DEALFLOW DASHBOARD/ February 28, 2001ASP: Finali, $20M; Televoke, $6.7MCOMMUNICATIONS EQUIPMENT: Iolon, $53M; Onetta, $56MNEW VENTURE FUNDS: Advent International, $345M; Sienna Ventures, $75MDEALFLOW DIGEST: Certia, $6M; Navic Networks, $20M; Neurometrix, $13M; Quorex Pharmaceuticals, $18.5M; Weservehomes, $15M; Zeptosens, $8.2MDEALFLOW DISH: Israeli VC group may sue LucentELEVATOR PITCH: Ondotek, $7M to $8M
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TOP STORY: EMEMORIES CALLS IT QUITSAfter burning through $17 million in less than two years, eMemories has closed its doors for good. The profitless photo-sharing Web site's remaining assets, like mailing lists and technology, have been acquired by Photoworks for an undetermined amount of cash.
EMemories's troubles began last November when it laid off 40 of its employees in a bid to tame its burn rate. By December, eMemories (http://www.ememories.com) was down to ten full-time workers. One month later it ceased operations. During its heyday, eMemories developed analog film for free, but charged users for prints. Photoworks CEO Howard Lee said eMemories's remaining employees were offered jobs at his company's Seattle headquarters, but all declined.
EMemories CEO Joe Varraveto declined Monday to offer details of the financial agreement with Photoworks. He did say the eMemories Web site will continue to operate in a limited capacity for several more weeks, until all users are acclimated to the Photoworks Web site.
Mr. Varraveto says the online photo developing space will soon undergo a shakeout. Margins are slim, and the field is crowded. Layoffs have already occurred at competitors like Zing.com, with more on the way, he says. 'Photopoint is a big question mark, and they're living on borrowed time. Snapfish is a question mark -- they're going to need more funding soon,' he says of former competitors.
Mr. Varraveto said eMemories was close to being cash-flow-positive, but the decision to sell assets was based on simple business calculations. 'We had two choices. We could have gone and dug up a few million and kept going for another year, but you don't do that when you're trying to scale,' he says. 'Our concept was good, but in the end I decided to sell.'
Photoworks's Mr. Lee isn't sure whether his company will keep the eMemories domain name. He plans to jettison the failed company's business plan. 'We're interested in procuring paying customers, not free ones,' he says.
FUNDING DETAILS -- Location: Los Angeles, CA; Status: Shut down after unloading some of its assets to Photoworks in an all-cash transaction, Website will continue for another several weeks before being pulled down; Total VC: $17M; No. of Rounds: 2; Burned Backers: eCompanies; EVG; Earthlink; Kodak. --Richard Byrne Reilly
ASP
FINALI http://www.finali.com Westminster, CO FUNDING: $20M PRIOR FUNDING: $6.5M ROUND: 2nd CATEGORY: ASP DESCRIPTION: Provides total customer support solutions. LEAD INVESTOR: The Hillman Company ($5M) OTHER INVESTORS: Hexason Investments; Softbank Venture Capital; Sequel Venture Partners; Boulder Ventures; Tucker Anthony Sutro THE HERRING TAKE: 'It's the hardest money I've ever raised in my life,' says Finali CEO Bob Burgin. Despite this, his latest tranche of funding was oversubscribed by a cool $3 million. This latest $20 million vote of confidence is surprising, considering the battering endured by online support outfits like Brigade and eSupport Now. Those startups, and others like them, have been showing employees the door and adjusting business models because many of their clients are, or were, dot-bombs. Mr. Burgin says his customer support outfit is different. With seven paying customers, including Dell, Finali offers clients telephone agents with college degrees. As for growth, Mr. Burgin plans to double his 110-member staff within six months. Declaring he doesn't 'want this type of information in the marketplace,' Mr. Burgin declined to give either his monthly burn rate or his post-money valuation. But, he says, Finali will profitable by Q2 2002. --R.B.R.
