How does a largely free B2C e-commerce Web site get a $70 million-plus post-money valuation, $15 million in vendor debt, and $8 million in equity on today's capital markets? For a start, Photopoint isn't just a B2C Web site, says CEO Ed Bernstein, it's a B2B, ASP, and event photography business.
In addition to offering a free consumer photo-sharing Web site with e-commerce features, Photopoint (http://www.photopoint.com) builds digital photo Web sites for companies such as Intel, Epson, and College Club. It then acts as an ASP, hosting the storage services required to run the site. As for the events photography, the company takes digital photos and builds Web sites for companies like Volkswagen, which attendees can visit after the fact.
Of Photopoint's 1.3 million consumer members, 30 to 40 percent are "active" users, and half of those buy e-commerce offerings, such as print photos, albums, and sweatshirts, he says. Still the bulk of the company's revenues will come from building and hosting Web sites, he adds. To that end, investor Sun Microsystems will pony up $15 million in equipment financing for the hardware, software and storage equipment to enable the service. (The $8 million in equity is actually part of a $16 million second round that closed last July.)
With a typical business Web site design hosting contract bringing in several hundred thousand dollars annually, 90 employees, and a burn rate around $1 million per month, Mr. Berstein reckons he can hit the black in fourth quarter 2001. "Digital photography is an unquestioned growth area," says CEO Ed Bernstein. "And unlike pet food, you really need the Internet for it."
FUNDING DETAILS -- Location: San Francisco; Amount: $8M (equity), $15M (debt); Prior funding: $19M; Round: 2nd; Investors: Sun Microsystems ($950K); Other investors: Epson America--Steve Silverman
ADMETRIC BIOCHEMCambridge, MAFUNDING: $2.3M (Part of a $15M second round in progress)PRIOR FUNDING: $7MROUND: 2nd CATEGORY: Biotech/pharmaceuticals DESCRIPTION: Provides a drug target analysis technology for pharmaceutical companies. LEAD INVESTOR: N/AOTHER INVESTORS: Oxford Bioscience Partners; 2200 Ventures; S R One Limited (the venture arm of Smithkline Beecham Pharmaceuticals)THE HERRING TAKE: Admetric has a simple business plan: it saves big pharma a ton of time and money, says CFO Eliot Lurier. But its technology, that's a bit more complex. The company provides a profiling technology for drug targets that identifies molecular properties such as absorption rates, metabolism, toxicology, and excretion, which were previously unavailable to drug companies until after compounds were tested in animal models. By getting the information in advance, pharmaceutical firms can focus on and tweak potential drug targets before they're tested in animals. That saves time and money. Admetric makes money by selling drug target profiles from its database, and from testing fees, joint development programs, and developing drugs on its own. The new cash kicks off a second round of fundraising for the company that is currently being priced by a number of venture investors, Mr. Lurier says. Admetric expects to raise around $15 million in new funding. The company's most recent round brought a post-money valuation of $11 million. With 16 employees and a burn rate just over $200,000 per month, Mr. Lurier expects to bring the firm to profitability by year end. That would be a monumental feat, considering that Admetric's just moved into its laboratory facilities and its T1 is still being installed. --S.S.
SOFTWARE
EPHYSICIAN http://www.ephysician.com Mountain View, CA FUNDING: $18M PRIOR FUNDING: N/A ROUND: 3rd CATEGORY: Software DESCRIPTION: Makes software for the Palm OS that lets doctors send prescriptions and billing information over the Net. LEAD INVESTOR: Dresdner Kleinworst Capital OTHER INVESTORS: Benchmark; CVS and Palm Ventures. THE HERRING TAKE: EPhysician builds a wireless software application that enables doctors to send prescriptions and billing information over a Palm OS. The startup, which launched in late 1999 and is helmed by Dr. Stuart Weisman, has garnered a decent track record since its inception. By giving away 10,000 Palms back in May of 1999, ePhysician has conducted over 100,000 prescription transactions, taking a percentage cut from each successful interchange. EPhysician has built a platform that has serious niche potential because of the very attractive possibilities of coupling of doctors and PDAs. VCs like Benchmark have moved aggressively to fund the sector, and now Palm is doing the same. With the Palm anticipated to become standard equipment in doctor's offices and emergency rooms across the country, it would appear the trusty clipboard is on its way out, and developers like ePhysician and Palm are on the way in. --R.B.R.
IHARVEST http://www.iharvest.com Redwood Shores, CA FUNDING: $6.9M PRIOR FUNDING: $1.3M ROUND: 1st CATEGORY: Web information management DESCRIPTION: Offers a knowledge-capture solution for managing Web and digital documentation. LEAD INVESTORS: St. Paul Venture Capital; Macromedia Ventures OTHER INVESTORS: MacAndrews & Forbes Holdings; angel investors THE HERRING TAKE: IHarvest wants to do for Web pages and digital document clips what document management and imaging solutions did for electronic office and scanned documents in the early '90s. Its new Encopia technology integrates with a company's existing applications to allow users to capture Web and digital documents, in whole or in part, including images. More than bookmarking software, Encopia lets users highlight, annotate, share, and store Web and digital information on its servers or those of the ASPs through which its licensed software is now available. Encopia's roots are in iHarvest's two previous offerings: 1999's iHarvest One, a Microsoft Explorer add-on that allows individual users to save Web research to their desktops, and last year's iHarvest Web service, which allows users to save Web information to iHarvest's servers. President and CEO Rich Buchheim estimates the company has more than 80,000 registered iHarvest users. The three-year-old, 35-person company now sees fertile ground in corporations as well as ASPs, ISVs, and OEMs from vertical markets like knowledge management, market research, and document management. Though Mr. Buchheim won't name names, iHarvest signed its first licensing deals early this week, and agreements with "very large, well-known companies" are in the works. The $6.9 million will launch Encopia into the corporate and ASP space, Mr. Buchheim says, with focused marketing, product development, and a fortified hosting facility part of the plan. Profitability is expected in late 2001 or early 2002. --C.A.E.
