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Sequoia's $4.5 million bet on casual-game site

Challenge Games drew an investment from one of technology's most prominent investors after the YouTube backer got hooked on one of its games.

When Roelof Botha struggled to buy a $10 pack of virtual armor and weaponry from the casual-game site Duels earlier this year, it turned out to be good fortune for the site's creator, Challenge Games.

Botha, a venture capitalist with Sequoia Capital and former CFO of PayPal, e-mailed customer support at the time to get help with his transaction, but then struck up a conversation with the site's founder, Andrew Busey, who recalled the meeting in an interview. Busey told Botha his plan to create a new class of games--free, short-form browser-based games--and Botha liked the idea.

"How often do you get VCs buying stuff on your site, before you even start talking to them," said Busey, the creator of instant messaging application iChat (now used by Apple).

On Thursday, Challenge Games will announce that Sequoia Capital has invested $4.5 million in the company, along with angel investors such as Ron Conway. Challenge Games has also launched its second game in less than a year, Baseball Boss. The new game--a cross between baseball card collecting and fantasy sports--was made possible through a multiyear licensing deal with Major League Baseball Advanced Media.

Casual online games are a big focus for investors lately because of the genre's growing popularity among Web surfers. In recent months, Shasta Ventures and Accel Partners put $10 million in Mochi Media, an advertising network for casual-game sites; Time Warner and GGV Capital sunk $40 million into Turbine, creator of online games like the Lord of the Rings; and Amazon founder Jeff Bezos invested $3 million in gaming startup Kongregate.

Busey, who co-founded social media software company Pluck before starting Challenge Games, said that he's carving out a new genre of games that operate somewhere between the downloadable multiplayer epics like World of Warcraft--which people play for hours at a time--and quick casual online games like Scrabulous. Challenge Games let players develop a character and collect goods, but are designed to be played for more like 20 minutes at a time. Its seminal game, Duels, launched last August and has about 250,000 registered users who spend an average of 20 minutes each session.

With the money, the company plans to launch a new trading-card game in September; and following that, it will introduce another game every three months, according to Busey. The games are free, but the company makes money from the sale of virtual goods. With luck, since its relationship with Botha, Challenge Games has hammered out the kinks of its payment system.