DEALFLOW DASHBOARD/ November 13

INCUBATORS: eVentures India, $150MSOFTWARE: Bowstreet, $50M; Embedded Wireless Devices, $20M; SS8 Networks, $25MDEALFLOW DIGEST: Artel, $10.5M; Blue Wireless, $6M; Integrex, $3M; Justarrive, $5M; Redspark, $14M; Reefedge, $6.8MDEALFLOW DISH: ICG joins the crowd, lays off 50ELEVATOR PITCH: Servicechannel, $20MDEALWOE: Only 13 left at Adexchange

DEAL OF THE DAY: TONOS ENTERTAINMENT, $10M

CEO Matt Faber endured a labor of Hercules trying to raise this second round. "It was hard getting in the doors," Mr. Farber, an MTV veteran, explains. "The hardest part was getting VCs to listen to our story. There were lots of folded arms."

The story is all the more remarkable given VCs' disdain for B2Cs. Nonetheless, at Tonos (http://www.tonos.com), Mr. Farber has constructed what he calls a collaborative online space for music makers. Or, to be more specific, a virtual venue that enables bands to meet producers and producers to meet musicians, all in the name of inking deals.

Kenneth "Babyface" Nelson, the Quincy Jones of the 21st century, who's produced Michael Jackson and Madonna, is an investor as are other music moguls. Tonos' revenue plan is somewhat jumbled and looks more ASP than B2C: user fees, advertising, and cuts on deals signed through the site. But those, too, have sub-pricing components that vary from deal to deal for the Culver City, California, company.

Mr. Farber is not to be deterred, but does admit to slight trepidation. "My concern is implementing and executing in a short time, at Internet speed," he says. He will have to act fast, as his burn-rate varies from $500,000 to $1 million per month.

INVESTORS: Softbank Venture Capital (lead); Sequoia Capital; heavy-hitter angels like Bob Daly, general manager of the Los Angeles Dodgers, and Kenneth "Babyface" Nelson, music producer

By Richard Byrne Reilly

INCUBATORS

EVENTURES INDIAhttp://www.eventures.co.inMumbai, India; New York, NYFUNDING: $150MPRIOR FUNDING: $65MROUND: 2ndCATEGORY: IncubatorDESCRIPTION: Makes investments in India-centric software, infrastructure, wireless, broadband and B2B startupsLEAD INVESTOR: Softbank; epartners (co-leads)OTHER INVESTORS: P.K. MittalTHE HERRING TAKE: Similar to its U.K. cousin, eVentures India is a joint venture between Softbank and epartners (News Corporation's VC arm), but this one also brings in the money and leverage of P.K. Mittal, a wealthy Indian industrialist. EVentures India has already invested $65 million in 14 companies, including Chaitime, Contests2win, Clubgreetings, and Netpilgrim. The firm plans to plunk its new money into about 15 to 20 new companies, which comes out to an average of about $7.5 million per startup. The focus is on India-centric companies, whereas the original eVentures plans to bring American startups into the U.K. eVentures India CEO Neeraj Bhargava was previously a principal at McKinsey & Company.

SOFTWARE

BOWSTREEThttp://www.bowstreet.comPortsmouth, NHFUNDING: $50M PRIOR FUNDING: $90MROUND: 4thCATEGORY: XML softwareDESCRIPTION: Develops an XML software platform that companies can use to turn their current software applications into XML-based, Web-ready software.LEAD INVESTORS: Azure Capital; Putnam InvestorsOTHER INVESTORS: Essex Partners; Amerindo Investment Advisors; Charles River Ventures; Chase H & Q; Comdisco; Credit Suisse First Boston; Dain Rauscher Wessels; Dell Ventures; Gatehouse Investors/Wit SoundView; GE Equity; Integral Capital Partners; JEGI Capital; Kleiner Perkins Caufield & Byers; Matrix Partners; Novell Ventures; Oracle; Partech International; Pequot Capital Management; Thomas Weisel PartnersTHE HERRING TAKE: Raising money isn't a problem for Bowstreet. It took the company only one month to raise $50 million from almost two dozen investors, many of them heavy-hitters in the VC, software, and financial industries. Bowstreet is a startup, but one whose accountants do more than work on revenue projections. Bowstreet has been taking in revenue for the past six quarters, says CFO Gary Haroian. Mr. Haroian declined to say when Bowstreet would turn a profit, but he did say this round of venture capital will be the company's last. Several of its latest investors are mezzanine-round investors, suggesting Bowstreet hopes to debut on Wall Street in the near future. The company's 30 customers range from dot-coms to old-line businesses: Eframes.com, Iproperty.com, GE Small Business Solutions, and Metropolitan Life Insurance, among them. Bowstreet was founded in 1998 by former Tivoli Chairman and CEO Frank Moss and Preferred Systems cofounders Jack Serfass, David Sweet, and Joe Sommers.

