Alta Communications and Bay Partners led the round with participation from BancBoston Ventures, ABN AMRO Private Equity, Maroon Bells Capital, and Metropolis Venture Partners.

Telenisus, founded in June last year, closed a first round of $8.3 million from individual investors in November.

The Chicago-based company, which calls itself an e-business service provider (ESP), offers four major services: managed firewall/security; virtual private networks (VPNs); Web/application hosting; and e-commerce.

ALL IN ONE PLACE

CEO Gordon Reichard says he had the idea for the business while he was president of Ameritech's Advanced Data Services "My customers needed security, hosting, [and] VPNs, and they wanted them all from a single provider," he says.

He claims that until now, the industry has lacked a company that put all four services together in one package. "Businesses have had to source these Web-enabling services from different providers."

David Tapper, research analyst at International Data Corporation, says, "Everyone is trying to come up with a package, but who knows what is the right set of services?"

"What package do customers really want?" he says. "Things are changing so quickly that no one really knows."

And while the company claims it is a "first-mover in the new ESP space," Mr. Tapper says, "That is just a term they probably made up."

TAKE ME TO THE PILOT

IBM and Hewlett-Packard are still "the biggest players in the e-business block" judging by revenues, Mr. Tapper says. The company most similar to Telenisus is Pilot Network Services which offers e-businesses protected services, including secure hosting, Internet access, and VPN/extranet services.

According to the Aberdeen Group, Pilot, which was founded in 1993, is a leader in this space.

An Aberdeen report states that companies wanting to participate in e-business have three alternatives: build, deploy, and maintain their own systems; rely on bandwidth-oriented Internet service providers (ISPs) to provide hosting and access services; or outsource e-business services to a company like Telenisus or Pilot Network Services. The high costs of managing services internally, and the limited offerings of ISPs will make service providers an attractive choice, the report states.

Telenisus claims the data services market that it is targeting is currently worth about $60 billion in the U.S. and Europe, and is expected to grow to more than $133 billion by the year 2003.

LOOKING FOR SECURITY

Right now, the company is only offering security services, but plans to roll out the rest of its package this year. It currently has 300 customers for its security products and services. According to Mr. Reichard, "Our roots are in security." It remains to be seen whether the company can replicate that success as it expands its area of specialty.

The CEO says one of the challenges for the company will be to "manage demand," or wait until the services are fully developed before offering them to customers. "There is a temptation to do it all now and accelerate the business," he says.

Telenisus is growing fast, with 150 employees by the end of first quarter of 2000. Mr. Reichard claims the business will be profitable within 18 months.

Discuss tech news and trends in the Tech Trends Spotlight discussion forum, or visit the Discussions home page.

The four-year-old company wants to reduce the confusion for its traditional customers by forming IronsideNet as an easy way for sellers to use online exchanges in their particular vertical markets.

To pay for the initiative, Ironside has raised a $26.7 million mezzanine round of funding from a host of investors, including Beamscope Canada (Toronto: BSP.TO), Working Ventures Canadian Fund, CI Mutual Fund, and Cypress Capital Management. The round brings total funding in the company to $72 million.

GROWING MARKET

Analysts say the number of exchanges is growing rapidly, from about 500 today to 2,000 by the year 2003. In each vertical market, sellers and buyers can choose from dozens of online marketplaces, many with different technology requirements for access.

According to Ironside's chief operating officer, Derek Smyth, confusion has resulted because most exchanges are designed mainly to serve buyers by reducing prices and commoditizing goods. The business reality is that sellers need to integrate quickly with these exchanges, he says.

Ironside offers sellers a single interface that will let them participate in as many exchanges as they like. Manufacturers and distributors can integrate internal procurement and inventory systems into many exchanges, by plugging into IronsideNet just once. The so-called "exchange of exchanges" uses XML technology to translate transaction orders into the variety of formats used by different exchanges.

The company charges customers $500 per month as well as $1 per transaction. Non-customers must also pay a one-time $25,000 set-up fee.

NOT ALONE

It's a valuable service, and one that many companies are offering. WebMethods offers a similar solution for sellers looking to hook up to a variety of exchanges. Other competitors include IBM, Microsoft, and Oracle.

But Ironside specializes only on the seller's side. Ironside's core business is licensing software for manufacturers and distributors to connect with business customers over the Internet. According to Mr. Smyth, customers can use its technology "to do everything they used to do with a telephone, via a browser" including locating products, placing orders, conducting transactions, and exchanging information and documents.

In this market, Ironside competes with SpaceWorks, Open Market, and Broadvision.

While many of the companies in this space originally targeted the business-to-consumer market, Ironside was always focused on manufacturers and distributors in the business-to-business market.

Customers include manufacturers and distributors in a range of industries from plastic flower makers to electronics components suppliers. Some of the bigger names are ITT Industries, Castrol Oil, and W.B. Mason.

Cathy Clark, a former vice-president of the non-profit Markle Foundation, joined Flatiron on Monday as managing director of both funds. The Flatiron Future fund will operate like a typical VC fund except that it will take minority stakes in for-profit ventures that have a specific social mission. The Flatiron Foundation will be a public charity that makes tax-deductible grants in the $250,000 to $500,000 range to nonprofit groups that have similar missions.

PART OF THE SOLUTION TO THE PROBLEM

The overall goal, says Ms. Clark, is to find entrepreneurs with good ideas about how technology can improve society. Since that's pretty broad, she's broken it down into three areas. One is helping children enter a digital society by providing funding to education software companies or groups that offer high-school students advice about career opportunities in technology. The second goal is to encourage entrepreneurship among women and minorities. "This could be done either by directly funding companies that may need help to become attractive to other VC firms, or working with organizations to provide services within communities that don't have the traditional access to capital," Ms. Clark explains. The third goal is to encourage entrepreneurs to focus on social problems. "A new MBA graduate with a great urban planning idea may have trouble getting funding from a traditional VC firm, but not from us," Ms. Clark says by way of example.

