RTT News
Reply! Inc., which operate a proprietary auction marketplace that facilitates online locally-targeted marketing, intends to go public through an initial public offering of up to $60 million of common stock, according to a filing with the U.S. Securities and Exchange Commission.
The San Ramon, California-based company did not disclose any details about the number of intends to offer and about its estimated price range.
The company said it has applied for listing of its common stock on The NASDAQ Global Market under the symbol "RPLY"
Reply! Inc. reported total revenue of $34.3 million and net income available to common stockholders of $2.4 million for the year ended December 31, 2009.
Payam Zamani, the company's President, Chief Executive Officer and Chairman of the Board and Scale Venture Partners II, LP hold a significant stake in the company, the filing shows.
San Jose Business Journal
Reply Inc., an online lead generation company that is partly funded by a Silicon Valley firm, has filed with the Securities and Exchange Commission for an initial public offering of up to $60 million.
The San Ramon company reported revenue in 2009 or $34.3 million, and net income of $2.5 million.
Reply was founded by Payam Zamani, who previously co-founded online car-buying service Autoweb, which is based in Irvine.
The company has received about $21 million to date in venture and debt financing. Funders include Foster City-based Scale Venture Partners and San Francisco-based ATEL Ventures and Outlook Ventures.
TechCrunch
By Erick Schonfeld
Local cost-per-click marketplace Reply.com wants to raise $60 million in an initial public offering. The company filed its offering statement with the SEC this morning.
Reply.com is a cost-per-click ad network which targets ads for local businesses. Its strategy is to gather more information from consumers who click on their ads by inserting a “middle page” between that pops to ask them where they live or what brands they like to improve targeting before showing them an ad.
Revenues rose 75 percent in 2009 to $32.6 million. The company operates with a 50 percent gross margin, and turned its first net profit in 2009 of $2.5 million. The business produced $4.7 million in cash flow in 2009, but it ended the year with only $1.3 million in cash. Reply.com acquires click traffic from search engines, display ad networks, and other sources. These traffic acquisition costs account for nearly all of its cost of revenue. In the fourth quarter alone, the generated 4.9 million “enhanced clicks” and 700,000 leads for 5,000 advertisers. The company employs 127 people—103 of them in sales and marketing.
Since 2005, the company has raised $27.5 million from Scale Venture Partners, Outlook Ventures, ATEL Ventures, and Debi Coleman, a former CFO of Apple. CEO Payam Zamani is the largest stockholder. He owns 43 percent of shares outstanding (before the offering). Scale is the second largest shareholder, with 21.5 percent.
Zamani was previously the co-founder of Autoweb, and he’s been bankrolling the Reply.com. Over the past two years, the company has been dipping into his personal lines of credit to improve its liquidity. According to the filing, the “aggregate principal amount that we repaid under these credit lines to Mr. Zamani through December 31, 2009 was $5.9 million.” All of this personal debt to the CEO was repaid as of December 31, 2009, but it does suggest one reason why the company may need more working capital. It also plans to use the proceeds to expand into new advertising categories and geographies (and, presumably, to hire more sales people—local ad plays are very sales intensive).
Wall Street Journal
This morning's roundup of the latest venture capital news and analysis across the Web:
Revved-Up Engines - Some hopeful IPO news this morning: Nearly 14 years after raising its first round of venture capital, Financial Engines is close to going public after its underwriters set the terms of its 10.9-million share offering at an estimated price of $9 to $11 each. Barring any cuts, that would put the offering size at about $98 million to $120 million and Financial Engines' market cap as high as $435 million. Will its financial results be enough to woo investors? The company, which provides retirement investment management and advice, posted a profit ($4.6 million) for the first time since at least 2005, while its revenue rose 19% to $85 million. Financial Engines has a long history of funding, raising about $166 million from more than 20 institutional investors; New Enterprise Associates and Oak Hill Capital Partners are listed in the S-1 filing as top investors. Also now on the IPO watch-list: Reply.com, which this morning filed to go public. The company, a provider of online business leads, also turned a profit for the first time last year. But its 2009 revenue is more modest at $34.3 million, even if that is 47% higher than the year before. Reply's investors include ATEL Ventures, Outlook Ventures and Scale Venture Partners.
paidcontent.org
Online lead generator Reply wants to raise $60 million in an IPO, according to an SEC filing. The startup runs an auction-based online marketplace that lets companies buy information about people who have indicated an interest online in buying a certain product; advertisers can target their lead spending based on a number of categories, including where potential customers live and what exactly they are interested in. Reply says that most of its clients are in the automotive and real estate industries.
Reply joins a growing list of digital firms hoping to go public. This year alone, GameFly, Vringo, Everyday Health, Motricity, and Lulu have all notified the SEC that they intend to sell shares. So far, the track record of companies that have gone beyond that point is poor. QuinStreet (NSDQ: QNST) went public but had to cut the size of its offering, while Friendfinder Networks cancelled its IPO altogether, citing "market conditions."
Reply had raised at least $27.5 million in venture funding, including $4.5 million in a third round from ATEL Ventures in October 2007. Some highlights from the filing:
- Financial performance: The company generated $34.3 million in revenue last year, up from $23.3 million in 2008. It also posted $2.5 million in net income, compared to a loss of $3.245 million a year ago. It was its first ever reported profit.
- Ownership: The filing lists CEO Payam Zamani as the primary shareholder with 43.1 percent of the stock; other shareholders include Scale Venture Partners (21.5 percent) and Outlook Ventures (6 percent).
- Use of funds: Reply says it will use the proceeds of the offering to pay down its debt, fund capital expenditures, and for general corporate purposes. The company says in its filing that it’s also interested in pursuing acquisitions that "enable us to increase our geographic presence, expand our advertiser relationships, expand into additional industry categories and further enhance our marketplace." Right now, the company only has $1.3 million in "cash and cash equivalents."
- Stock: Reply wants to trade on the Nasdaq under the symbol RPLY. Underwriters include Jefferies & Co., Piper Jaffray & Co., Needham & Co., and ThinkEquity.
VentureBeat
By Paul Boutin
Ad market Reply.com has filed with the Securities and Exchange Commission to raise up to $60 million in a public offering. The company is a marketplace for online sales leads, where companies can buy information about web users that have shown interest in buying their products. TechCrunch has a rundown of the company's current financials, which include a 75 percent revenue increase in super-tough 2009.
Here's what I wrote about Reply last October:
Targeted search and display ads are the bread and butter of online advertising today. But ad networks like Reply are learning how to deliver qualified leads — in Reply's case, potential buyers for cars, homes, home improvement, and insurance deals whose self-selected qualifications that result in up to double the conversion rate from ad to purchase. The company has seen conversion rates climb by 50 to 100 percent over the rates for search and display ads, by categorizing leads in refined ways for automated buying and selling.
Reply works by collecting pre-qualifying information from Web surfers — "I'm looking to buy a home in 94145," for example — then selling their click-throughs on an ad to a buyer looking for a matching profile. The genre is called lead generation or just "lead-gen." Generating leads is seen by many marketers as the next step in online advertising. Why? Because lead generation has the potential to grow the market for online ads by making them more effective and less wasteful. Today, Google's AdSense pulls in $20 to 30 billion per year, but Google only accounts for about one-tenth of all ad spending.
Companies like Reply are chasing not just those online ad dollars, but the $300 billion in offline advertising that could be pulled online if ad networks could promise better bang for the buck, and better-than-offline control over how ad inventory and qualified clicks are bought and sold.
