picture-2.jpgIGA Worldwide, a New York-based provider of advertising that appears within video games, has raised $25 million from a collection of venture capital, private equity and large media firms.

The potential market for in-game advertising is big, even as some analysts trying to measure it are prone to hype. It made only $55 million last year, but is expected to pass $800 million in 2012 with total video game ad spending reaching $2 billion that year, according to Park Associates.

IGA claims to be the largest independent in-game advertising company using an ad-serving network. It helps advertisers target video-game players across gaming platforms and genres, and works with game developers to try to make the advertising relevant.

Greg Blonder, a partner at Morgenthaler Ventures who was an early investor in IGA, says that in-game advertising is starting to become acceptable to game players and publishers — even though both groups were nervous at first.

picture-4.pngCompetitors include Microsoft, which purchased rival Massive last year, allowing it to include in-game advertising as another option for its advertising network. According to Blonder, Microsoft doesn’t have the cultural DNA to put ads into games in a way that users are comfortable with, something he thinks IGA’s executive team understands better because of their backgrounds in game publishing and advertising.

An interesting startup working on a similar idea is Mochi Media’s MochiAds. It lets game developers build games in Flash and include advertising, then splits the revenue with them.

IGA says the market potential is what created interest among strategic investors. The company has run ads for Discovery, FHM, Intel, MTV, T-Mobile and others. It also provides a communications consultancy, called Hive.

A lead investors in this round, GE/NBC Universal’s Peacock Equity, said that the gaming industry has growth potential “that can shape the future of the new media advertising industry.”

It will probably be another generation of video games — one to three years from now — that build advertising in as part of the game, Blonder said.

Other investors in this round include KTB Ventures as well as other existing investors Easton Capital, Intel Capital and DN Capital.