Ms. Clark met Flatiron cofounder Jerry Colonna last fall when both were board members of a nonprofit organization. Because the new economy has been very, very good to Flatiron, he was looking for advice on establishing charitable foundations. "We want to harness this new economy to give back," Mr. Colonna says.

Flatiron will providing the initial money and will be using its hefty Rolodexes to access more money. It won't promise high rates of return or popping IPOs, but that's not the priority anyway.

Will newly-minted Internet millionaires bite? Ms. Clark thinks so. "New media entrepreneurs seem to have a different take on what they want out of philanthropy -- they're younger, roll up their sleeves, and make decisions on a daily basis," she says. "Their philosophy would mesh perfectly with that of the companies we intend to fund."

At the National Association of Venture Capital annual meeting in San Francisco yesterday, VCs discussed other ways they could give back to the community with new riches and their organization-building skills.

Gib Myers, a Mayfield Fund partner since 1969 and founder of the Entreprenuers' Foundation, says despite being in the midst of "the greatest economic boom in the history, a very small amount is trickling down to our communities."

VENTURE INTO NONPROFIT

Philanthropy in the U.S. is a very fragmented market. There are currently 615,000 active nonprofits, with another 16,000 new organizations starting each year. Only 4 percent of those have budgets of more than $10 million, and most of the largest nonprofits were started more than 100 years ago.

"Most nonprofits are under-resourced mom-and-pop stores," says Vanessa Kirsch, founder of New Profit. "And despite all the work they are doing and the money available, our social problems are not going away."

Traditionally, nonprofits have had little access to second-stage or "growth" capital; badly-managed organizations have been able to raise more money than successful ones because they appear to be in more need; and there has been little interest from donators after the money has been given.

The venture philanthropists are calling for a new model for charitable giving. They believe money should be "invested" rather than donated and that investors should sit on organizations' boards to help grow the organizations. Like traditional venture capitalists, they sift through business plans, conduct due diligence, invest in great management teams, and enforce concrete performance goals. Return from investment is measured in terms of social, rather than financial gain.

Ms. Kirsch describes herself as a "serial entrepreneur," after starting three nonprofit businesses. She is now founder and president of New Profit, a Boston-based venture philanthropy firm she started because she was frustrated with the pace of change in the nonprofit industry. "I wanted to see a shift from a culture of charity to a culture of investment," she says.

She says New Profit operates on a VC model. For example, "our term sheets are modeled off Greylock."

Paul Brainerd is founding partner of Seattle-based Social Venture Partners (SVP), a network of entrepreneurs that invest time and money into children and education programs. Mr. Brainerd says the fund invests in "innovative ideas about social issues and is led by great people."

Mr. Brainerd complains that until recently there has been little access to capital that rewards performance in the social sector. Unlike traditional charities, SVP "gives more than $50,000 to $60,000, is prepared to take risks, and stays with an organization for five to six years," he says.

The organization is developing new models for measuring returns in terms of social, rather than financial, outcomes. One example would be a nonprofit that doubled its client base from 5 percent of families in low-income areas to 10 percent.

The new philanthropists appealed to the venture capitalists in the audience for help, saying that they did not need their money as much as their time. Unfortunately most VCs have a lot more money than spare hours to share.

Perksatwork.com and Employeesavings.com have both recently raised significant rounds of funding from big-name venture capital firms. San Francisco-based Perksatwork.com today announced a $67 million round led by Technology Crossover Ventures, Thomas Weisel Partners, and Blackstone Capital Partners and including a host of other strategic and financial investors.

The funding follows the announcement that Seattle-based Employeesavings.com has raised $30 million from Benchmark Capital, Crosslink Capital, and Goldman Sachs.

SAVE THE EMPLOYEES

"Employers are losing the war for talent," says Perksatwork.com CEO Jim Greene. He points to recent surveys that demonstrate that attrition rates are at a historic high, employees in the U.S. are working more than three hours a week longer than workers in Japan for the first time in 50 years, and employee dissatisfaction with the balance between work and personal lives is at an all-time high.

"The cost of finding, motivating, and retaining employees is becoming a huge problem for Fortune 2000 companies," he says. "About 78 percent of a company's assets are its people."

Perksatwork.com and Employeesavings.com claim they can help corporations recruit and retain employees by offering a range of benefits, such as heavily discounted goods and services, built into an employee portal and delivered via the corporate intranet.

Perksatwork.com has signed up vendors like BMW, AMC Theatres, Barnesandnoble.com, Dell Computer, and Healthshop.com.

LIKE SHOOTING FISH IN A CUBICLE

E-tailers like the deal because the employee portal serves up the captive audience that its competitors are spending millions of dollars trying to acquire. They are happy to offer significantly discounted goods and services and share a cut on transactions with Perksatwork.com or Employeesavings.com for planting them on the desktop of their customers.

The Perksatwork.com employee portal also incorporates community tools that allow employees to form groups focusing on various interests, and communication tools so human resources departments can broadcast messages to employees. The portal is free and can be plugged into a corporate intranet in minutes.

So far the company has 37 clients including Sun Microsystems, EDS, PeopleSoft, and Robertson Stephens. Employeesavings.com customers include Boeing, Hewlett-Packard, and Nordstrom.

Forrester Research analyst Joshua Walker says employees will love the Perksatwork.com employee portal because "it goes to the heart -- or rather the wallet -- of the matter and passes on monetary savings as a reward for visiting the company portal."

But Mr. Walker says the company has been too focused on the employee and HR departments and should consider introducing broader corporate offerings.

"It's still very early in the development of their site, and there is still a lot of functionality it needs to incorporate," he says. "Just providing the e-commerce doesn't solve a lot of business problems."

What about the significant problem of recruiting and retaining talented employees in a tight labor market? "Retainment and recruitment, just through a Web site? That doesn't gel with me," Mr. Walker says. "Other things like job satisfaction play a bigger role. [Perksatwork.com] are offering just one pillar."

