Karma Gaming, the Halifax startup out to marry regulated lotteries with video games, is on the verge of closing a $750,000 second round of funding and hopes to bring in a third round by September.

Chief Executive Paul Leblanc and Chief Innovation Officer Jay Aird said in an interview today that they’ll close the second round in the next two weeks. Their first round was a $500,000 funding from Groupon CTO and Dalhousie University alum Paul Gauthier and the Atlantic Canada Opportunities Agency. Acoa will also play a role in Karma’s second round, which will include about $250,000 in commitments from ``blue-chip angels’’ from Atlantic Canada.

Leblanc and Aird formed Karma with the aim of bringing the video-game generation into the realm of regulated lotteries. The problem is that lotteries around the world traditionally have three main products – draws, scratch-tickets and video lottery terminals, or VLTs. There’s a whole generation of people who play video games for free and all but ignore lottery products. Some lottery organizations have moved into online poker or other casino games, but recent data show that even these are beginning to decline in popularity. Karma aims to draw young people into the lottery world by developing regulated games that award moderate cash prizes.

The company has developed several prototype games that it is now beta-testing with seven different lotteries around the world. Aird said the company is ``thrilled’’ with the response to these tests and Karma could have a product on the market by the middle of 2013.

Leblanc said one privately owned lottery organization has been so impressed by Karma’s technology that it is now negotiating to invest in the Halifax company. As well as bringing in capital, it would also provide ``a perfect symbiosis’’ between a major player in the lottery world and the more nimble startup, said Leblanc.

Karma Gaming’s first round of funding provided it with about enough money to run a lean organization for about one and a half years, whereas Round 2 will allow the company to beef up operations somewhat and add about another six months.  But so far the group has been working on the prototyping phase, said Leblanc, and the third round will be needed for the more expensive commercialization phase, which will cost about $2 million.

The company is now headed for that commercialization phase by building on the acceptance it has gained within the lottery world. No other gaming company that Aird or Leblanc know of is targeting these sorts of games for regulated lotteries, and Leblanc will deliver a keynote address in September at the World Lottery Association annual meeting in Montreal.

In the development of games, Karma now has a single animator and the company is targeting specific niches in the gaming world – not so much teenagers who love action games as the people who play Angry Birds on their mobile devices. While the graphics will probably not match something like Assassins Creed or Call of Duty, the fact is no one wins money playing those games.

``The fact we can award cash makes up for it,’’ said Leblanc. ``Though our target is to be every bit as engaging as the best game out there, we’ve found that what we add by our association with the lotteries should be enough.’’