EMBEDDED WIRELESS DEVICEShttp://www.embeddedwireless.netPleasanton, CAFUNDING: $20MPRIOR FUNDING: $10MROUND: 3rdCATEGORY: Wireless applications/semiconductorsDESCRIPTION: Provides technology for wireless phones such as microcontrollers, flash memory, digital signal processors, baseband processing, and application software.LEAD INVESTOR: N/AOTHER INVESTORS: H & Q/GAI; Trieste Investment Groups; Good Honor Holdings; Apodaca, Maton Fund II; Hotung Investment Holdings Limited; Anadigics THE HERRING TAKE: Embedded Wireless Devices (EWD) didn't follow the typical startup expansion strategy. "The cost of running a company like ours in Silicon Valley is not cheap," says CEO Sean Marzola. So rather than going out and hiring 100 employees at $100,000 a pop, buying a technology, and running up a savage burn rate on marketing costs, the company took it slow, Mr. Marzola says. Instead, EWD built its core wireless technology first, recruited customers, and then started ramping up the organization. The company sells its wireless PBX and handset technology to IBM, GE, and Panasonic. It can be used to create residential gateway devices and cordless phone systems that handle both voice and data simultaneously, and switch between tasks on the fly. The technology is squeezed onto one silicon chip, which makes it a fraction of the cost of discrete components. But despite its bootstrap style, EWD has yet to turn a profit. Mr. Marzola reckons that's at least a year out.

SS8 NETWORKShttp://www.ss8networks.comSan Jose, CAFUNDING: $25MPRIOR FUNDING: $10MROUND: 2ndCATEGORY: SwitchesDESCRIPTION: Provides software and hardware for voice and voice-related services on IP networksLEAD INVESTOR: Kleiner Perkins Caufield & ByersOTHER INVESTORS: Woodside Fund; ONSET Ventures; CIT Venture Capital; SofinovTHE HERRING TAKE: The central nervous system of the Internet. That's what CEO Henry Wong reckons his company will provide. Just as the signaling system 7 (SS7) protocol is used on the telephone networks to set up and tear down calls and provide services such as caller ID, local number portability, 800 numbers, and call forwarding, SS8's "service switch" will enable carriers to offer those services over the Net, he says. The gear will reside in the core of the network provisioning services and directing calls, Mr. Wong says. SS8 is targeting carriers with IP-based networks such as Cable and Wireless, Qwest Communications, and Level 3 Communications. The company's product is testing with four prospective customers right now, with shipments slated for the beginning of 2001. Volume shipments will begin in February. Mr. Wong reckons he'll be filing for a "big-time" IPO by the first half of 2002. With a slowdown in equipment spending by troubled CLECs, that may be overly optimistic.

DEALFLOW DIGEST

ARTELhttp://www.artel.comMarlborough, MAFUNDING: $10.5MPRIOR FUNDING: N/AROUND: N/A CATEGORY: Switches DESCRIPTION: Provides video networking systems using packet-based MPEG transport and switching for cable TV and telecommunications providers. LEAD INVESTOR: N/AOTHER INVESTORS: Liberty Mutual; Boston University's Community Technology Fund; Cornerstone Equity Investors; Atlas Venture; BancBoston Capital; Charles River Ventures; Commonwealth Capital Ventures; New England Partners; Massachusetts Capital ResourceMORE INFORMATION: Businesswire

BLUE WIRELESShttp://www.bluewireless.comBurlingame, CAFUNDING: $6MPRIOR FUNDING: N/AROUND: 1stCATEGORY: Wireless applications/VoIPDESCRIPTION: Develops a technology for sending personalized audio content to mobile devices.LEAD INVESTOR: N/AOTHER INVESTORS: Storm Ventures; DaimlerChrysler Venture; CMEA Ventures; Sasson International; private investorsMORE INFORMATION: Blue Wireless

INTEGREXhttp://www.integrexusa.comBothell, WAFUNDING: $3MPRIOR FUNDING: $5.5MROUND: 3rd CATEGORY: Manufacturing DESCRIPTION: Provides electronic manufacturing services such as printed circuit board assembly, system integration, and order fulfillment. LEAD INVESTOR: N/AOTHER INVESTORS: Benaroya Capital; Fluke Venture Partners; Cedar Grove; Sugar Mountain; private investors Harvey Gillis of Sunrise Capital; othersMORE INFORMATION: PRNewswire