According to Mr. Walker, Perksatwork.com currently has a bigger footprint in the growing employee portal market than Employeesavings.com.

Perksatwork.com CEO Mr. Greene says, "There will only be one winner in this space." He recently joined the company after 21 years at Andersen Consulting, because "although nobody owns this space right now, I believe Perksatwork will be the winner."

The backing companies are mostly large, established players in the pharmaceuticals, aerospace, consumer products, industrial products and services, forest products, and IT services industries.

Analysts expect the B2B Internet sector to boom in Europe this year. The B2B e-commerce space is projected to grow to more than 180 billion euros by 2002. According to the chairman of B-Business Partners, Borje Ekholm, his company's investors believe a "venture-capital style strategy" is the best way to tap into this flurry of B2B e-commerce activity.

B2B EUROPA

Mr. Ekholm says investors will offer the group's portfolio companies sourcing and distribution support and will share technologies, business models, and hands-on advice. "In the future it will be very important for startups to have access to big corporations, to quickly establish networks of access to customers and suppliers," he says.

Investors are looking for financial return as well as an opportunity to collaborate on new Internet business applications. They also see the fund as a way to create networks with the next generation of Internet companies that will transform their industries.

Speaking from Stockholm, Sweden, Mr. Ekholm says B-Business Partners's relationship with large corporations will give it the opportunity to invest in corporate spin-offs as well as new startups.

The company, which is headquartered in the Netherlands but which will have offices all over the European continent, is in close negotiations with a number of startups and expects to close deals shortly.

HELLO B2B

So far, most of Europe's new startups have been "me-too" consumer e-commerce companies copying U.S. business models. "In Europe, business-to-business has not really taken off yet," Mr. Ekholm says.

However, analysts say European investors are starting to wake up to the enormous revenue opportunities in B2B e-commerce. According to Therese Torris, director of European Internet commerce research at Forrester Research, one reason the sector is becoming popular on the continent is that European investors are traditionally more conservative than their U.S. counterparts, and B2B is considered a lot less risky than B2C, where most of the funding is spent marketing to fickle consumers.

B2B companies also tend to be run by former industry executives -- people that financiers relate more to than the young, inexperienced entrepreneurs that populate B2C startups, she says.

Discuss B2B trends in the ongoing B2B Boom discussion in our Think Tank discussion forum, or visit the Discussions home page.

The new venture capital interest in online education is not limited to the U.S. In the past few weeks Swiss Web-based education startup Viviance raised $14 million from major European investor 3i Group to expand into international markets. And Singapore education application service provider (ASP) IQMind was in Silicon Valley looking for new venture capital to establish a presence throughout Asia.

THE BROADER PERSPECTIVE

The education space is interesting for investors because "you're doing good things for the universe, and because it represents a large economic population worth billions of dollars," says Ted Dintersmith, principal at Charles River Ventures.

High school students are seen as a valuable demographic for e-commerce companies because they are tech-savvy and, more than any other demographic, are already using the Internet to research purchases. Spending online is the next natural step. Jupiter Communications predicts that 16.6 million teenagers will be on the Internet, spending $1.2 billion by the year 2002.

Students also have a lifetime of spending before them. According to Mr. Dintersmith, targeting high school students allows Internet companies to establish alumni networks and graduate programs to maintain ongoing relationships with consumers. "I'm a big believer in the revenue potential of this model," he says.

HighWired.com provides free tools for schools to create Web sites for different classes, school sports, student activities, and other school divisions, such as the guidance office. So far more than 9,000 U.S. schools have signed up. Revenue streams include advertising and e-commerce.

Achieva.com is an online service that helps high school students choose and apply to colleges. Services include guidance in choosing the right college; preparing for the SATs; writing rйsumйs, cover letters, and essays; and obtaining financial aid. Achieva.com will generate revenue through e-commerce and fees the company expects will be paid out of state and federal grants.

WHERE'S THE MONEY?

While VCs are starting to pay attention to online education startups, it is not clear that the market represents significant revenue-generating opportunities. Advertising-based business models at Internet sites available in schools generally are frowned upon; students generally don't have access to credit cards -- the currency of the Internet -- and high schools operating on stretched budgets have little cash to spend on new technology.

Mr. Dintersmith agrees that Internet companies need to be sensitive about advertising on school Web sites. The Channel One model, in which advertising is included in educational content broadcast directly into classrooms, is a "failed model," he says. However, he believes small banner ads on Web sites that students use between classes are "absolutely fine," particularly if they pay for school access to the Internet.

Similarly, Mr. Dintersmith would be concerned about e-commerce initiatives that "tried to get kids to buy color televisions." But he believes the Internet can offer schools great efficiencies in purchasing power. Athletic departments can band together to buy sporting equipment at discounted rates, for example.

According to Jupiter, there is still plenty of room in the online education market. Analyst Anya Sacharow says that while 97 percent of U.S. high schools will have Internet access by 2003, less than half of all students will use the Internet at school. There is still a lack of content aimed at teenagers and the infrastructure to consume that content, she claims.

Discuss venture capital in the Venture Capital Funds and Firms discussion in our Private Companies forum, or visit the Discussions home page.

In the Internet frenzy, where traditional metrics such as price-to-earnings ratios, or even price-to-revenue ratios, are becoming less relevant, entrepreneurs are looking for alternative metrics, such as being first to market, to determine their relative success.

However, the VCs said the term "first to market" was only used retrospectively about companies that won their market sector, regardless of when they entered, or by marketers trying to promote a startup.

"History imposes the first-mover label," said Mr. McNamee. "Its not about the guys who arrive first, but those standing up when the dust settles."

FIRST CAN BE LAST

Mr. Jurvetson agreed. "There are always competitors that you don't know about, and it's usually a scramble to the finish line. It doesn't hurt to be second to market; in fact, you should expect that you are," he said.

