VanEdge Capital close to raising $100M to invest in games, with EA as a partner

vanedgePaul Lee is close to closing on a $100 million fund for his new venture firm, VanEdge Capital. And one of his possible limited partners is his old company, Electronic Arts.

Lee, the former head of worldwide studios at EA, confirmed in an interview that his fund is in the process of closing a round, but hasn’t yet finalized everything. If the deal closes, his firm will be the only venture firm focused solely on games and digital media, such as social networks.

His potential limited partners are finalizing due diligence and have yet to sign. But peHUB reported that the limited partners will include EA, the Export Development Bank, the Business Development Bank, the British Columbia Investment Management Corp., BC Renaissance Capital Fund, and Nicola Investments.

Lee said today the announcement was premature and he was hesitant to talk until the closing, which may happen in February. But the cat was out of the bag and he confirmed the first close is targeting $100 million and the second will target another $100 million.

Lee’s partners have a long history of experience at EA. His general partners are Glenn Entis, previously chief visual and technical officer of EA’s worldwide studios, and Jason Chein, former managing director of EA’s China office. Chein is working from VanEdge’s office in Shanghai, while Lee is based in Vancouver, Canada. Entis ran DreamWorks Interactive, which was acquired by EA. Entis won an Academy Award in 1998 for his early work in 3-D image rendering software.

EA’s participation is interesting because the company is well aware that the games being created by startups could well disrupt EA’s traditional $60 console game business. That’s why EA bought Playfish for $300 million and it is investing heavily in digital online businesses.

Lee has been trying to form VanEdge for 18 months. The fundraising has been hard, but Lee invested last year in NeoEdge, an in-game advertising and social game company. He used his own personal money for that $4 million investment. He joins other EA veterans who have become VCs such as Bing Gordon, former chief creative officer at EA, now at Kleiner Perkins Caufield & Byers, and Mitch Lasky, former head of mobile gaming at EA, now a partner at Benchmark Capital.

Others have tried to raise funds to invest solely in games and digital media before. GCube Ventures attempted to do so but had to back off on its plans after the global recession hit. EA’s investment in VanEdge can open it to opportunities it can’t exploit now. For instance, in China, the rules state that foreign companies can’t be majority owners of Chinese companies and that they have to work with local Chinese partners to launch games. VCs, however, have found ways to invest in companies like, in ways that allow capital to flow into the Chinese startup and a return to come back to investors, says Peter Moran, a partner at DCM.

Lee said his team will have advantages in game investments because they know all of the major players, they know a lot of the individual talent, and they can be good judges of advances in user interfaces and game designs. Lee said that he believes the explosion in game startups, which raised about $2 billion in the past three years, will continue.

“There is no doubt in my mind there is a dramatic acceleration of games moving from retail stores to online, and from online to mobile,” Lee said. “I think you will see a dramatic explosion of games and apps beyond the iPhone.”

He noted that the big buzz at the Consumer Electronics Show was about tablets, which will likely be good vehicles for games and apps. EA declined comment, as the deal has not closed.

Be sure to check out our latest announcements on GamesBeat@GDC, our video game conference taking place March 10 in San Francisco.

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