TELEVOKE http://www.televoke.com San Francisco FUNDING: $6.7M PRIOR FUNDING: $3.3M ROUND: 2nd CATEGORY: Automotive/ASP DESCRIPTION: Provides a service that enables consumers to track and control cars, notifying if stolen. LEAD INVESTOR: WI Harper Group OTHER INVESTORS: Softbank Venture Capital; Cardinal Venture Capital THE HERRING TAKE: Teenagers beware. If your parents opt for Televoke's tracking and control service for the family auto, there'll be no more egregious curfew violations. For a monthly fee, parents and car lovers can track their car's location, control its door locks, or start the car's engine remotely from any phone or Web browser. Televoke's service works in conjunction with a GPS chip and a stripped-down cell phone that's embedded into car alarms or car radios. It also notifies car owners when their alarm goes off, sending out email or pager alerts. Televoke partners with alarm makers and stereo vendors to get chips into their aftermarket devices. The service retails for $10 per month, but the tracking device now sells at a pricey $600, although CEO Rick Bentley says that $600 includes a year's worth of service. After proving the service on the consumer market, Mr. Bentley plans to partner with car makers such as GM and Ford. With 25 employees, Televoke's monthly burn rate is around $400,000. The post-money valuation for this round was about $20 million.--S.S.
COMMUNICATIONS EQUIPMENT
IOLON http://www.iolon.com San Jose, CA FUNDING: $53M PRIOR FUNDING: $16M ROUND: 2nd CATEGORY: Optical networking components DESCRIPTION: Develops a widely tunable, high-powered laser. LEAD INVESTOR: Bowman Capital OTHER INVESTORS: Kleiner Perkins Caufield & Byers; Optical Capital Group; Boston Millennia Partners; Corning Innovation Ventures; Doll Capital Management; Goldman Sachs Group; Integral Capital Partners; J&W Seligman; Banc of America Securities; CIBC World Markets; Credit Suisse First Boston; Crossbridge Venture Partners; Kalkhoven, Petit and Levin Ventures; SSB Page Mill Capital Partners; Techno-Venture; Wit Soundview. THE HERRING TAKE: There's a horde of well-funded upstarts building high-powered 'tunable' lasers. Some of the more notable include: Multiplex, which brought in $110 million yesterday; Agility Communications, which pulled in $70M in October 2000; and Coretek, which was acquired by Nortel for about $1.4 billion in the middle of last year. Given the competition, you may question whether Iolon's investors were in tune with the market. As founder and vice president of engineering Hal Jerman sees it, the answer is 'yes.' Iolon's lasers are designed for high-speed, long-haul telecom applications. Though capital expenditure cutbacks are hitting the optical equipment industry like a storm, vendors such as Nortel Networks, Ciena, and Alcatel are interested in his company's components. The lasers can 'tune' to different frequencies of light, which reduces the need for deploying backup devices for single-channel lasers, and more efficiently provisions bandwidth. A product launch is slated for next week. Spokeswoman Cindana Turkatte declined to specify the company's post-money valuation, other than to say it was 'well over' $100 million. Iolon will hit the black sometime next year, she says. --S.S.
ONETTA http://www.onetta.com San Jose, CA FUNDING: $56M PRIOR FUNDING: $12M ROUND: 2nd CATEGORY: Optical network technology DESCRIPTION: Designs optical network amplifier technology that reduces the number of amplifiers needed to carry clean optical data signals. LEAD INVESTOR: Harbourvest Partners OTHER INVESTORS: Sumitomo; JPMorgan H&Q; J&W Seligman; Sequoia Capital; Matrix Partners THE HERRING TAKE: If Onetta had started one year earlier, it probably could probably have counted on the sort of wild, successful ride that Silicon Valley startups yearn for. This month Onetta celebrates its first anniversary with a $356 million valuation and a big round of venture capital that should carry the company to profitability, says Onetta marketing and business development vice president Timothy Waters. However, news of the cash comes at a time when potential users of its products are feeling the hurt of a slowing economy. Onetta's technology, which is built around technology from Corning and JDS Uniphase, is designed to be integrated into networking products made by the likes of Sycamore Networks, Nortel Networks, and Corvis, though Mr. Waters declined to name Onetta's three customers. The problem is that long-distance telecommunications carriers -- the folks who buy from Sycamore and other networking product makers -- have indicated they are slowing their spending on equipment. The tepid spending market could cause other network equipment markers to shy away from Onetta's products. --M.A.D.