Rather than trying to beat the competition to market, entrepreneurs should use business strategies to redefine the market, the venture capitalists said. For example, companies could price products at 100 times less than the competition or offer them for free, shrinking a potential $100 million business to a $10 million business, but becoming the dominant player in that space.

Other strategies when second to market include trying a radically new strategy, like late-to-market Hotmail did when it introduced its viral marketing campaign to overtake established competition in the email market. Another strategy for latecomers is to partner with the market leaders and become the most valuable provider in a market, as Inktomi did in the search-engine space.

Startups have an edge over established brick-and-mortar companies, because being small allows them to redefine themselves quickly to adapt to a changing market. "Sometimes you just have to abandon everything you do and completely reinvent yourself," Mr. Jurvetson said. "The nimbleness of startups is their strength."

LAST CAN BE FIRST

Dell Computer was an example of a latecomer that became a market leader by reinventing itself, Mr. McNamee said. When it entered the market in 1986, it was competing with well-established companies like Apple Computer and Compaq Computer. After advice from a Wall Street advisor, Dell adopted its current direct-marketing model and rose to the top of its market.

Although entrepreneurs should expect to compete in a crowded market, and should not be put off by a current market leader, venture capitalists say they do not fund entrepreneurs that are content to stay in the No. 2 positions.

As Mr. Weintraut put it, "At the end of the day, being second sucks. OK?"

Discuss venture capital in the Venture Capital Funds and Firms discussion in our Private Companies forum, or visit the Discussions home page.

Technology Crossover Ventures led the round, with participation from Silicon Valley angel investors including Laurene Powell Jobs, entrepreneur and wife of Steve Jobs; Jim Katzman, cofounder of Tandem; and Joe Kraus, founder of Excite@Home.

"We chose TCV because they bet on companies that are going public very soon," Mr. Watson says. Asked to clarify Achieva.com's specific plans for an initial public offering, he says, "Let's just say it's no accident that we chose TCV."

NO MORE PENCILS, NO MORE BOOKS

Achieva.com, which has been working with students for a number of years in brick-and-mortar college preparation centers, has been moving online over the past six months and expects to officially launch its Web site in spring.

The idea is to scale the service, initially targeted at Californian students, to the rest of the United States via the Internet. The launch will coincide with a major advertising campaign, to build up customers and revenues before an IPO.

Achieva.com helps students with choosing the right college, preparing for the SATs, writing rйsumйs and cover letters, choosing the best extracurricular activities to get into their program of choice, writing the best essays, and obtaining financial aid.

According to Mr. Watson, the idea to move services onto the Internet was sparked by students who lived five minutes away from the center who asked, "Why do I have to come into the center to write my essay? Why can't I do it online?"

Right now, the company is the only online college preparation company that offers a broad range of services via the Internet. Other companies offer niche services such as financial aid application and test preparation. These companies may become acquisition targets for Achieva.com, once it goes public and has access to some spending money.

BEYOND THE LITTLE BRICK SCHOOLHOUSE

Mr. Watson says he was alerted to the problems many students face when looking for guidance in choosing and applying for college by his early experiences as a student teacher. When most parents went through the process, college applications involved just tests and grades. The process now usually also involves essays, recommendations, evidence of leadership and public service, and maybe even interviews.

And school guidance counselors are only somewhat effective. In California there are 1,040 students to every guidance counselor, and most of those are dealing with discipline and development issues as well as helping students choose and apply to colleges.

Achieva.com generates revenue through subscriptions and e-commerce deals. The company offers some basic services -- such as a frequently asked questions list and examples of well-written essays -- for free. The full suite of services costs $300 per student.

Mr. Watson believes schools will use state and federal grants to pay the fees. However, as many are currently cutting back on school guidance counselors due to budget restraints, Achieva.com may find anxious parents are more willing customers.

Achieva.com also plans to offer relevant e-commerce opportunities, such as books and travel assistance and first-time credit cards.

CRAMMING

There's no doubt that applying to college has become more competitive and stressful than ever before. According to U.S. Bancorp Piper Jaffray, the number of U.S. high school students should increase by 20 percent from 1995 to 2008 to three million. According to Achieva.com, the number of students applying to college has grown by 34 percent in the past few decades and should grow another 30 percent in the next ten years.

The Internet is an effective and valuable way to reach this market. Jupiter Communications estimates that the number of teenagers on the Internet will grow from 8.4 million in 1998 to 16.6 million in 2002. And according to Student Monitor, a nationally syndicated research study of the college student market, about 31 percent of high school students rate "expert" or "highly proficient" in their computing or technical skills.

The education market is one of the biggest in the U.S., worth $700 billion annually. "Education is not just business; it's big business," Mr. Watson declares.

Discuss startup companies and venture capital in the Rising Startups discussion in our Private Companies discussion forum, or visit the Discussions home page.

Mr. Dietz joined Atlanta-based netWorth just one year ago, but says he couldn't resist the opportunity to get back into running a company when the SideTalk business plan crossed his desk.

"There is a big difference between a venture capitalist and an Internet operator," he says. "VCs are investors, and as much as they talk about their value-add, the truth is that they are not that involved in the day-to-day operations of their portfolio companies."

Before leaving the venture capital firm, Mr. Dietz signed a check for the company's first round of funding. SideTalk raised $8 million from netWorth and Noro-Moseley Partners.

SideTalk has developed technology that allows two or more Web users to surf the Internet simultaneously. Three friends could shop for a wedding gift together, or plan a trip by visiting various travel sites. The tool has business-to-business applications also, such as allowing a realtor to show a new home buyer different properties on the Internet, or an architect and interior designer to review samples on various sites.

"The main concept is that show is better than tell, and talking to a human is better than talking to a computer," Mr. Dietz says.

FIXING PROBLEMS

He says two problems have plagued the Internet since it was commercialized: it's too slow and too difficult to navigate. "We're not working on making it faster, but we are trying to make it less confusing for the mass market," Mr. Dietz says.