Reply was founded in 2001 by Payam Zamani, who previously founded Autoweb back in the first Internet boom. Zamani has about 100 employees headquartered in New York. The company, which Zamani bootstrapped on $1.5 million of his own money, has raised another $13 million from Scale Venture Partners, $4 million from Outlook Ventures, and $3 million from individual investors including former Apple CFO Debi Coleman.
In Online Video
By Guest Author
Ten years ago, web companies didn't generate much revenue. These days, web companies are some of the most profitable around. Online video is where the Web was ten years ago: in investment mode as video companies that are generating high revenue are not necessarily the most profitable.
Are those companies suffering low margins because they're investing in the future or are they fundamentally lower-margin businesses?
Ad Networks Are Low Margin Businesses
This week, video ad network Brightroll raised $10 million from Scale Venture Partners. Ad networks aggregate audiences and sell ads to marketers, sharing the proceeds with publishers/producers. Scale's Rob Theis' argues: "the most strategic Internet investments are those that compete not with other Internet businesses, but with the much larger amount of money still being spent offline."
Brightroll's CEO Tod Sacerdoti added: "I think by this time next year the majority of the top five to ten video properties by any measure will be aggregator networks. The best example for this is display advertising." Indeed, networks have an unmatched ability to scale but can also crash to the ground awfully fast.
The low margin is the least of their problems; differentiation and defensibility are. Blue Lithium and Right Media hit jackpots by selling to Yahoo! But those who didn't sell (Tribal Fusion, Valueclick) suddenly found themselves under pressure from search advertising on performance and video on branding.
Content Networks Have Little Differentiation
Similarly, aggregators gather videos from content providers, sharing ad revenues. iFilm (sold to Viacom, renamed Spike), Guba, Grouper (sold to SONY, renamed Crackle), Revver, YouTube (sold to Google), Veoh, DailyMotion, Metacafe, Viddler, blip.tv, are all vying for content, audiences and dollars.
YouTube is master of this domain. Hulu is giving YouTube a run for its money, but the business model is anything but certain and its long term exit strategy is murky (Disney, News Corp. and NBC Universal/Comcast are shareholders but also competitors).
Ultimately, ad and content networks operate in a high-risk, winner-take-all game. For publishers, it's a lower risk world. Consider the two acquisitions News Corp. made in 2005: Rupert Murdoch paid more for IGN ($650M) than for MySpace ($580 million), but MySpace's subsequent growth made him look like a genius (for a while). Today, MySpace is searching for its raison d'etre while IGN treks along as an unstoppable force in its sphere.
The Myth of Hyper Distribution?
In online video, producers are agnostic to distribution channel or platform. To reduce risk, they diversify distribution, but the jury's out on whether hyper distribution bears fruit. Hyper distribution refers to syndicating one's content as broadly as possible with little or no restrictions.
When it comes to generating revenues, is hyper-distribution wise? Not according to Chris Pirillo, a prosumer video producer who leverages video to promote his empire but only counts YouTube as a commercial platform: "YouTube offers the largest audiences and generates most the revenue. If you're not YouTube, you have challenges in creating value for content producers". If that changes, look out for Freewheel, which according to CEO Doug Knopper allows "media companies and content owners to be able to monetize their video libraries across multiple channels and devices".
Advertisers Follow Audiences...
Ex-Disney CEO Michael Eisner doesn't pretend to know how the industry is going to play out, but he's got no doubts what the end result will be: "I don't know if the growth in content made for the Internet will be evolutionary or revolutionary, but it can't not happen: a death march has been going on for other media who are in trouble because there is a more efficient way to share content around the world with the Internet."
Business Models Take Time to Develop
Eisner made his fortune in television. One VC who's made his online has another opinion. In Fred Wilson's influential 2005 post "The Future of Media (aka Please Take My RSS Feed)", he suggests to:
- Microchunk it – Reduce the content to its simplest form.
- Free it – Put it out there without walls around it or strings on it.
- Syndicate it – Let anyone take it and run with it.
- Monetize it – Put the monetization and tracking systems into the microchunk.
In theory, in the future when video streams monetize the way search queries have (whereby a search query is always associated with some kind of paid listing) then perhaps Wilson's thesis will prove right. But in practice, at least in the five years that have passed since the post, it's been a recipe for financial disaster.
Hyper distribution is great for promotional purposes but not necessarily for commercial purposes. Marketers do pay more attention as an audience grows, but they also pay a premium for scarcity and exclusivity.
This is the fundamental conundrum facing new media producers who rely on hyper-distribution to build brands and audiences but who weaken their pricing power and ability to secure guaranteed dollars by giving away their videos. This can work if you can build ad-supported businesses, but that takes time and money.
Today, a few new media producers have managed to build ad-supported businesses, namely Revision3 and Next New Networks. But between the two, they have raised over $30 million in venture capital. Most producers don't have that luxury. For those others, I recommend creating content that other media companies will pay for, to buy them enough time to build a syndication business and eventually, a fully ad-supported business which commands the large ad dollars.
An imperfect but useful analogy I use is the banking model, where retail, corporate and investment banking fees can create a large business.
This diversified strategy provides:
- a safe income stream: licensing, like retail banking, provides a recurring and non-volatile revenue base.
- a growth business: syndication, like corporate banking, requires other companies in the ecosystem to do well. This can provide higher CPM rates by placing content in the right context.
- a wildly lucrative stream: advertising, like investment banking, takes time to develop, is speculative and seasonal, and risks drying up abruptly. Notice how advertising revenue spikes each fourth quarter, for example.
The reason why I place content producers in the highest Profitability circle over time in the first chart above is because only they can build such a business. (The Profitability Index represented in the chart takes into account operating margins and total return on investment, including likelihood of a liquidity event). And, yes, I am completely biased, since this is the kind of business I am trying to build with WatchMojo. Aggregators and networks are solely advertising based businesses; just ask YouTube who generated $10,000 in a paid model test, even though it can generate billions in simpler ways. Video advertising will be a bigger business, but not necessarily a higher-margin business.
Video will be Everywhere: on all Websites
Video on the Web is no longer just about entertainment. It is also about marketing, instruction, and conveying information of all kinds.
Content bellwether Wikipedia announced it will be rolling out videos soon enough. e-Commerce leader Zappos encourages users to submit their video experiences which increase sales 6% to 30%. In 2010, it will create 50,000 videos. It won't be long before organizations feature their accountants, lawyers, management, VCs in videos too. Video will be Everywhere: in Ads
Videos won't simply be on all websites; video ads will converge with rich media and display banners. Publishers and ad networks will swap out low yield ad placements for videos that sell at a premium. Rupert Murdoch is right to say that there isn't enough advertising to make all publishing online profitable, but if you insert a video-enabled ad where a display banner exists today, maybe it will become more profitable, as video rates tend to generate a tenfold premium over display banners. Of course, the flip side of that argument is that if video ad inventory lost all scarcity as display banners have, then it rates would also see a steep drop.
Video is the Anti-Search
Google's dominance of the Web today stems from a perfect storm. Search benefitted from low expectations. Whereas Google's competitors threw in the towel to focus on portaldom (or outright handed them the business), online video companies' war chests seemingly have no bottom as they wage the war for the online audience.
With YouTube being a unit of Google, it's hard to compete being a pure video aggregator. Those who have tried are flailing badly. Yet video's expectations have always been high and will only get higher.