NEW VENTURE FUNDS
ADVENT INTERNATIONAL http://www.adventinternational.com London, England FUND: Digital Media & Communications III PRIOR FUNDS: Digital Media & Communications; Digital Media & Communications II FUND SIZE: $345M (final closing) FOCUS: Early-stage investments in high-growth opportunities within communications, information, and media technologies in Europe and the U.S. FUND INVESTMENT RANGE: $5M-$15M CONTACT: William Schmidt THE HERRING TAKE: As an established early-stage venture capital and later-stage private equity investor, it comes as no surprise that Advent International has bucked the negative funding climate to close this fund $45 million above its original target. Thirteen corporate investors including Bellsouth Corporation, Hughes Electronics, Mastercard International, and NTT Docomo provided half the fund's capital. 'These corporations are leading players in the fund's target sectors and add significant value through potential customer and strategic relationships with our portfolio companies,' says Will Schmidt, managing director of Advent International. He adds that the corporate partners may also make direct co-investments in the fund's portfolio companies. The fund's 14 investment executives have already invested 15 percent of the capital raised. Investments include a $4.6 million funding of European Computer Telecoms, a switching equipment provider based in Munich, and a $15 million third round for Oneworld Software Solutions, a technology outsourcing services firm in Cambridge, Massachusetts. --G.P.
SIENNA VENTURES http://www.siennaventures.com Sausalito, CA, and Greenwich, CT FUND: Sienna LP III FUND SIZE: $75M (may accept up to another $25M over next two months) PRIOR FUND SIZE: $50M FOCUS: Wireless communications, networking, Internet infrastructure, and software. AVERAGE INVESTMENT: $2M to $5M initially; $8M to $10M over the life of the investment PITCH EMAIL: info@siennaventures.com THE HERRING TAKE: Sienna Ventures's offices sit just north of Silicon Valley's madness and just past the fringes of New York City. It's an appropriate metaphor for the firm, which has kept pretty quiet while building up its companies. Sienna makes a conscious effort to keep its size down and its operations hands-on. According to managing partner Dan Skaff, the firm even turned down a limited partner offer for another $75 million, fearing that Sienna might lose its focus if it had too much money to manage. Mr. Skaff and Connecticut managing partner Robert Conrads head up the fund and work closely with two principals, two associates, and three experienced execs who serve as advisors. Sienna is strictly focused on wireless communications, Internet infrastructure, networking, and software businesses related to the first three sectors. Mr. Skaff says Sienna sticks to seed-stage and very early opportunities. Among its investment criteria: experienced entrepreneurs tackling a large market opportunity, a sustainable advantage that could make the company a billion-dollar business, and -- of course -- 'a reasonable prospect of liquidity.' --J.L.
DEALFLOW DIGEST
CERTIA http://www.certia.com Herndon, VA FUNDING: $6M PRIOR FUNDING: N/A ROUND: 3rd CATEGORY: B2B Security DESCRIPTION: Secures online e-business transactions and content over the Net. LEAD INVESTOR: ABS Ventures OTHER INVESTORS: N/A MORE INFORMATION: Certia
NAVIC NETWORKS http://www.navic.tv Newton, MA FUNDING: $20M PRIOR FUNDING: $23M ROUND: 3rd CATEGORY: E-marketing DESCRIPTION: Develops audience measurement and advertising services for cable and satellite TV operators. LEAD INVESTOR: Pilot House Ventures Group; Pequot Private Equity OTHER INVESTORS: Highland Capital Partners; Himalaya Capital MORE INFORMATION: Businesswire
NEUROMETRIX http://www.neurometrix.com Waltham, MA FUNDING: $13M PRIOR FUNDING: N/A ROUND: 3rd CATEGORY: Medical Devices DESCRIPTION: Develops a technology for diagnosing neuromuscular ailments such as repetitive stress injuries, peripheral and toxic neuropathies, and low back pain. LEAD INVESTOR: N/A OTHER INVESTORS: Whitney & Co.; BancBoston Ventures; Delphi Ventures; Commonwealth Capital Ventures; Massachusetts Institute of Technology; Harris & Harris Group MORE INFORMATION: Businesswire
QUOREX PHARMACEUTICALS http://www.quorex.com Carlsbad, CA FUNDING: $18.5M PRIOR FUNDING: N/A ROUND: 2nd CATEGORY: Pharmaceuticals DESCRIPTION: Develops novel antibiotics to fight drug-resistant bacteria. LEAD INVESTOR: Prism Venture Partners OTHER INVESTORS: Johnson & Johnson Development; Tullis-Dickerson & Co.; Inglewood Ventures; CDIB; Pacific Growth Equities MORE INFORMATION: PRNewswire
