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DEALFLOW DASHBOARD/ November 2, 2000
ASP: Vocus, $8.4MB2B: Anachron, Euro 7M ($5.9M)COMMUNICATIONS EQUIPMENT: Centerpoint Broadband Technologies, $130MSOFTWARE: Whisperwire, $14MNEW VENTURE FUND: Sevin Rosen Fund VIII, $875MDEALFLOW DIGEST: Estara, $15M; General Bandwidth, $47M; Ibelong, $22.6M; Lingomotors, $16M; Popsystems, Undisclosed; Recoverycare, $5.8M; Solmicro, Undisclosed; Weekends.com, $1.5MELEVATOR PITCH: Varsity Ventures, $1M DEALWOE: Beautyjungle lays off 40
DEAL OF THE DAY: DIALPAD, $50M
Let's face it, the word "free" doesn't bode well for most business plans. You needn't look further than the ongoing dot-com debacle for evidence of that. Yet despite the trend, "free" Internet phone services, like Dialpad, are cropping up on the Web faster than the marketing folks can drop the dreaded dot-com suffix. Which, by the way, Dialpad recently did.
Net2Phone -- which has its services deployed on both Yahoo's and Microsoft's instant messenger -- is a big name in the voice over IP (VoIP) business, with Phonefree, Mediaring, Hottelephone, and others queued up behind.
Still, Dialpad CEO Brad Garlinghouse has no fear. Since launching its free service last year, Dialpad has signed up more than 10 million users without spending a dime on marketing, he says. According to an industry analyst study cited by the startup, that gives Dialpad a 46 percent stake of the worldwide VoIP service market. The closest competitor is Net2phone with a 13 percent market share, Mr. Garlinghouse says.
Dialpad (http://www.dialpad.com) makes money by selling banner and audio ads, as well as miscellaneous sponsorships. Dialpad, based in Santa Clara, California, will begin selling premium services next quarter, such as conference calls, voice mail, and international calling. A trial run with calling cards has brought in $100,000 over the last three weeks, he says. The company will also begin hawking its VoIP services to large enterprise customers. If Mr. Garlinghouse can pull it off, that doesn't sound like a bad business. But as a sign of what he's up against, VoIP upstart Freewebtel is already offering many of Dialpad's upcoming "premium" services for free.
INVESTORS: Serome Technology; CMGI @Ventures; Mokwon Assets Management Co.; Citizens Capital; Sterling Payot
--Steve Silverman
ASP
VOCUShttp://www.vocus.com Lanham, MD FUNDING: $8.4M PRIOR FUNDING: $2M ROUND: 2nd CATEGORY: ASP DESCRIPTION: Public relations management software solution.LEAD INVESTOR: Lazard Technology Partners OTHER INVESTORS: Edison Venture Fund and Carmel Associates THE HERRING TAKE: When pitching his product to PR professionals, Vocus CEO Rick Rudman asks, "How do you link your newspaper clippings with the reporters who wrote them?" Of course Mr. Rudman has a ready answer: Vocus. And that's what the company, started in 1992, does. Its ASP aggregating software compiles huge databases of reporters and the beats they cover. It sells the information to PR agencies and the government on a subscription-based model that costs around $2,000. Vocus is a PR person's dream, because it allows them to focus and hone in on reporters writing about topics dear to their clients' hearts. Mr. Rudman, who's feeding at the troughs of VCs to grow his business, has wisely signed strategic partnerships with Dow Jones and Lexis-Nexis to solidify the expansion of his small empire, and in the process has garnered a customer base of more than 600. Mr. Rudman hopes to be profitable by 2002. His monthly burn rate, hovering around $500,000 per month, will grow with the company’s expansion.