History Repeats Itself
Video will follow search in two ways though.
Search is software and Google is the only successful ad-supported technology company. Video is media, which has a natural disposition to embrace ad-supported models. As such, advertising will monetize video streams. In fact, as large ad agencies and marketers shift online, they'll embrace branding campaigns and push video advertising could eventually top search advertising. Once that starts, online advertising will surpass television, it's already happened in the UK.
Search for The Leading Ad Format
Everyone agrees that video advertising will be huge but what will the prevailing ad format be?
Stakeholders are obsessed with finding the ad format likely to follow television's 30-second ad spot and search's paid listings.
What might lead the way?
Pre-rolls are the equivalent of pop-ups (and mid/post rolls the equivalent of pop-unders) in that users hate them, but unlike pop-ups, I actually think pre-rolls won't disappear, mainly because
They're the most in-demand ad format (according to Brightroll CEO Tod Sacerdoti) It is easier to include a pre-roll when you're syndicating to other websites and platforms (says blip.tv co-founder Dina Kaplan) But largely because they'll get more user-friendly: the 30-second ad will make way for 5-10 second interactive pre-rolls (SpotXchange CEO Michael Shehan). However, there will always be properties which will forego pre-roll revenue to improve the user experience in order to build audiences, and all else being equal users will migrate to those sites. So I'm not sure the pre-roll will remain all that ubiquitous. The other problem with pre-rolls is lack of attention. When a pre-roll starts, I tune out and look for my headphones or go grab a coffee.
That's why I like the contextual display banner (and not necessarily the companion banner). A companion banner comes bundled with the video pre-roll, but sits alongside the video A contextual banner comes without the pre-roll. Whereas most banners disappear quickly next to text with one downward scroll of the mouse, alongside a video player, that banner becomes quite valuable and top-of-mind since people are just staring at the video.
We've also seen the rise (and fall) of overlays, which is basically an expanded Picture-in-Picture (PIP) format; we know how that fared.
Of course, content producers are also salivating over branded content (more than product integration and product placement, the brand becomes central to the story) or outright sponsorships.
Finally, there's the Web's favorite offspring: the viral video. Viral video is not an ad format, of course, but it is not quite branded content nor is it supported by ads. As these become more common, achieving success with content alone becomes a sure-fire recipe for failure. All content will need to be supported by a media buy or some kind of promotional push. After all, on TV you spend millions creating an ad but you need to buy media spots to promote it. It's not going to be that different online. Yes, it's a meritocracy, but it's a loud, cluttered one.
KISS: Keep It Simple Stupid
There won't be a single dominant ad format but the holy grail will prove simpler than expected. It always does.
Remember Don Lapre's infomercials? He would go on and on about placing "Tiny Classified Ads" in newspapers. I never thought much of those ads until Google's adoption of (essentially) little text ads next to search results led to their explosive growth.
Sometimes in business, the solution is simpler than you can imagine.
True Ventures
Today BrightRoll announced it's $10 million Series C round of financing led by Scale Venture Partners. Rob Theis is leading the deal for Scale, and will be joining me, Vince Vanelli of KPG and David Welsh of Adams Street on the Board.
We're incredibly proud of Tod, Dru, Charlie, Lewis and the team at BrightRoll who have built this company from a raw idea into the leading global online video ad platform. BrightRoll recently surpassed Hulu in terms of viewership, and Tod has built this company with a fraction of the capital used by his competitors.
I first me Tod through Plaxo in 2003, where he was Director of Revenue for Plaxo and I was on the board (through an investment I made at a prior firm). We worked closely together on several initiatives over a couple year period, and Tod always demonstrated his tenacity, smarts and raw talent. I was also lucky enough to get to know Dru really well in the early Plaxo days too, largely because I was always a "problem user" of Plaxo products because I had so many computers. Dru spent countless hours debugging my setups, and we became friends.
When they decided to leave Plaxo and start BrightRoll in mid-2006, I counted myself lucky to a) get the call and b) have True's first fund raised so that we could invest in his idea from day one. I remember calling him to tell him we'd take all of the available room in his seed round, and if anyone dropped out, we'd take that too. At True, we place an unbelievable emphasis on Founders, so my prior experience with them meant a lot.
The BrightRoll journey has been as challenging as any other startup, but at every turn Tod and Dru have displayed an exceptionally clear vision for the industry, and they've built the company with quality and care. The team is also serious about building a real business. About one month into our seed investment, Tod called me to report on the first month's revenue. I'm normally not one to expect revenues so soon in our seed deals, so I congratulated him and laughed a bit about my surprise. He commented that he found my surprise surprising: he just didn't understand how so many web 2.0 startups of the time were unable to focus on revenues.
BrightRoll has been strong since the beginning, but in early 2009 we at True decided to aggressively invest behind the company. We thought the downturn presented a particularly ripe opportunity for expansion and growth, and we at True (as well as KPG and Adams Street) stepped up to fund this expansion (in a very Founder-friendly fashion). This was part of our "make the strong stronger" strategy in 2009. This was scary to some but seemed smart to us, largely due to the tremendous talent that Tod had built on his team. It didn't hurt that he's pursuing a great market, and did so with tremendous discipline (Brightroll's been profitable for awhile now).
2009 was a great year for the company, and with our new financing we look forward to continued growth.
We were lucky to have many options for this recent financing, but the Scale team early on demonstrated an understanding of the company and market opportunity that was unique. At True we have a lot of respect for Rory, Kate, Sharon and Rob, and we really like what they're building. We're very pleased to have them on board with us.
Congrats to Tod, Dru and the entire team on an important next step towards building an exceptional company.
Wall Street Journal
There was a lot of bellyaching last year about an online advertising market meltdown. Most of it was justified, as many advertisers' budgets seemed to involve money that jingles rather than the kind that folds.
Research firm eMarketer reported that U.S. online advertising dropped by 4.6% in 2009, the first decrease since 2002.
However, recent news coming from three Internet start-ups shows not everyone dependent on advertising shed tears on their financial statements.
This week alone, local online advertising provider Yodle Inc. announced a $10 million funding round on the back of a 135% revenue climb in 2009; female-focused ad network Glam Media Inc.said it grew revenue by 35% and raised a whopping $50 million Series E; and online video ad network BrightRoll Inc. declared it doubled revenue and raised $10 million.
These companies aren't exactly the kind of start-ups that register dinky revenue. Yodle posted revenue of $46 million last year, while at the same time boosting employee count by 50% to 300.Glam hasn't revealed its revenue figures, but they're significant enough for investors to agree to a $750 million post-money valuation. And, BrightRoll says it has been profitable for nearly 12 months.
The eMarketer report helps explain why these companies prospered while others struggled. “The various components of online advertising react differently to cyclical and structural changes,” the study says. “While one format might show relatively healthy growth in the recession, another suffers due to the same economic climate. For example, paid search will grow by 2.2% in 2009, while classified ad spending will decline by 30.2%.”
Fortunately for BrightRoll, Glam and Yodle, these companies operate in thriving pockets of the online ad market. Brightroll, for instance, is benefiting from advertisers who now include online video not as part of their experimental spending, but mixed in with their committed traditional media budget. PepsiCo, known to spend big bucks to parade Britney Spears across TV screens during the Super Bowl, opted to sit this year out in favor of a 60% increase in its online ad spend. Likewise, Glam's stable of Web sites reach out to a powerful spending demographic that attracts premium-brand advertisers, while doctor's offices, pizza shops and other local business are employing the help of Yodle's online ad-placement service in lieu of the yellow pages.