The plug-in tool can also add context for Web surfers by displaying information or links related to the site they are visiting. And a communication feature allows users to add notes and highlight text on Web sites.

It sounds like a cool technology, but may not be a slam-dunk when it comes to bringing in the profits. Right now, the business model consists of sponsorships, in which company executives pay to be integrated into the SideTalk navigation bar, and licenses, which allow company officials to offer the service to their own Web customers.

The market, which Mr. Dietz calls the "enhanced browsing service market," has not been clearly defined, and other startups in the space are trying to determine how to monetize a potentially valuable service.

SideTalk competes with community/chat sites like Talk City, messaging companies like ThirdVoice, and context services that also provide related information to Web surfers, like Alexa.

GOOD PEDIGREE

Mr. Dietz says he was initially attracted to SideTalk because of the "pedigree of its founders." Ilan Shamir founded the company after ten years of working in technology at Intel and conducting extensive research as a visiting scientist at MIT Media. He brought Steven McGeady (who is VP of Intel's New Business Group) on board as chairman. Mr. McGeady is known for cofounding Intel Architecture Labs, as well as for his testimony at the Microsoft antitrust trial.

As part of the funding round and appointment of Mr. Dietz, SideTalk moved offices to Atlanta from Boston. The move was brought about partly so the company would be closer to its new venture capitalists and their contacts.

Mr. Dietz says Atlanta is also attractive because it is easier to lure and retain high-tech employees than in Silicon Valley or Boston and because the local community is very supportive of new startups. The chamber of commerce recently hosted a "welcome to Atlanta" event for SideTalk, for example.

NetWorth Partners was founded in association with Mellon Ventures to target new Internet investment opportunities. The new fund is run by former Internet operating officials with advice from Mellon's investment professionals.

According to Mr. Dietz, that model offers new VCs too much temptation. "What happens when you put an operating executive in front of all these companies, is that you can't help getting over-excited by the opportunities," he says.

Mr. Dietz will continue to be associated with the fund, offering advice and helping with deal flow. And he hasn't ruled out returning to his brief career as a venture capitalist sometime in the future. "But for right now, I am having more fun building a company," he says.

Discuss startup companies and venture capital in the Rising Startups discussion in our Private Companies discussion forum. Or visit the Discussions home page.

The Singapore-based company, which two weeks ago closed a $3.3 million second round led by AsiaTech Ventures, now is looking at as much as $15 million in funding, according to IQmind officials.

The new financing will be used to expand from the Singapore market, where the six-month-old company claims it already locked up 35 percent of the education market, to the much larger Hong Kong, Taiwan, and mainland China markets. IQmind currently is deployed in 120 out of 372 schools in Singapore. China promises even bigger growth with its estimated 1.3 million schools and 218 million students.

In Asia, there are about 500 million students, while the number of Internet users is expected to grow from 50 million to 200 million users by 2003, according to Goldman Sachs. With an eye on that market, IQmind opened offices in Hong Kong and Taipei and currently plans to establish branches in Beijing and Shanghai by April.

IQmind refers to itself as an application service provider (ASP) because it has developed and hosts software applications targeted at teachers, students, and parents. Schools pay a subscription fee for the applications. The company also builds Intranets for schools to deliver those applications. Other services the company offers include chat rooms, email, automatic exam generation, and grade-tracking software. It also offers a service for broadcasting school messages to parents' cell phones and pagers, such as notifications of upcoming PTA meetings.

EASY MONEY

In Singapore, generating revenue is relatively easy for IQmind, says CEO Leslie Wong. Subscription fees are paid though the Singapore government's $1.2 billion initiative to "automate" all of the country's schools over the next three years.

The government provides computers and broadband to all schools, even if it means extensive rewiring of buildings. It also provides funds for schools to pay for services such as IQmind's Web portal. Mr. Wong says spending on education won't stop flowing after the $1.2 billion budget is spent. "In Asia, the education market is recession-proof, because we consider it the ticket to success," Mr. Wong says. Funding comes from the government, private sector, and when lacking, from families. "Parents will pay," he says. "They won't ask questions."

The CEO says the Singapore government also goes to great lengths to ensure schools have access to equal resources. For example, principals are moved to a new position every three years so that the best staff members are shared among all schools.

"We have heard a lot about the digital divide while we were in the U.S.," Mr. Wong says. "That's something the government is working hard to avoid in Singapore."

But IQmind may not have it so easy in some of the markets it's targeting. Although education is considered important in Hong Kong, Taiwan, and China, for example, there won't be the same resources in public education systems to fund sophisticated Internet and software services. Also, many schools don't have the broadband infrastructure necessary for delivery of its services.

BIG MARKET

According to Mr. Wong, IQmind can target these markets with less-expensive services, for example, by offering off-the-shelf applications that aren't customizable. He also says than some Asian markets, for instance China, are so large that the company only needs to sign up a small percentage of schools to generate significant revenues.

Mr. Wong says IQmind is looking for venture capital investors in the U.S. to gain access to their contacts for technology and content partnerships. While the startup provides the delivery platform to Asian schools, it's looking for partners to round out its offerings. It has struck deals with National Geographic Society, Apple Computer, Singapore Symphony Orchestra, and National Archives of Singapore, to provide content online.

Company officials were in San Francisco last week to attend Singapore TechVenture 2000, a conference designed to promote Singapore startups to Silicon Valley venture capitalists. This week, they're meeting with valley VCs.

According to published reports, the company hopes to be listed on the Nasdaq or Singapore Stock Exchange by the end of this year.

Discuss startup companies and venture capital in the Rising Startups discussion in our Private Companies discussion forum, or visit the Discussions home page.

Singapore Deputy Prime Minister Dr. Tony Tan announced the deal with DFJ's ePlanet Fund, at Singapore TechVenture 2000 held here in San Francisco's Ritz Carlton Hotel.

The $100 million comes from a $1 billion Technopreneurship Investment Fund recently established by the government to lure venture capital investment into Singapore. In six months the fund has committed $443 million to 21 venture capital funds in Asia and the United States.

