to be a more engaged audience, and are more likely to participate in virtual economies and newer forms of advertising.

Gaia’s attempts at commercialization have met with some resistance from its community — read the comments in response to one of our previous posts. Nevertheless, it still has a thriving community and continues to grow at a rapid clip.