That's good news for some investors who have plowed millions of dollars into start-ups dependent on Internet advertising, including the brokers that connect advertisers and publishers and the developers of technology used to place these ads.
Glam has raised $130 million from investors incuding AG Ventures, GLG Partners, Hubert Burda Media Information Capital, Mizuho Capital and Walden Venture Capital. Yodle's total financing is about $38 million from Bessemer Venture Partners, Draper Fisher Jurvetson and Draper Fisher Jurvetson Growth and Jafco Ventures. BrightRoll's fresh funding brings its funding to $16 million from Adams Street Capital, KPG Ventures, Scale Venture Partners and True Ventures.
Silicon Valley Wire
San Francisco -- BrightRoll, the San Francisco-based operator of an online video advertising network, said that it has raised $10 million in its third round of funding, led by Scale Venture Partners. Previous backers True Ventures, Adams Street Capital and KPG Ventures also participated. The company said that it will use the proceeds to expand its technology platform, as well as its worldwide advertiser and publisher operations. BrightRoll also announced that it has been profitable for "nearly the entire last 12 months," and that its network recently passed Hulu in the number of unique users per month that it reaches. The company said that that three-quarters of the top 100 online media properties in the U.S. now use its services.
NewTeeVee/GigaOm
BrightRoll said today that it's wrapped up a $10 million Series C round of financing - after reaching profitability. The video ad network, which claims to be "bigger than Hulu," plans to use the funds to expand even further, adding to its technology platform and growing its advertiser and publisher operations.
The new funding round was led by Scale Partners, with existing investors True Ventures, Adams Street Capital and KPG Ventures also participating. Along with the financing, BrightRoll announced that Scale Venture Partners Managing Director Rob Theis has joined its board. Altogether BrightRoll has raised a total of $16 million since being founded in July 2006.
According to data from Quantcast, BrightRoll has indeed grown larger than Hulu and the Hulu network, reaching 54.6 million unique users per month in the U.S. That compares to the 20.8 million unique viewers for Hulu.com and the 31.9 million viewers on the Hulu network. The company also says it has been profitable for the last 12 months.
BrightRoll recently rolled out a partner program to increase its potential reach. Partners include advertising companies Adap.tv, Auditude, FreeWheel and LiveRail, as well as video player companies including Brightcove and thePlatform.
VentureWire
By Ty McMahan
Having doubled its annual revenue, video advertising network BrightRoll Inc. closed a $10 million Series C round of funding, bringing its total capital raised since its 2006 launch to $16 million.
Scale Venture Partners led the round, with participation from existing shareholders Adams Street Capital, KPG Ventures and True Ventures. Rob Theis, managing director with Scale Venture Partners, has joined the board of directors.
The company also announced it has been profitable for nearly 12 months as advertisers are starting to view online video not as part of their experimental spend, but mixed with television and other traditional media as part of their committed budgets.
Chief Executive Todd Sacerdoti said the company is now serving in-stream ads with more than 300 publishing partners and placing banner ads with a network of about 1,000 sites. He said publisher partners include three-fourths of the top 100 online media properties in the U.S.
BrightRoll also disclosed that it has surged ahead of Hulu in unique users per month, as measured by Quantcast. Sacerdoti said he believes this is an important milestone in the business of video advertising.
"There's going to be this moment where broadcasters look at a chart and see the largest sellers of video advertising do not create content," Sacerdoti said.
According to Quantcast, BrightRoll's video network reach has grown to 54.6 million unique viewers per month in the U.S., surpassing the 31.9 million unique visitors reached by the Hulu Network, or the 20.8 million unique visitors reached on Hulu.com.
Sacerdoti said Hulu has been considered a safe choice for advertisers and BrightRoll's growth show's a growing change of thought. "I argue that Hulu is just a cleverly structured ad network," Sacerdoti said.
News Corp. co-owns Hulu with NBC Universal, Walt Disney Co. and Providence Equity Partners and also owns Dow Jones & Co., the publisher of this newsletter.
Sacerdoti declined to disclose specific revenue or a valuation, but said he expects to again double revenue this year. He also declined to say how many employees are at San Francisco-based BrightRoll.
Video Ad Network Also Announces Profitability, Plans for Expansion
SAN FRANCISCO, Calif – February 3, 2010 – BrightRoll, the leading video advertising network, today announced it has secured $10M in Series C financing led by Scale Venture Partners, bringing the company’s total venture funding to $16M since its launch in July 2006. Existing investors True Ventures, Adams Street Capital and KPG Ventures also participated in this funding round. The company, which also announced today that it has been profitable for nearly the entire last 12 months, will use this round of financing to expand its technology platform, worldwide advertiser and publisher operations, and increase its leadership position in the U.S. BrightRoll also announced today that Rob Theis, Managing Director with Scale Venture Partners, has joined the board.
"Our first few years in business saw us rise to the top of the online advertising network rankings and reach profitability thanks to an emphasis on understanding our customers and the dynamic design of our cutting-edge technology platform. We proved we have the discipline to validate our model and long-term opportunity," said Tod Sacerdoti, BrightRoll’s founder and CEO. "With these milestones achieved, we can use this new investment to drive growth at a time when there is more demand than ever for online advertising and we have the footing and track record to rapidly expand our solution set and grow in new and exciting directions."
"The online video ad market will grow to billions of dollars over the next few years by disrupting the $70 billion television ad market," said Rob Theis, Managing Director, Scale Venture Partners. "Given its momentum, even during the difficult 2009 economy, BrightRoll is well-positioned to extend its lead in this market. I'm excited to work with Tod and his team as they have become a preferred partner by many top agencies, advertisers and premier publishers."
BrightRoll also disclosed today that it has surged ahead of Hulu in unique users per month, as measured by Quantcast, making BrightRoll the leading aggregator of premium video viewers in the United States. A number of milestones helped the company to achieve this industry-leading position, including its participation in Reckitt Benckiser’s $20M marketing shift spend to online in 2009. In tandem with a number of new pricing and measurement initiatives, BrightRoll opened a UK office and introduced global inventory access and Spanish-language targeting across the BrightRoll network of publishers, which includes three-quarters of the top 100 publishers in the United States.
About BrightRoll
BrightRoll is the world’s largest and most trusted video advertising network, having served billions of advertisements since it was founded. BrightRoll helps major brands and agencies execute "smart video ad campaigns" across the industry’s leading publishers, including three-fourths of the top 100 online media properties in the United States. BrightRoll’s proprietary campaign execution, inventory management and advertising delivery technology provide brands and agencies with the reach, frequency and scalability needed to achieve their campaign goals. BrightRoll is a privately held, venture-backed company and is headquartered in San Francisco, California. BrightRoll offers its service at www.brightroll.com.
About Scale Venture Partners
Based in Foster City, California, the ScaleVP team is a long-standing partnership with a consistent, top quartile track record of returns for the past decade. ScaleVP’s market-tested investment strategy, extensive operating networks and go-to-market expertise help identify and build successful portfolio companies in technology and healthcare markets. The ScaleVP team's collaborative and active approach provides entrepreneurs a competitive advantage for growth and category leadership. Representative portfolio companies include Alimera Sciences ExactTarget, Frontbridge, IPC The Hospitalist Company, mBlox, Monolithic Power Systems, National Healing, NComputing, Omniture, Orexigen, ScanSafe, Everyday Health, and Zogenix. For more information, visit www.scalevp.com.