B2B
ANACHRONhttp://www.anachron.comAmsterdam, The NetherlandsFUNDING: Euro 7M ($5.9M)PRIOR FUNDING: Euros 700K ($594K)ROUND: 1stCATEGORY: B2BDESCRIPTION: Provides online bill presentment and payment capabilities to businesses.LEAD INVESTORS: NIB CapitalOTHER INVESTORS: Residentie InvestmentsTHE HERRING TAKE: Three North Americans, all former Cambridge Technology Partners executives, have traded in their Starbucks lattes for Gouda cheese. The three are now entrenched in an Amsterdam-based startup. Anachron's idea is to provide such companies as telecoms, mobile phone operators, and others with a cheaper way to send their bills. And consumers will have online bills that match the paper ones. Anachron charges companies for every bill it puts online. The startup's CEO, Kristin Russel, expects the capital to last past the second quarter of next year but would not comment on its monthly burn rate. She says the capital will be spent on ongoing development and production as well as on hiring and marketing. So far the company seems to be doing something right. It has landed one of the largest insurance groups in Europe as a partner and has turned on four customers to its product, which is in beta testing. Ms. Russel preferred to keep the customers' names confidential.
COMMUNICATIONS EQUIPMENT
CENTERPOINT BROADBAND TECHNOLOGIEShttp://www.centerpoint.com San Jose, CAFUNDING: $130MPRIOR FUNDING: $70MROUND: Mezzanine (4th) CATEGORY: Optical Networking Equipment DESCRIPTION: Provides a multiplexing technology for aggregating and transporting multi-service traffic within optical networks at rates up to 40 Gbps. LEAD INVESTOR: Putnam Investments; Oppenheimer FundsOTHER INVESTORS: Amerindo Investment Advisors; Essex Investment Management Co.; Firsthand Capital Management; The Kaufmann Fund; Octane Capital Management; Pilgrim Baxter & AssociatesTHE HERRING TAKE: Centerpoint's analog modem technology is so fast, it had to be slowed down to work inside optical networks. The modem, originally designed for satellite communications, was licensed from Lockheed Martin. It initially operated at higher speeds but was slowed down and tweaked for use in the optical core and metro area, CEO Dana Waldman says. The modem replaces conventional "multiplexing" gear, which squeezes different wavelengths of light onto (or off) a single optical fiber. Current systems can only support about 2.5 Gbps per wavelength, he says. In contrast, Centerpoint's system can boost individual wavelength transmission speeds to around 20 Gbps and can mix and match different transport protocols. Those properties make it a great way to increase the capacity and performance of big carrier networks including Baby Bells, competitive local exchange carriers (CLECs), and long distance carriers. But despite four rounds of funding and $100 million in R & D costs incurred by Lockheed Martin, Centerpoint has yet to deliver a product. Not to worry. Mr. Waldman says the product is coming in early 2001. An IPO is likely to follow around the middle of next year.
SOFTWARE
WHISPERWIREhttp://www.whisperwire.comAustin, TXFUNDING: $14MPRIOR FUNDING: N/AROUND: 1stCATEGORY: SoftwareDESCRIPTION: Developer of software for telecom carriers. LEAD INVESTORS: Austin VenturesOTHER INVESTORS: Bob Allen, former chairman and CEO of AT & T; Reed Hundt, former chairman of the U.S. Federal Communications Commission (FCC); Comdisco VenturesTHE HERRING TAKE: Whisperwire doesn't want even to whisper its mission to a curious reporter, who could only find out that telecom carriers pay the company to license its software, which it plans to launch in the first quarter of 2001. Whisperwire CEO and cofounder Mike Kadyan says the company will spend the new capital mostly on salaries (he claims he himself draws a salary of less than $100,000). "We are focusing on service providers' needs to be more competitive," says the 29-year-old CEO elusively. Nor would he reveal any competitors. The CEO, who left the telecom business unit at Trilogy to join the startup, expects the new capital to last "well into next year." He declined to comment on the startup's monthly burn rate. Nevertheless, the company has generated enough buzz to get VCs whispering about it. Its staff currently numbers 25 employees.