Dr. Tan told the crowd of Singapore entrepreneurs and local venture capitalists the government was attempting to instill a culture of risk-taking and a willingness to accept failure as part of the entrepreneurial process into the country's business culture. He said new tertiary institutions were being built and new alliances are being formed with U.S. universities to "encourage innovation and creative thinking."

THE 21ST CENTURY CITY-STATE

Singapore is a very small country with few natural resources. Since its independence from Malaysia in 1965, the government has had to develop a pro-business environment and a top education system in order to create a strong economy.

Its students may boast the highest mathematics and science scores in the world, and its workforce may be among the most highly skilled and disciplined. But Singapore is known as a conformist society that has put little value in challenging old business models or transforming established industries.

Since the development of the Internet economy and the globalization of business, however, the government has recognized a need to be pro-enterprise as well as pro-business.

Dr. Tan says there is a need to "inculcate in our people a more analytical and risk-taking mindset, on top of their strengths in science and mathematics."

CHANGE COMES TO SINGAPORE

Some of the government's recent initiatives include:

• Reforming bankruptcy laws to encourage tolerance of failure.
• Changing laws to allow capital losses incurred by investors in startups to be tax deductible.
• Reducing strict stock exchange regulations so that companies can float on the public markets without being profitable.

According to Kamran Elahian, general partner at Global Catalyst Partners, the measures are working. The Silicon Valley venture capitalist has been visiting the country regularly since the 1980s. After his most recent trip in January this year, he said: "I was truly amazed to see how much had changed. The level of creativity has really grown up in terms of software and content."

Mr. Elahian believes the country has a way to go to develop its entrepreneurial culture. "It's still not the most innovative place," he said. But engineering talent, transparent business rules, and a broadband network accessible in all schools made Singapore ripe for future investments.

STRANGE REWARDS

Tim Draper, DFJ founder and managing director and CEO of the firm's new ePlanet fund, encouraged the Singapore government and high-tech industry leaders gathered here to encourage new ideas and creative thinking. "If someone seems a little strange ... pay them some attention," he said.

He added that entrepreneurs emerged from a culture that encourages innovation and "accelerates the notoriety of heroes so they become models for the rest of the community."

Growth of an entrepreneurial culture also requires "blind faith" from investors, he said. "VCs and angels need to put money into startups and just assume that great things can happen," Mr. Draper told the crowd.

DFJ was an early investor in Third Voice, one of the presenting companies at the conference. The startup has developed technology that combines the concept of discussion groups with Web surfing, allowing the user to post comments directly onto any Web page while browsing.

The Singaporean founders developed the business plan while studying in America on a government sponsorship, which required them to repay their tuition costs by returning to Singapore and working for the government for eight years. The team decided to stay in the U.S. and convinced the government to waive their loans in exchange for equity in the company.

Other startups pitching to VCs at this week's conference were IQMind, a Singapore-based education portal which is looking for $20 million to expand in Asia, and FreeSystems which is just closing its first round of $2 million from Asian venture capitalists. FreeSystems builds digital audio transmission chipsets for use in home entertainment applications such as for digital wireless speakers and headphones, multi-room broadcast, and digital download to appliances like MP-3 players.

"LOCAL EVERYWHERE"

According to Mr. Draper, the cycle of Internet innovation and investment opportunities in Asia had just begun. He said the ePlanet Fund will look for investments in several types of companies:

• "Silicon Valley knock-offs," like startups replicating Internet models that worked in the U.S.
• Franchising with Silicon Valley successes by "sniffing around incubators."
• New wireless innovations, an area that is moving faster in Asia than the U.S.

While common venture capital wisdom holds that VCs should only invest locally -- within a half-hour drive is considered a good measure -- Mr. Draper says DFJ wants to be "local everywhere."

The firm has established affiliate funds throughout the U.S. to expand its investment portfolio beyond Silicon Valley. "Some extraordinary companies have started in very remote areas," he said. "It's very competitive in Silicon Valley for a venture capitalist. The market for VC may be moving [beyond the area]."

Discuss venture capital in the Venture Capital Funds and Firms discussion in our Private Companies forum. Or visit the Discussions home page.

Just this week, West Coast incubator Idealab opened its Silicon Alley office, joining traditional Silicon Valley venture capital firms Draper Fisher Jurveston and Bessemer Venture Partners, among others, in the Big Apple.

According to Michael Carey, president of the New York City Economic Development Corporation (EDC), about 17 percent of high-tech business in Silicon Alley comes from Silicon Valley. "I'm going to suggest we have a Valley to the Alley conference next year," he said.

ALLEY MIMICS VALLEY

New York entrepreneurs may welcome the influx of West Coast venture capitalists. Most say local [Alley] VCs still tend to be more conservative, risk-aversive, and less hands-on than their Valley-based counterparts.

According to Ray Rothrock of Venrock Associates, a VC firm with offices in both the Alley and the Valley, it is still more acceptable for an entrepreneur to make mistakes on the West Coast. "There is a high degree of forgiveness if you screw up [in Silicon Valley]. You can make a mistake and return to the same well for more funding," he said. "In New York City, [VCs] are less forgiving; memories of investors are very long."

Mr. Rothrock added that until recently New York entrepreneurs were less sophisticated than their Silicon Valley colleagues. "They haven't always known how to play the VC game, " he said. "They would take money from stockbrokers in all kinds of strange deals." But Silicon Alley entrepreneurs were quickly starting to develop the sophistication West Coast VCs were used to, he said.

David Cowan from Bessemer, which opened a New York office in January, said Silicon Valley VCs were paying more attention to the Alley as investment opportunities move from hard-core technology development to delivering those technologies to traditional businesses.

"The reason we traditionally didn't invest in New York was that technology was all about the underlying infrastructure, which was being developed in the Valley," Mr. Cowan said. "Now technology is being applied to legacy businesses at the application level, and we're looking beyond just engineering businesses."