Surpasses Hulu in monthly unique visitors across its ad network
VatorNews
By Chris Caceres
San Francisco-based, BrightRoll made some pretty major announcements on Wednesday. The video ad network said it raised $10 million in its third round of funding. Scale Venture partners led the round and was joined by True Ventures, Adams Street Capital and KPG Ventures. The company has now raised a total of $16 million since being founded in 2006.
Along with the funding news, BrightRoll announced its video ad network has surpassed Hulu'smonthly unique visitors. BrightRoll's ad network has grown to 54.6 million unique visitors per month in the US, surpassing the 31.9 million unique visitors reached by Hulu's network and 20.8 million uniques reached by Hulu.com, according to Comcast. One key difference between both networks reach is that BrightRoll only serves video ads while Hulu serves video content and ads. BrightRoll argues due to this fact, "it will become more and more clear that the most efficient way to reach targeted video audiences at scale are through video advertising networks."
The startup's massive reach has to do with its partnerships. BrightRoll said it is working with the Web's top 100 video publishers. Some of those include Adap.tv, Auditude, FreeWheel, along with video players companies including Brightcover and thePlatform.
At the same time, BrightRoll offers unique options for advertisers such as a performance pricing program which gives advertisers engagement and performance-based ad options instead of standard price-per-impression metrics.
Scale Venture Partners is betting its $10 million investment will do well as the online video ad market continues to grow to billions over the next few years, disrupting the $70 billion television ad market. "Given its momentum, even during the difficult 2009 economy, BrightRoll is well-positioned to extend its lead in this market," said Rob Theis, managing director at Scale.
Some of BrightRoll's major clients include, Microsoft, ABC, Shell, Audi, Sony, WB, and Walmart, just to name a few. The startup, which said it has been profitable for the past 12 months, said it will use this round of financing to expand its technology platform, and expand worldwide advertiser and publisher operations.
Online Video Watch
By Corey Kronengold
Video ad network, Brightroll, today announced it has secured $10M in Series C financing led by Scale Venture Partners. That brings total VC money to $16M to date. True Ventures, Adams Street Capital and KPG Ventures also kicked in.
More interestingly, Brightroll said that it has been profitable for nearly 12 months. Thats genuinely good news for the space as a whole. However, since private companies can simply say they are profitable, we'll take it with a slight grain of salt. Not that we have any reason to doubt them, other than the general issues that all of the video ad nets have suffered from over the past year or two. Still, whats good for Brightroll is good for the rest of the space as well. Maybe there's something to this video advertising stuff?
Regardless, congrats to Tod & The Gang on both fronts.
San Francisco Business Times
By Steven E.F. Brown
Online video advertiser BrightRoll Inc. raised $10 million in its third round of venture funding.
Scale Venture Partners led the round and put Rob Theis on BrightRoll's board of directors.
True Ventures, Adams Street Capital and KPG Ventures also gave money. They've invested in BrightRoll previously. Jon Callaghan of True, David Welsh of Adams Street and Vince Vanelli of KPG are already on the board.
BrightRoll says it has been profitable for 10 months, but didn't give any specific figures.
Tod Sacerdoti, who started BrightRoll in 2006 with Dru Nelson, is its CEO.
Mashable
Online video advertising network BrightRoll has just announced that they've secured $10 million in Series C funding, grown to nearly 55 million unique viewers per month in the U.S, and are now profitable.
The funding news means that BrightRoll - which distributes video ad campaigns via an extensive online publisher network - has raised $16 million to date, and they will use the additional funds to improve the technology behind their service.
If you're unfamiliar with BrightRoll, it's because the company's name is secondary to the brands they serve. They power online video for the likes of Toyota, Sony, Shell, Audi, ABC, Microsoft, HP, and Walmart, among other big brand clients. Now that Quantcast puts BrightRoll's monthly reach at 55 million unique visitors - which the company points out is more than Hulu - chances are you've been exposed to several BrightRoll-powered advertisements without even knowing it.
As online video views across the web continue to climb, we can safely presume that the premium video ad network's online reach will continue to grow.
peHUB
BrightRoll, a San Francisco-based video advertising network, has raised $10 million in Series C funding. Scale Venture Partners led the round, and was joined by return backers True Ventures, Adams Street Partners and KPG Venture. The company previously raised $6 million.
VentureBeat
By Paul Boutin
BrightRoll co-founder and CEO Tod Sacerdoti - pronounced "satch er DOH tee" if you don't speak Italian - has three reasons to be happy this week. First, video advertising network BrightRoll is, according to Quantcast's stats, now bigger than Hulu in terms of reach to Internet-using humans. BrightRoll's ads reach 53.3 million unique viewers a month, compared to the Hulu Network's 31.6 million. (The Hulu.com site draws 20.7 million.)
Second,BrightRoll has scored $10 million in Series C financing led by Scale Venture Partners, bringing the company's total venture funding to $16 million since its launch in July 2006. Previous investors True Ventures, Adams Street Capital and KPG Ventures also participated in the round. Rob Theis, Managing Director with Scale Venture Partners, has joined BrightRoll's board of directors.
Wait, there's more! BrightRoll also announced today that it has been profitable for nearly the entire last 12 months. Rather than burning through it, the company will use this round of financing to expand its technology platform, beef up worldwide advertiser and publisher operations, and hopefully increase its leadership position in America.
Sacerdoti told me in a long phone call today that it's not just BrightRoll, it's video advertising as a whole that's taking off. "The biggest theme we've seen over the past 12 months," he said, "is that video advertising is being served for any free content, not just video content. Anywhere someone can serve a video ad, you'll see a video ad. Video ads are going to be much more broad than TV will be."
That bodes well for video ad networks like BrightRoll, as well as its competitors such as YuMe and Tremor Media. The thing about video ad networks is, as an Internet user, you're not really aware of their existence. You just see lots of video ads all over the place, without being told who's serving them. "It's like when you watch Project Runway," Sacerdoti said. "You know you're watching Bravo, but you don't think about whether or not it's Bravo that sold the ads. Often it's not."
"I think by this time next year the majority of the top five to ten video properties by any measure will be aggregator networks," he said. "The best example for this is display advertising. They're by far the largest in reach and spending - Google, Yahoo, Microsoft, AOL and 10 ad networks make up the top fourteen. But what we're seeing pretty clearly from the advertising community is that the preferred ad medium is video. All things considered, advertisers would almost always prefer to run a video to talk to their customers."
Why is Scale putting $10 million into BrightRoll? "The online video ad market will grow to billions of dollars over the next few years by disrupting the $70 billion television ad market," Theis said in a prepared statement. That's three and a half times the size of Google's annual ad revenue, and more than twice the total $30 billion online ad market. The most strategic Internet investments are those that compete not with other Internet businesses, but with the much larger amount of money still being spent offline.
MediaPost
By Gavin O'Malley
Branded video ad network BrightRoll on Wednesday is expected to announce another $10 million in Series C financing. Led by Scale Venture Partners, that brings the company's total venture funding to $16 million since its launch in July 2006.
The San Francisco-based startup is also expected to announce that it achieved profitability nearly a year ago, but could still use additional funds to expand its technology platform, along with advertiser and publisher operations worldwide.