NEW VENTURE FUND
SEVIN ROSEN FUNDShttp://www.srfunds.com Palo Alto, CA FUND: Sevin Rosen Fund VIIIFUND CHIEF: General partner Steve Domenik FUND SIZE: $875M PRIOR FUND: $480M FOCUS: Early-stage optical, networking, wireless, and e-commerce plays.AVERAGE INVESTMENT: $3M to $5M PITCH EMAIL ADDRESS: info@srfunds.comTHE HERRING TAKE: "Compaq was incubated right here in our office," says Sevin Rosen general partner Steve Domenik. He's not joking. Sevin Rosen has enjoyed tremendous returns since its inception. Compaq, Lotus, and Capstone Turbine being are among its biggest winners. This latest cash windfall should last around three years, according to Mr. Domenik, and will be pumped into approximately 30 companies. Sevin has already used a piece of this latest funding to finance an optical networking play that will be officially announced within several days. Sevin's strategy is getting in during the early stage, with the firm focusing on optical, e-commerce, and Internet plays. Total assets under its umbrella amount to $2 billion. Sevin's modus operandi, says Mr. Domenik, is the hands-on approach, taking startups through their initial hurdles while offering a firm hand in formulating strategy. Mr. Domenik says that traditional 30 percent equity stakes in Sevin's investments are not necessarily the rule. "We do whatever it takes," he says. And once this fund is exhausted, Mr. Domenik says, Sevin plans to raise another.
DEALFLOW DIGEST
ESTARAhttp://www.estara.comReston, VAFUNDING: $15MPRIOR FUNDING: N/AROUND: 2ndCATEGORY: Internet telephonyDESCRIPTION: Provides businesses voice connections that integrate into Web sites, ad banners, email, and search engine links. LEAD INVESTORS: Banc One Venture PartnersOTHER INVESTORS: A Texas Pacific Group affiliate; J Net Venture Partners IMORE INFORMATION: PRNewswire
GENERAL BANDWIDTHhttp://www.generalbandwidth.com Austin, TXFUNDING: $47MPRIOR FUNDING: $36MROUND: 3rdCATEGORY: VoIPDESCRIPTION: Provides voice over IP access equipment for broadband networks. LEAD INVESTOR: Thomas Weisel Partners OTHER INVESTORS: SBC Venture Capital; Sevin Rosen Funds; Sequoia Capital; Oak Investment Partners; Venrock Associates; Trellis Partners; CIT; HLM ManagementMORE INFORMATION: Businesswire
IBELONGhttp://www.ibelong.com Waltham, MAFUNDING: $22.6MPRIOR FUNDING: N/AROUND: 2nd CATEGORY: ASP/Web design firms DESCRIPTION: Creates and hosts customized portals for companies and organizations. LEAD INVESTOR: Moore Capital ManagementOTHER INVESTORS: NETinvest Holding; Household InternationalMORE INFORMATION: Businesswire
LINGOMOTORShttp://www.lingomotors.com Cambridge, MAFUNDING: $16MPRIOR FUNDING: N/AROUND: N/ACATEGORY: Search enginesDESCRIPTION: Provides a natural language search technology for Web sites. LEAD INVESTOR: Reuters Greenhouse FundOTHER INVESTORS: Rosewood Venture Capital Group; Brook Venture FundMORE INFORMATION: Businesswire
POPSYSTEMShttp://www.popsystems.comEspoo, FinlandFUNDING: Undisclosed amount for 20 percent stakePRIOR FUNDING: N/AROUND: 1stCATEGORY: SoftwareDESCRIPTION: Develops software products for mobile communications.LEAD INVESTOR: 3iOTHER INVESTORS: N/AMORE INFORMATION: Popsystems
RECOVERYCAREhttp://www.recoverycare.comBoston, MAFUNDING: $5.8MPRIOR FUNDING: N/AROUND: N/ACATEGORY: SoftwareDESCRIPTION: Provides interactive tools designed to enhance the healthcare provider-patient relationship. LEAD INVESTORS: Rare Medium Group; Johnson & Johnson Development; djOrthopedics; Walnut Investment PartnersOTHER INVESTORS: N/AMORE INFORMATION: PRNewswire
SOLMICROhttp://www.solmicro.comBilbao, SpainFUNDING: Undisclosed amount for 20 percent stakePRIOR FUNDING: N/AROUND: 1stCATEGORY: Internet servicesDESCRIPTION: Full service IT consultancy.LEAD INVESTOR: Tilde
