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Virtual pets are a tried and true market for those targeting young kids. Mind Candy is joining the fray against larger rivals with a kids offering of its own this week: Moshi Monsters.

That’s a big right turn for London-based Mind Candy, which started out in the adult games market.

Two years ago, Mind Candy debuted an innovative “alternate reality game” called “Perplex City.” It was the brainchild of Michael Smith, who loved a treasure hunt book dubbed “Masquerade” when he was young. His team created a game that was part fiction, part real world. It had online puzzles, collectible puzzle cards, and a $200,000 treasure hidden in the real world for the first person to solve all of the puzzles.

But Smith said in an interview that it was hard to monetize the innovative idea. Only about 50,000 people registered to play the game and collect all of the cards, while a much larger body was watching their progress online.  The company got a huge amount of buzz. Mind Candy started on a second season of the game but shifted to Moshi Monsters instead.

Moshi Monsters is aimed at ages 7 to 11. It is a virtual pet game where you adopt a cute monster and then socialize with other kids online. You can feed it, nurture it, and solve the puzzles it sends you every day. When you solve them, you earn more currency to feed your monster. As an educational title, it resembles Nintendo’s “Big Brain Academy” game for the Nintendo DS. It also has elements of “Tamagotchi” and Facebook. There are no collectible cards this time, but they may be possible in the future, along with plush toys, puzzle cards, and phone charms, Smith said.

The company has 22 employees and has raised $10 million from Accel and Index Ventures. Moshi Monsters will compete with a wide variety of kids online game sites. Those include Neopets, GoPets, Bellasara, Club Penguin, and start-ups such as Zookazoo (our coverage).