WESERVEHOMES http://www.weservehomes.com Downers Grove, IL FUNDING: $15M PRIOR FUNDING: N/A ROUND: 2nd CATEGORY: B2B DESCRIPTION: Online home ordering services. LEAD INVESTOR: Kleiner Perkins Caufield & Byers OTHER INVESTORS: Servicemaster MORE INFORMATION: Weservehomes
ZEPTOSENS http://www.zeptosens.com Witterswil, Switzerland FUNDING: $8.2M PRIOR FUNDING: N/A ROUND: 2nd CATEGORY: Biotech DESCRIPTION: Focuses on bioanalytical solutions with regards to proprietary read-out technology. LEAD INVESTOR: TVM Techno Ventures OTHER INVESTORS: Swiss Life Private Equity and assorted angels MORE INFORMATION: Zeptosens
DEALFLOW DISH
ISRAELI VC GROUP MAY SUE LUCENT It started off as the biggest exit in the history of Israeli venture capital, and now it may be heading for court. Jerusalem Venture Partners, a top-tier Israeli venture capital group, is considering suing Lucent Technologies for allegedly deceiving the fund when it negotiated the sale of Chromatis Networks, the Israeli optical networking startup, last May.
Just weeks before Lucent started crashing, it agreed to pay $4.5 billion in stock for the company. But today, that stock is worth just $967 million, and JVP, which seeded Chromatis, saw its 15 percent stake shrink from about $675 million to $145 million. The deal was signed with Lucent at nearly $58 a share, investors received the stock at $40, and on February 23 it closed at $12.40.
To make matters worse, the IRS and Israeli income tax authorities both wanted a piece of the action. Fearing double taxation, JVP was forced to hold onto its shares until ten days ago when the hitch was finally ironed out.
According to a source close to JVP, Chromatis shareholders at the time of the deal passed over a higher offer from Sycamore Networks due to Lucent's financial soundness, as demonstrated in a convincing presentation prior to the deal's closing. Sure, Sycamore's stock has since tanked too, but that's little consolation. 'We took a lower price because Lucent is a blue chip,' says the source. 'Now it's a junk bond.'
With the SEC investigating Lucent's accounting procedures, JVP is jumping on the bandwagon. It is talking with two U.S. law firms to see if it has a case, specifically over whether the Lucent executives who made rosy presentations to Chromatis shareholders may have known the ugly truth. --A.M.
ELEVATOR PITCH
ONDOTEK, $7M to $8M http://www.ondotek.com New York THE PITCH: 'Ondotek has developed next-generation systems administration products that will save enterprises millions of dollars and greatly increase productivity. We are led by a former chairman of the CS department at NYU. Ondotek's patent-pending, disruptive technology transforms a PC's hard disk from a passive storage device into an active, network-aware, intelligent device whose entire contents are streamed back and forth between centralized servers over a network. Ondotek's products greatly improve operating systems upgrades, PC deployment and migration, data backup and security, and much more. We are seeking $7-8 million in our first institutional round of funding (seed round completed last May). We are targeting venture capitalists and strategic investors with connections to PC manufacturers and IT outsourcing companies.' WHY WE LIKE IT: VCs are hot for technology-centric companies that are seeking to save their customers money on the eve of a potential recession. WHAT THEY'RE UP AGAINST: A horde of distributed computing startups and established companies targeting the same market. CONTACT: Rob Rahbari, director of business development and general counsel, rrahbari@ondotek.com
(Looking for funding? Drop us a line at elevator@redherring.com. Let us know who you are, how much you're seeking, the funding sources you're targeting, your contact info, and, of course, your pitch. Please keep the pitch to no more than 100 words. Do not send attachments. One tip: pretend you're actually pitching a VC in an elevator. Submissions should have 'Seeking Funding' in the subject line.)
Today's Dealflow is reported and written by Matthew A. DeBellis, Julie Landry, Avi Machlis, Guy Paisner, Richard Byrne Reilly, and Steve Silverman. The Elevator Pitch is selected and written by Julie Landry.
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