B2B GROWTH

"[Investment opportunities in Silicon Alley] are about delivering technology to the market rather than core technology companies. In New York, you are close to distributors and legacy businesses," Mr. Cowan continued. "It's still harder to find engineers, but that's no longer the most interesting part of the business."

The region is enjoying growth in B2B e-commerce, particularly in the financial services, fashion, and media sectors, he said.

He added that for a long time, venture capitalists were not interested in New York because Wall Street companies drained so much talent. "We stayed away because it was so hard to compete in terms of salaries and benefits," he said.

But as the industry matures and the lure of stock options becomes more compelling, now Wall Street is fuelling the growth of new e-finance companies.

A PricewaterhouseCoopers report released last week found that growth in new-media jobs in New York is outstripping traditional industries, including Wall Street. Since 1997, new-media jobs in the areas have grown from 106,000 to 250,000.

According to Larry Phillips of Prime Media, hot investment opportunities in Silicon Alley include wireless startups, genetic engineering (because of the concentration of pharmaceutical companies in the area), as well as content and new-media companies.

EAST MEETS WEST

Venture capitalists speaking at the conference said they would most likely partner with a New York-based firm when investing in a startup in the region.

Virginia Turezyn of Infinity Capital said investing on the East Coast involved "artificially high hurdles" because portfolio companies were so much further away and it was harder to provide the necessary handholding needed to build companies. Infinity Capital therefore tends to coinvest with an East Coast partner that can provide that handholding, or invests in more-mature companies with a greater chance of success. "We have a higher threshold when it comes to East Coast deals," Ms. Turezyn said.

Dan Beldy of Hummer Winblad Venture Partners said the venture capital firm would also be more likely to partner with an East Coast investor than go it alone. "Location becomes an issue, because of the compressed time frame [of the Internet economy] and the urgency to succeed. We know how hard it is to get a company that is just around the block up and running," he said. "We'd look for [investment] partners on the ground."

PASSION AND GREED

Jason Rosenbluth of Bedrock Capital Partners agrees. "In Silicon Valley, you find serial entrepreneurs with proven track records. In New York, entrepreneurs are less mature and need more handholding. We don't have the infrastructure to do that ourselves."

The venture capitalists had some advice to the entrepreneurs who would be pitching them over the next few days: create barriers to entry early; lock up partnerships; take the time to build out a solid management team; and don't rush to the public markets.

It's about passion, not money, Ms. Turezyn reminded the audience. "If it was about money, we'd all retire right now," she said. "We don't know what to do with all the money we've made."

Discuss venture capital in the Venture Capital Funds and Firms discussion in our Private Companies forum, or visit the forums home page.

The Internet venture company this week said it will team up with Hicks, Muse, Tate & Furst and Pacific Century Cyberworks to form a $1.5 billion global Internet fund aimed at expanding its network of portfolio companies beyond U.S. borders.

The new venture capital partnership, @Ventures Global Partners, will focus on developing Internet companies in Asia, Europe, and Latin America. "We feel very strongly that the Internet economy outside the U.S. market is escalating right now, and we want the opportunity to participate," says CMGI's executive vice president of marketing, Bill White.

THREE'S COMPANY

The three parties have each agreed to invest $500 million in the fund, which will be run from regional offices in London, Hong Kong, and a yet-to-be-determined location in Latin America. Other details, such as who will manage the fund and staff offices, have not been determined.

According to Mr. White, CMGI did not partner with Hicks Muse and Pacific Century for their financial input, but rather for their contacts and understanding of foreign cultures and economies needed to expand globally.

Pacific Century is based in Hong Kong and invests in and incubates Asian Internet companies, while Hicks Muse has a number of media holdings in Latin America.

"These partners will bring local know-how and expertise that we don't have," Mr. White explains. CMGI brings to the table experience in building Internet companies from the very early stages.

The fund will provide financing as well as management recruiting and mentoring, strategic guidance, and operational support.

Mr. White says it is not clear how the new portfolio companies will integrate with CMGI's existing network of investments. The Internet company is widely known for promoting close interrelationships between its portfolio companies to create synergies and accelerate growth.

Expanding that model to a global scale may be a complicated process. Mr. White says it is more likely that CMGI and its partners will attempt to build local networks of portfolio companies.

SPREADING IT AROUND

In a separate deal announced this week, CMGI also is teaming with Hicks Muse and Pacific Century to acquire and invest in media convergence opportunities. The group will look for traditional media companies in the U.S. and abroad that it can help transform into new media companies.

The trio also will integrate current traditional media holdings of Hicks Muse -- which include AMFM, the nation's largest radio broadcasting group, and a range of television and radio assets throughout North and South America -- with the online media and infrastructure assets of CMGI and Pacific Century's networks.

According to Mr. White, the recent America Online/Time Warner deal indicates that the convergence of traditional and online media will be the next trend in the global information economy.

THREE, TWO, ONE ...

CMGI is not the only venture company to spot the growing investment opportunities in the global marketplace. Analysts are predicting that Internet usage, still low in Asia, Europe, and Latin America, will explode in the next five to ten years, bringing a flurry of new investment opportunities with it.

U.S.-based venture capitalists, corporate venture arms, and incubators are opening offices across the globe, looking for new investment opportunities and also looking to launch successful U.S. Internet companies in new, ripe markets. Last year, for example, international investor Softbank teamed up with News Corporation to create a new venture designed to launch U.S. Internet companies into international markets. The new company, eVentures, initially will target the Australian, New Zealand, Indian, and United Kingdom markets.

Mr. White says CMGI's move to international markets does not indicate that the Internet investment company is running out of funding opportunities in the U.S.

In the past few months CMGI also has announced a $1 billion business-to-business fund, a $1 billion Internet technology fund, and @Ventures's fourth fund, all targeted at growing its local network of portfolio companies.