JUSTARRIVEhttp://www.justarrive.comSan Francisco, CA FUNDING: $5M PRIOR FUNDING: N/A CATEGORY: B2B DESCRIPTION: Online ticket marketer of integrated ticket delivery and fan loyalty services. LEAD INVESTOR: Mohr Davidow VenturesOTHER INVESTORS: N/AMORE INFORMATION: Businesswire

REDSPARKhttp://www.redspark.comSan Francisco, CA FUNDING: $14MPRIOR FUNDING: N/ACATEGORY: ASP DESCRIPTION: Helps companies with material sourcing and engineering collaboration.LEAD INVESTOR: Crosspoint Venture Partners OTHER INVESTORS: Impact Venture Partners MORE INFORMATION: N/A

REEFEDGE http://www.reefedge.comFort Lee, NJFUNDING: $6.8M PRIOR FUNDING: N/A CATEGORY: WirelessDESCRIPTION: Allows wireless devices like PDAs and cell phones to integrate with corporate network infrastructures. LEAD INVESTOR: Bessemer Venture PartnersOTHER INVESTORS: Columbia Capital MORE INFORMATION: N/A

DEALFLOW DISH

ICG JOINS THE CROWD, LAYS OFF 50With consolidation aplenty going on at CMGI and Divine Interventures, it was only a matter of time until Internet Capital Group (ICG) officially joined the stampede. Wait no more: the company announced Thursday that it had laid off 35 percent of its workforce, totaling 50 employees. The slimmed-down B2B operating company now plans to focus on the best 15 of its companies. At last count, ICG had stakes in more than 70 companies -- that's a lot of consolidation to do. The move closely resembles CMGI's stated plans to whittle its collection down from 17 to about 5 companies.

ELEVATOR PITCH

SERVICECHANNEL, $20MNew York, NYhttp://www.servicechannel.comTHE PITCH: "Servicechannel is an Internet services company for the $340 billion real estate facility management industry. Its Web-based application offers an extranet where facility managers and their service contractors log-on to communicate, document, and maintain records of all past, present, and scheduled services either for a single building or portfolio of properties. Today Servicechannel tracks work history on 42,000 locations for 9,200 U.S. companies, representing 100,000 job orders monthly, an increase of 400 percent since January. Over 10,000 contractors from the HVAC, electrical, and escalator/elevator trades use the service. Sample customers: Barnes & Noble, Chase Bank, Eckerd Drug, The Gap, Insignia ESG, Michael's, Kemper Insurance, and Kinko's."WHY WE LIKE IT: Thousands of customers, including big brand names; current investors include Odeon Capital Partners and CMH Capital, who put in $3.5 million last NovemberWHAT THEY'RE UP AGAINST: Getting small contractors onlineCONTACT: Steven Gottfried, president, sgottfried@servicechannel.com

(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

ADEXCHANGEhttp://www.adexchange.comLos Angeles, CASTATUS: Laid off 40 of its 53 employees. Only 13 left.TOTAL VC: $9MNO. OF ROUNDS: 2BACKERS AT RISK: Idealab Capital Partners; Palomar VenturesDESCRIPTION: It's easy to see why executives at Adexchange issued walking papers to 40 employees, or about 75 percent of the workforce, this past Monday. For starters, they plowed about $10 million into developing a costly exchange software platform -- not the thing to do when you've only raised $9 million. The projected customer base never materialized. Finally, there was the issue of changing from a B2B online exchange for buyers and sellers of ad space into an ASP-based model, another costly expenditure. Adexchange is not alone; OneMediaPlace, another advertising play, also axed many of its employees a week ago. But unlike Adexchange, it has a cash war chest that will allow it to continue its profitless existence for as much as another year. The past two weeks saw Adexchange scrambling for a bridge loan that never materialized, with executives hitting up their two previous investors, Idealab Capital Partners and Palomar Ventures, for a lifeline. The startup's VP, Kent Valandra, says both investors demurred, saying Adexchange's burn rate was too high. With money running out, CEO Paul Grand began devising a strategy on how best to swing the ax with minimal disruption. The firing strategy devised was simple, according to Mr. Valandra. Small groups of employees were called into meetings and told their services were no longer required. Most were given two-week severance packages. Lessons learned? "It was a chicken-and-egg type of thing," Mr. Valandra explains. "One, you have to take a good hard look at your market, and secondly, it doesn't matter how big your mousetrap is, people still need to find it."

Dealflow is reported and written by Matthew A. DeBellis, Julie Landry, Richard Byrne Reilly, and Steve Silverman. The Elevator Pitch is selected and written by Julie Landry.

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