How the Angry Birds deal could lead to mobile gaming nirvana

The $42 million investment in Angry Birds creator Rovio could be a watershed event for mobile games.

The deal shows that at least one mobile game company is able to attract marquee investors and a valuation (as yet still unknown but undoubtedly big) that social game companies attracted in their run-up to the big time. At some point, the industry will flip, with Facebook becoming the smaller part and mobile becoming the bigger part, since the number of mobile phone users is something like five times the number of Facebook users.

In mobile gaming, upstart companies are readying themselves to battle with established giants to become multibillion-dollar mobile game companies. This may sound like the bullish investors are smoking crack. But bullish observers believe the battle has begun and will play out over the next couple of years. Neil Young, chief executive of Ngmoco, said last week in an interview that he believes multibillion-dollar companies will be created in this market in the next couple of years. Rovio itself is perhaps the most bullish of all, since it is closing in on 100 million users.

Besides Rovio, the contenders include Electronic Arts, Zynga, and DeNa, which fired the first shot across the bow when it bought Ngmoco last summer for up to $403 million. Others are moving into the game. Marc Andreessen’s venture firm invested $18 million in mobile game publisher TinyCo just a week ago. Digital Chocolate, an established maker of cell phone and social games, raised $12 million earlier this week. Pocket Games raised $5 million from Sequoia Capital in December. There are lots of chess pieces in motion.

“We were approached by a lot of people and talked to a lot of investors,” said Peter Vesterbacka (pictured top left), the Mighty Eagle at Rovio, responsible for business development. “We were in a good position because we didn’t need the money. The money was not the key thing here. It was more about getting the right people involved. We wanted people who bought into our bigger vision. A lot of people don’t see beyond an iPhone game. What we are trying to do is build an entertainment franchise. We believe we can build this into a multibillion-dollar ecosystem.”

Rovio’s investors include Atomico Ventures, the venture fund created by Skype co-founder Niklas Zennstrom; Accel Partners, the veteran VC firm that invested in Facebook; and super angel fund Felicis Ventures, headed by Aydin Senkut. They slowly came around to a meeting of the minds with Rovio.

Rich Wong, a partner at Accel, said he had known Vesterbacka, who joined Rovio in the spring of 2010 and was a former HP manager, for a long time. Wong caught up with Vesterbacka, who formerly worked at Hewlett-Packard, at our MobileBeat conference last July, about the time when Rovio was starting to go public with all of its success with Angry Birds. Vesterbacka also met Senkut at MobileBeat.