WEEKENDS.COMhttp://www.weekends.comState College, PAFUNDING: $1.5MPRIOR FUNDING: N/AROUND: 1stCATEGORY: B2CDESCRIPTION: Offers discount flights, last-minute cruises, weekend hotel deals, and weekend getaways through its site. LEAD INVESTORS: Parent company BeastoftheEast.net; a number of Chicago and Pennsylvania angelsOTHER INVESTORS: N/AMORE INFORMATION: PRNewswire
ELEVATOR PITCH
VARSITY VENTURES, $1M http://www.varsityventures.net San Diego, CA THE PITCH: "Great ideas don't wait for graduation! Varsity Ventures Corporation finds entrepreneurs while they're still on campus, and provides funding, business planning, development resources, incubation, synergistic entrepreneur relationships, mentoring, and marketing. This achieves a head start on other venture operations and accelerates the maturation of new technology concepts so they'll spend more revenue-generating time within their market window. Our initial fund will be $10 million; we need one million dollars to establish the business model and attain strategic help to extend our operations to other markets."WHY WE LIKE IT: Entree into promising new technologies coming out of universities.WHAT THEY'RE UP AGAINST: None of its current top management has venture experience; most colleges have already launched (or have had students launch) their own venture funds, including Cornell's Big Red Venture Fund, Yale's Silicon Ivy Ventures, and UCLA's College of Letters and Science Investment Fund.CONTACT: Roy Kaufmann, CEO, roy@varsityventures.net
(Looking for funding? Drop us a line at elevator@redherring.com. Let us know who you are, how much you're seeking, the funding sources you're targeting, your contact info, and, of course, your pitch. Please keep the pitch to no more than 100 words. Do not send attachments. One tip: pretend you're actually pitching a VC in an elevator. Submissions should have "Seeking Funding" in the subject line.)
DEALWOE
BEAUTYJUNGLEhttp://www.beautyjungle.com Chicago STATUS: Laid off 60 percent of its staff, or 40 employees out of 70 TOTAL VC: $ 23.5MNO. OF ROUNDS: 2BACKERS AT RISK: Divine Interventures DESCRIPTION: Sells beauty products and provides beauty advice through its site; also offers services to help retailers and manufacturers sell beauty products online. THE HERRING TAKE: Beautyjungle.com's foundation is slowly smearing. Forty employees in its Chicago, Indianapolis, and New York offices had to pack up their cubes. The cuts don't come as too much of a surprise following the shutdown of online cosmetic retailer Eve.com and the sales of other competitors to more financially stable companies. Beauty.com was sold to Drugstore.com for $42 million earlier this year, while Estee Lauder acquired Gloss.com in April. In an attempt to become profitable, Beautyjungle has tried to target businesses as well as consumers. The startup is reported to have lost a total of $9.3 million between May and December of 1999. In September of this year, it added a service called Beautywall that allows mass retailers to procure products and manage beauty categories online. The company could keep going if it's bought or gets another equity infusion. A spokesperson from Divine Interventures, the company's lead investor, commented, "We are working closely with Beautyjungle.com as we evaluate their different options and will soon be making a decision." Beautyjungle.com spokesman Glen Nelson denied rumors that it has shut down operations.
Dealflow is reported and written by Karie Atkinson, Richard Byrne Reilly, Steve Silverman, and Guy Paisner. The Elevator Pitch is selected and written by Julie Landry.
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