Does the Internet venture company have another $1 billion fund in the pipeline? "I don't know what [CMGI CEO] David Wetherell has planned," Mr. White says, "but I would never say never."

Discuss venture capital in the Venture Capital Funds and Firms discussion in our Private Companies forum, or visit the forums home page.

Microsoft will invest $50 million in the venture, Gilat-to-Home, for a 26 percent stake. The software giant says it will contribute technology and ongoing financial resources to the company.

Gilat-to-Home already has begun trailing its service and expects to launch a broader rollout by the end of the year. The new company will be based in McLean, Virginia, and will be led by CEO Zur Feldman, the former executive vice president of operations at Packard Bell Electronics. Jon DeVaan, senior vice president in the consumer group at Microsoft, and Yoel Gat, chairman and CEO of Gilat Satellite Networks, will serve on the board.

REMOTE ACCESS

Microsoft officials said in a statement that the deal would help them give customers better broadband access, especially in rural areas. Analysts say many rural and suburban markets will not have access to terrestrial broadband technology for a number of years. According to Gilat-to-Home, somewhere between 14 million and 27 million U.S. homes still will be without access to broadband in 2004.

Microsoft has been investing in a number of broadband deals lately. In November it led a $500 million round in Teligent, which delivers high-speed Internet services from base-station antennas to antennas mounted on its customers' buildings. Other prominent investments include AT & T, which is making a play for the cable market, and Qwest Communications, which is building a high-speed fiber-optic network.

According to Mr. Gat, Gilat-to-Home closed the deal with Microsoft because it was looking for a partner with strong brand recognition in the consumer market. "We've said from the outset that one of the most important aspects for launching Gilat-to-Home is finding a strong Internet brand that would provide rapid access to the consumer," he says.

Gilat-to-Home is one of a number of new ventures hoping to provide broadband Internet access to consumers and businesses underserved by digital subscriber line (DSL) and cable companies. Many new companies operate their satellites on Ka-band, a high frequency that allows small spot beams, rather than a single continental beam. Spot beams boost the communications capacity because many beams can be transmitted at the same frequency as long as they are aimed at different parts of the country.

Gilat-to-Home's first satellite will be delivered on the more common Ku-band frequency. According to the company, however, it does plan to offer Ka-band satellites in the future.

Like its competitors, Gilat-to-Home also claims its prices will be comparable to other broadband services -- DSL and cable -- which rapidly are dropping toward zero. Right now, the company plans to offer tiered services at different prices. At market-entry price, the service will have download speeds up to 400 Kbps, though its upload speeds will reach only 56 Kbps.

Discuss startup companies and venture capital in the Rising Startups discussion in our Private Companies discussion forum, or visit the forums home page.

"Our purpose for Winternet2000 is to highlight the amount and level of entrepreneurial innovation that is emerging from the Intermountain West, particularly in the advancement of cutting-edge new Internet firms," says Todd Stevens, managing partner for Wasatch.

And to honor Salt Lake City's Internet entrepreneurs, DFJ's Tim Draper performed one of his infamous Internet-themed songs, this time to the tune of The Troggs's "Wild Thing": "Web kings, you make my cash ring. Web kings, I think I'll fund you," he crooned into a microphone.

UTAH TOO MUCH

Venture capital investment in Utah-based Internet companies increased by almost 1,000 percent from 1998 to 1999, according to research firm Venture Economics.

One of the region's more interesting companies to attract venture capital interest is Emware, a Novell spin-off that provides Internet connections for household and industry appliances. Emware's technology gives users remote access and control of their electronic devices and appliances over the Internet using Web browsers, personal digital assistants (PDAs), or phones.

The company announced a $34 million funding round at the show. New investors Motorola, Siemens Venture Capital, Galileo Technology, and JK & B Capital join previous investors DFJ, Wasatch Venture Fund, Encompass Ventures, and Infineon Technologies.

The funding will be used to expand offices in the United States and Europe, where, according to CEO Michael Nelson, Emware generates 30 percent of its business. And it will be the company's final round of private financing before going public later this year, Emware officials say.

The company has started to generate attention as the idea of home networking -- long associated more with an episode of The Jetsons than with real-world applications -- starts to look like a reality. Technology is finally catching up with the home-networking vision -- Sun Microsystems has made a splash with its Jini devices, and manufacturers are starting to imagine practical applications for consumer and business appliances.

AWARE HOUSEWARE

At the recent International Housewares 2000 Show in Chicago, Emware teamed up with Sunbeam to demonstrate a line of household appliances that had been network-enabled by embedding Emware's software on the microcontroller, or chip, contained in the appliances. The technology could turn on the coffeemaker from a kitchen pad, switch on an electric blanket from an alarm clock, and flash an alert from a smoke alarm on a PDA.

GE Appliances is also partnering with Emware to develop "smart" appliances and gather market research on potential new products. As well as allowing appliances to talk to each other, the technology can be used by the manufacturer to monitor appliances for service and maintenance. For example, manufacturers could diagnose a problem with an air conditioning system before it breaks down, or a technician could determine which new part a broken washing machine needs before setting out to fix it.

Emware has also signed deals with AT & T, Motorola Semiconductor, and Invensys Network Systems to provide connectivity and networking capabilities to non-PC devices.

The company is focused on the largest segment of the embedded device marketplace -- 8- and 16-bit devices. Emware predicts that 3.29 billion 8- and 16-bit microcontrollers will be shipped in 2000, compared with 240 million 32- and 64-bit microprocessors.

In its bid to become a major player in the market, Emware founded the Extend the Internet Alliance, a group of 23 companies that includes Motorola, Mitsubishi, AT & T, Analog Devices, National Semiconductor, and Philips Semiconductors, to push for an industry standard for networking electronic devices in homes as well as in industry.

With an IPO slated for this year, Emware could be one new company that helps put Salt Lake City on the high-tech map.

Discuss venture capital in the Venture Capital Funds and Firms discussion in our Private Companies forum, or visit the forums home page.