Existing investors True Ventures, Adams Street Capital and KPG Ventures also participated in this funding round.
Since launching in mid-2006, BrightRoll has focused exclusively on matching brand advertisers with "quality" branded media properties.
Co-founder and CEO Tod Sacerdoti said BrightRoll was well-positioned to take advantage of advertisers' and consumers' "flight to quality," which some experts believe to have occurred during the recession.
"We can use this new investment to drive growth at a time when there is more demand than ever for online advertising," said Sacerdoti.
Led by consumer goods, automotive, media and entertainment, interactive marketing will near $55 billion by 2014, according to Forrester. Among other factors, the researcher attributed the increased spend directly to the evolution of online video.
The privately held BrightRoll does not disclose specific financial information, but Sacerdoti assured that the number of agencies making "serious commitments" only grew last year.
Citing Quantcast metrics, BrightRoll claims to have surpassed Hulu in terms of unique users per month.
paidcontent.org
If Motricity can do it, perhaps others in the space can, too. MBlox, which enables payments for mobile data services, has told the WSJ that it generated "north" of $110 million in revenue in 2009, and may be seeking additional capital for further acquisitions. It may even consider an IPO in 2011 if revenues stay at this level.
MBlox originally built its business around premium SMS services but has since diversified into other areas such as enterprise messaging and "sender pays" services. We talked to a spokesperson who told us that these new areas are still a relatively small part of the business. At the same time, the premium SMS business has faced some challenges - namely regulatory scrutiny of the area after some companies were discovered to be overcharging users.
Andrew Dark, the CEO of mBlox, said in an email that the company has ditched some of its clients as a result of the scrutiny: "Where clients have proved incapable of operating to the defined standards or have been unable to meet their contractual commitments to mBlox, we have terminated those relationships within the terms of our contract and it is these contracts – held in multiple geographies, which we have chosen to cancel due to their financial or reputational unprofitability." But premium SMS providers - the more scrupulous ones, of course - remain a major part of the company’s business today.
—One other area that mBlox has been pushing for several quarters now is this idea of "sender pays" data services, where companies offering mobile services effectively subsidize the data cost for the service. For example, Dark tells us that a UK bus company, Arriva, is using mBlox to offer a mobile ticketing service. Travelers can purchase electronic tickets, which are paid for through their mobile airtime accounts, and these are sent to their handset, with the ticket buying and sending all free of charge, regardless of their data plan.
- The company, headquartered in Sunnyvale, CA and London, says it has around 500 mobile operator customers in 180 markets and has raised some $75 million to date. That figure, a spokesperson for the company tells us, represents both money raised by mBlox and MobileSys, a competitor that it acquired in 2003. Backers include Duff Ackerman and Goodrich, Norwest Venture Partners, Scale Venture Partners and Trident Venture Partners.
Ones of those backers says there is no pressure for an IPO soon. Kate Mitchell, a general partner with Scale Venture Partners tells the WSJ: "They are expanding their footprint geographically and they are expanding their product line. There is no rush to go public."
VCJ
Heartened by big prices paid for AdMob and Omniture, VCs continue to pour money into analytics startups
When demonstrating his company's analytics application, one of Arte Merritt's goals is to show that mobile Web users' behavior rarely reflects the preconceived notions of publishers who cater to them.
He proved that point in a demo a few months ago when his software tracked a smartphone user wandering New York's Hell's Kitchen neighborhood in search of back waxing services.
"That's interesting: You're out and about walking, and you think, ‘Oh, I have to get my back waxed,'" says Merritt, whose company, Motally, analyzes activity on publishers' mobile websites.
While he's not expecting back-waxing salons to become big customers, Merritt says the mobile analytics services is gaining traction with large Internet publishers who are looking for better data on users' locations, handset models, favored links and unusual behavior patterns. Investors are paying attention, too. San Francisco-based Motally raised $1.25 million in Series A funding last June from BlueRun Ventures and angel investor Ron Conway.
Motally is one of at least 20 startups in the analytics space that have raised venture funding in the past year (see table). Collectively, the companies have raised more than $100 million over that period, with VCs placing particular emphasis on applications that measure mobile, social media and online video usage.
Better ad targeting is a key driver. A few years ago, marketers were content to base online advertising campaigns on data mined from such sources as search engine queries, news site traffic and Internet purchases. Now, with surging adoption of social media and smartphones, advertisers are seeking tools that leverage more detailed datasets on consumer habits and tastes.
"In the end, it's basically getting as close as you can to reading the customer's desires without asking them," says Jim Smith, a partner at Mohr Davidow Ventures (MDV), which has invested in several startups in the analytics space. MDV's bets include Carrier IQ, a developer of embedded tracking for the wireless industry, ParAcccel, which sells analytics database services, andVisible Measures, which analyzes online video audiences.
For VCs, it's also about ROI. Several analytics-focused startups funded a few years ago have provided some of the most lucrative exits of recent years. The biggest include AdMob, acquired by Google for $750 million in stock last year, and Omniture, which went public and then agreed last September to be acquired by Adobe Systems for around $1.8 billion.
From Many to One
Among the current crop of startups, a recurrent theme revolves around the ability to target individuals rather than broad demographic groups. The concept isn't entirely new. Companies like Tacoda (acquired by AOL in 2007 for $275 million) and Right Media (acquired by Yahoo in 2007 for $680 million) started shortly after the bursting of the dot-com bubble with technologies to target advertising campaigns based on individual Web surfing habits. And keyword advertising has been around for more than a decade.
What's different this time, however, is the data available to mine. Programs track not just who watches a video clip, but how it evolves from a niche audience pick to a viral phenomenon. With the rise of Facebook, marketers and publishers know not just a potential customer's likes and dislikes, but also those of his or her friends, family and co-workers. Additionally, the diminishing cost of storage and processing power means companies can spend less to crunch more data.
"It all stems back to all the data that exists now that didn't exist even five years ago," says Lucinda Stewart, managing director at OVP Venture Partners, which led a $9 million Series C round in December for Aggregate Knowledge, a developer of analytics tools that enable publishers and retailers to personalize display ads in real-time. The company counts Business Week,Cablevision and the Washington Post among its customers.
It's a competitive space, with plenty of content to crunch. Konrad Feldman, CEO of Quantcast, an Aggregate Knowledge rival, estimates that his company directly measures more than 200 billion "media consumption events" (such as a download of a news article) every month. That information is combined with datasets from other tracking systems and run through myriad proprietary algorithms to produce predictions on audience members' likely interests.
In Quantcast's case, says Feldman—whose previous company developed software to track down money launderers—the goal is a system that enables publishers to sell appropriate ads for audience members who don't fit their site's typical demographic profile. For example, it could help serve up an ad targeting men on a couture fashion site or teenagers reading a venture capital trade publication.
Demand for automated ad-distribution methods is all the more pressing as the amount of available content expands and audiences gravitate to small niches that suit their particular interests. "The need to provide appropriate content to consumers becomes more and more important in a fragmented world," Feldman says. "As media has become more fragmented, it's become harder for media buyers to buy efficiently."
Getting Social
Other VCs are backing startups focused on a particular type of digital media. For example, Visible Measures, which measures the behavior of online video audiences, raised $10 million in Series C funding last March from General Catalyst Partners, MDV and Northgate Capital, bringing its total funding to date to more than $29 million. Rival TubeMogul, meanwhile, raised $3 million from Trinity Ventures last April to develop its online video analytics tools.
Another startup, ReTel Technologies is adding surveillance camera feeds to the analytics mix. The Chicago-based company raised $1 million in December from backers including The Founders Fund, Hyde Park Angels, Maples Management and SoftTech VC.
And Foundry Group, two of whose four partners play in a rock band together, invested $600,000 last fall inNext Big Sound, a company that develops analytics tools for online music consumption.
Perhaps more than anything else, however, VCs are focusing on startups that mesh social media and marketing. Besides measuring numbers, investors are looking for businesses that can draw conclusions and create actionable plans from this data, including sentiment, says Jason Mendelson, a Foundry Group managing director and member of the band Soul Patch.
So far results have been so-so.
"Social media has become a great distribution network for all sorts of things, whether it is content, services or advertising," Mendelson says. "What has been slower to develop are ways to demonstratively prove ROI on social media activities."
Several startups have raised money in the past year to focus on the intersection of analytics and social networking. They include 33Across, which raised $2.8 million from First Round Capital and individuals; Media6Degrees, which closed a $9.8 million Series B round last April from U.S. Venture Partners andVenrock; and Sometrics, which raised $4.5 million in September fromGreycroft Partners and Steamboat Ventures.
The fledgling social analytics space got its biggest boost about three years ago, says Ian Swanson, co-founder and CEO of Los Angeles-based Sometrics. That's when Facebook opened its platform to outside developers, a move followed by others, such as Twitter and MySpace. Sometrics' founders, seeing a need for more detailed tracking across those networks, developed two products: an analysis platform for social developers and an advertising network based on that data.
Others are mining the so-called social graph to provide publishers and advertisers with insights about their audiences. New York-based 33Across and Media6Degrees both develop software to analyze data attributes of social connections, such as how frequently people communicate. Marketers then use the findings to target messages based on the "inferred preferences" of people who are connected online.
Finish Line
Mobile is the other big component of the analytics pie and an area in which VCs are investing actively. At least three companies focused on the mobile analytics space—Carrier IQ, Medialets and Motally—have raised funding rounds in the past year.
Business models vary broadly. Medialets, which runs an analytics and advertising platform for iPhone and Android smartphones, raised $4 million in May from backers including Draper Fisher Jurvetson and Foundry Group. The New York-based company develops a free tool that mobile application creators can use to track user behavior. It earns money selling services that deliver advertising to mobile devices when users are online.
Carrier IQ, which closed an $11 million round early last year, develops applications that reside on mobile devices themselves, some 77 million of them at last count. It receives raw data from phones and feeds it into analytic applications for mobile carriers. Backers of the company, launched in 2005, include Accel Partners, Charles River Ventures, Intel Capital, MDV, Nauta Capital and Sumitomo Corp.
At Motally, Merritt says, the key consumers of analytics applications are publishers, who to date have had an incomplete view of their mobile users. One reason for that incomplete view, he says, is that established tools for measuring Internet traffic don't work as well in the mobile world, because there are often longer delays for downloads, leading users to click on links before pages finish loading. Additionally, users may move around, making it look like there are multiple IP addresses or multiple users, when it's just one person.
Location data are also difficult to track, Merritt says. "We had a customer who was convinced they were a 100% U.S. site," he notes. "Then we installed our tracking software, and it turned out that 80% of their traffic was international."
Analytics startups with the ability to track traffic patterns globally are particularly attractive to VCs, says Jonathan Ebinger, a partner at BlueRun Ventures. "We're analytics junkies as a firm here," he says, noting that a large share of companies in the firm's portfolio have a heavy emphasis on data analysis.
Exit multiples are a big reason why. Looking at the biggest M&A deals of the past several years, a sizeable number have involved companies with deep ties to analytics.
The largest transaction, Adobe's $1.8 billion purchase of Omniture, came three years after the company went public. (Previously, Omniture had raised $55 million in venture funding from backers including Battery Ventures, Hummer Winblad Venture Partners and Scale Venture Partners.) Another big public company acquisition came last July, when IBM announced a definitive agreement to buy analytics and information forecaster SPSS for $1.2 billion in cash.
Private venture-backed companies haven't been left out, either. Mobile ad network and analytics companyQuattro Wireless, which had raised $28 million from Globespan Capital Partners and Highland Capital Partners, was snapped by Apple for a reported $275 million just last month. And the same month that Google bought AdMob, it also paid an undisclosed amount for online ad network Teracent, which had raised about $7 million from New Enterprise Associates.
Despite the recent flurry of activity, Sometrics' Swanson says he's confident acquirers still have plenty of dry powder for more deals. It's cheaper and easier to buy a startup than develop the technology in-house, he says.
"When you're looking at an ad or traditional analytics company that's been around for five or 10 years," he says, "it's difficult for a big ship like that to make a sharp turn."
VentureWire
By David Barry
(Editor's note: This story is part of a series of profiles that examine the venture-backed companies with at least $100 million in revenue, an oft-mentioned threshold used by investment bankers to determine whether a company is IPO ready.)
Andrew Dark spent his first year as chief executive of MBlox Inc. making the Sunnyvale, Calif., provider of wireless infrastructure services more efficient, guiding it to its first-ever profitable year in 2009.
Dark's second year, however, is about growth. The company, which Dark said generated north of $110 million in revenue in 2009, may seek to raise an unspecified amount of additional capital in order to build itself up through acquisitions. And if that growth takes hold, then year three, or more specifically 2011, may be when MBlox looks at going public.
Such an event would be good news for venture investors, many of whom ended up as investors in MBlox when it acquired MobileSys Inc. in 2003. Most of those investors started backing MobileSys in 2000, meaning they've been investors for a decade. To date, MBlox has raised $75 million from such firms as Duff Ackerman and Goodrich, Norwest Venture Partners, Scale Venture Partners and Trident Venture Partners.
The fact that Motricity Inc., which like MBlox is involved in wireless billing, recently filed to go public, has not altered Dark's thinking even though Motricity is in worse financial condition. Motricity had a net loss of $78 million on revenue of $103.2 million in 2008. During the first months of 2009, the company lost $10.8 million on revenue of $88.7 million. It has, unlike MBlox, never made a profit.
"My interest is maximize shareholder investment," said Dark, who splits his time between the company's Sunnyvale and London offices. "We have good strong growth and we'll have more accelerated growth in 2011."
Kate Mitchell, a general partner with Scale Venture Partners, concurs. "They are expanding their footprint geographically and they are expanding their product line. There is no rush to go public."
Serving as the intermediary between businesses and mobile operators, MBlox manages the delivery of billing of mobile content and mobile services. The company first started focusing on providing secure billing for SMS, or text messages, but has expanded to mobile transactions, a business that, in general, has been surging over the past several years as people get more comfortable with using their phones to pay for products and services. The company has grown to such an extent that it has connections to more than 500 operators in more than 180 countries and is capable of delivering content to more than 2 billion people. As a result, the company bills itself as the world's largest mobile transaction network.
The company is in a particularly strong spot as it handles transactions from people using all phones, whether it's the iPhone, the Android-enabled phones or just a regular phone. MBlox, said Scale's Mitchell, is at the"nexus" of the surge in people using their mobile devices to send and receive content securely.
Dark said that as the market has grown, the company is capturing "new strands of business", such as blue chip enterprises.
Dark became involved with MBlox in somewhat unusual fashion as he sought to acquire the company while still CEO of DataCash Group Plc, a publicly traded processor of secure Internet payments. Dark thought MBlox was a phenomenal company that would be a good fit for DataCash. However as DataCash began exploring the idea, it realized that such a deal would be "difficult" and "detrimental" to DataCash, given its market value.
But Dark was hooked and early last year left DataCash to join MBlox, which he found in need of some belt tightening. The company, he says frankly, had been "mismanaged" and "wasn't as successful as it could be." Among the moves he undertook in 2010 was moving the company's London office to a less expensive locale and getting out from under some unprofitable contracts. The company also undertook an effort to move its technology to more secure data centers.
Feeling that the company needed cash to move forward, MBlox did a $6.8 million bridge loan with some of its investors last year. But Dark said that with the company's fortunes improving and, in turn, its valuation, it'll look to repay that loan and raise new capital to go after acquisitions in 2010 of companies that he describes as small, but with "reasonable revenues." Overall, the company is looking for 10% to 15% growth in 2010.
Scale's Mitchell said the firm and other backers are comfortable having MBlox get bigger.
"We've been in for 10 years and we're comfortable holding," she said.
By Scott Denne and Tomio Geron
Sanjeev Agrawal found venture capitalists to be a risk-averse bunch over the past two months as he began looking for new investors to back Aloqa Inc., the mobile application start-up where he's chief executive.
"That's not very encouraging to entrepreneurs who are doing something, because they are risk takers," he said. "Obviously, we're not talking 2007 here, but sometimes the number of proof points you need to provide to show you'll be a big company can be overwhelming."
Though Agrawal is confident that Aloqa, whose software helps people find restaurants, friends, real estate and other products and events based on their locations, will close its Series B round in the next two months, many start-ups may be in for an unpleasant surprise in 2010, some investors say.
Last year was one of the toughest years to raise capital in the decade, with venture investment falling 31% to $21.41 billion. The decline has left a large backlog of start-ups in need of financing to keep operations going, and many venture investors say they're still cautious coming off the economic certainty of 2009.
To make matters worse, many venture firms are having fund-raising problems of their own -- just $13 billion was raised by these investors in 2009, less than half the $28.7 billion recorded in 2008, according to Dow Jones LP Source. Despite economic indicators that signal a possible recovery, the venture industry is expected to contract significantly as limited partners threaten to pass on poor-performing firms.
Meanwhile, venture firms are trying to keep alive portfolio companies they thought would have exited by now. All of this means the pace of start-ups shutting down or selling their assets may accelerate.
"We're going be living through a Darwinian process where only the most successful survive," said Bob Ackerman, managing director at Allegis Capital. "All those that had made it so their round would last at least two years - those companies will be in the market in 2010 looking for money. There's going to be a lot more demand than supply. Something's got to give."
On the positive side, the recession caused many start-ups to cut back and become more capital-efficient, a trend that should continue, said Saul Klein at Index Ventures.
"I think there'll be continued rationalization in 2010 although most that have made it through the last 12 months probably made it through because they were extremely capital-efficient or because they're starting to find their sweet spot with customers, adoption, usage and business model," Klein said.
Disappearance of the Series B
Most venture capitalists spent the first half of 2009 focusing on their existing portfolio companies to determine which companies they should continue to support, leaving little time to invest in new deals. The number of inside rounds for all financings jumped to 60% in the first three quarters of 2009 after averaging just under 40% for the past 11 years, according to VentureSource, a research unit of Dow Jones & Co.
"What I saw this last year were investors asking, ‘What do we have to do to get [this company] to the next year?' rather than giving them all the capital they need to reach the next stage of growth, said Wayne Cantwell, a general partner with Crescendo Ventures.
Two types of start-ups had and will continue to have different challenges, said Nat Goldhaber, managing director at Claremont Creek Ventures: those that are still developing a product and those with a product making a big sales push. Even companies that are hitting their targets could have a tough time when looking for funding.
"For those still in the development phase, not much [bad] has happened except it's very, very difficult to raise a Series B round," Goldhaber said. "The conventional B round all but disappeared in 2009."
Of the technology companies that raised a Series A round in 2008, only about one-quarter of them returned to market to successfully raise a Series B round, according to VentureSource. That compares with over 40% of companies that raised a Series A round in 2006 and followed that with a B round the next year, suggesting that there is a larger-than-usual inventory of companies that will be needing fresh capital in 2010.
"It's worse for those companies geared up for sales," Goldhaber said. "They have a reasonable anticipation of sales but the sales never manifested. So organizations needed to be drastically trimmed. Normally they'd have the B round but now it's not there. So they got double-slammed."
Most venture capitalists feel comfortable investing in the process of invention and product development, but when a company has little or no sales, the economic uncertainty makes it especially tough to price a new round. Some investors recommended that companies build a syndicate in the Series A that is willing and capable of financing it through the B round. Jo Tango, a partner with Kepha Partners, adds that start-ups need to make sure they're making real, clear, tangible progress in their business. Whether talking to new investors or existing ones, "everyone wants to see progress," he said.
The Upside of it All
Even with all the turmoil, some venture firms have remained very active in investing, and others are starting to come back for new investments. Firms including Greylock Partners, Khosla Ventures, New Enterprise Associates and Norwest Venture Partners all raised giant-sized funds in 2009 and have plenty of capital to deploy.
Klein said Index, which closed a $440 million fund in 2009 and invests across several sectors and geographies, has been seeking to invest in "unfashionable" sectors as a way to find good deals. Just as it did from 2002 to 2004 after the dot-com crash with out-of-favor consumer Internet plays, Index has during the downturn been looking at ecommerce, mobile, location-based services, alternative payments and gaming companies.
Amid all the doom and gloom there have been definite signs of some heat, such as bidding wars for new investments in start-ups perceived as leaders or first movers in their respective areas. "We've seen a fair number of preemptive offers, people going after what they perceive as winners," said one venture investor at a large venture firm who did not want to be named.
Two recent examples are Playdom Inc., a hot social gaming start-up, which had multiple bidders before it landed a $43 million Series A led by New Enterprise Associates, and HubSpot Inc., which got a pre-emptive bid for its $16 million Series C before it started looking for funding.
And some VCs, like Venky Ganesan of Globespan Capital Partners, remain optimistic that the exit markets will rebound in 2010 and give limited partners confidence to reinvest, digging the venture industry out of its hole.
"I feel pretty confident it'll be a good year for venture in terms of exits and liquidity," the managing director said. "The time to enter an asset class is when everyone is shouting from the rooftops that it's dead. You didn't want to enter in 2000 and you don't want to leave in 2010. LPs who understand the asset class and that it's cyclical in nature are definitely staying with it and in some cases doubling down."
Todd Chaffee, general partner at late-stage firm Institutional Venture Partners, also said he expected mergers and acquisitions and IPOs to be strong in 2010, barring any major unforeseen shock to the financial system. While those that are not top companies will have trouble getting funding, those in strong positions will see quick financings and up rounds.
"We're working on a theory that it's going be an amazing year for venture-backed IPOs and M&A activity," Chaffee said. Chaffee said IVP has several companies that are potential IPO candidates if the market is right.
However, with many venture funds already stretching their reserves, it's likely to be a tough year for companies that are leaning hard on their existing investors.
"Insider support can only last so long," said Rick Grinnell, a managing director with Fairhaven Capital. "If there isn't the ability to attract outside interest at some point in the storyline, the insiders will eventually lose interest."