PASSKEY.COM http://www.passkey.com Quincy, MA FUNDING: $14.4M PRIOR FUNDING: $11.4M ROUND: 4th CATEGORY: Travel reservation software/ASP DESCRIPTION: Makes software that's used by travel agents and convention organizers. LEAD INVESTOR: Sabre OTHER INVESTORS: Travelclick; travel computer system makers Galileo and Worldspan THE HERRING TAKE: The partnerships struck in this round of financing are more important than the money. The deal gives Passkey.com access to more than 50,000 travel agents worldwide that use the reservation systems of Sabre, Galileo, and Worldspan, says Tim Durant, Passkey.com executive vice president and North American general manager. The partnerships let Passkey.com enter the market of individual travelers, but the startup has been working on other avenues for revenue. It has signed 35 convention and visitor bureaus, which help organize large conventions in their respective cities, Mr. Durant says. Passkey.com hosts its software remotely for all its customers, and customers pay a fee of $4 to $9 per transaction. Mr. Durant declined to give revenue figures, but he said revenue grew 100 percent from 1999 to 2000. Passkey.com began taking in revenue in the first quarter of 1998 and plans to turn a profit in the second quarter of 2002. Travelclick's $3 million Passkey.com investment was announced in December, but is part of this round. --M.A.D.
NEW VENTURE FUNDS
FIRST ATLANTIC CAPITALNew York FUND: Atlantic Equity Partners III, L.P. FUND SIZE: $353M FOCUS: Middle market businesses in many industries, including industrial and consumer goods, packaging, food processing, and business services.AVERAGE INVESTMENT: $50M to $250M PITCH EMAIL ADDRESS: N/A NOTEWORTHY: Founded in 1989, First Atlantic belongs more to the world of buyouts than traditional venture capital. The new fund has already invested $72 million in two portfolio companies, Allied Office Products and Peek Ltd. "We take an active role in all of our investments, creating value through changes in business strategy, improvements in operating performance and add-on acquisitions," said Roberto Buaron, chairman of First Atlantic, in a statement. The firm now has approximately $490 million under management. Prior investments include muffin maker Otis Spunkmeyer, Berry Plastics, and aerospace manufacturer Tru-Circle Corporation.MORE INFORMATION: Businesswire--J.L.
RWI GROUP http://www.rwigroup.com Palo Alto, CA FUND: RWI Group IV, L.P. FUND SIZE: $103M PRIOR FUND SIZE: $41M FOCUS: Communications, software and semiconductor companies AVERAGE INVESTMENT: $2M to $3M PITCH EMAIL ADDRESS: plans@rwigroup.com THE HERRING TAKE: Don't take RWI Group lightly just because you've never heard of them. "We stick to our knitting," says general partner Bill Baumel. This low-profile firm has a high-caliber background, though. Special limited partner Donald L. Lucas was a founding investor in several big players (including Cadence Design Systems, National Semiconductor, and Oracle); his son, Donald A. Lucas, is one of the firm's GPs. This fund was largely raised from former technology execs and other individuals, who play an active role in the company's investments. "Two of our limited partners were here on Saturday afternoon for strategy reviews with one of our software companies," says Mr. Baumel. The partners are looking primarily for companies on the West Coast, so they can easily spend at least a day a week with their young startups, and ideal investments will have a unique core technology. RWI Group has already made four investments out of the new fund -- Cierra Photonics, PDF Solutions, Xporta, and YY Software -- with another sixteen expected over the next two years. --J.L.
DEALFLOW DIGEST
COMMERCEFLOWhttp://www.commerceflow.com San Francisco FUNDING: $7.5MPRIOR FUNDING: N/AROUND: 2ndCATEGORY: B2B Exchanges/Supply chain management DESCRIPTION: Provides software and services for managing business activities on Net marketplaces.LEAD INVESTOR: Prism Venture PartnersOTHER INVESTORS: Sagus Ventures; Anam Cara Venture Partners; other investorsMORE INFORMATION: Businesswire
DIGITAL MEDIA ON DEMAND http://www.dmod.com Boston, MA FUNDING: $12.5M PRIOR FUNDING: $2M ROUND: 2nd CATEGORY: Software DESCRIPTION: Encryption software that allows files like MP3s to be securely sent over networks and the Internet. LEAD INVESTOR: Pilot House Ventures OTHER INVESTORS: Intel 64 Fund; Greylock Partners; Sage Hill Partners MORE INFORMATION: Digital Media on Demand
PAYCYCLE http://www.paycycle.com Mountain View, CA FUNDING: $8M PRIOR FUNDING: N/A ROUND: 2nd CATEGORY: B2B Software DESCRIPTION: Self-service payroll management software solutions. LEAD INVESTOR: August Capital OTHER INVESTORS: Irwin Ventures; Crescent Ventures; Draper Richards; Argus Capital MORE INFORMATION: Businesswire
SOLILOQUYhttp://www.soliloquy.comNew York FUNDING: $4.5MPRIOR FUNDING: $4M (according to Venture Economics)ROUND: Bridge financing CATEGORY: CRM/B2C E-commerceDESCRIPTION: Provides online marketing software, which enables companies to create or adjust marketing rules by incorporating shopper history and demographics.LEAD INVESTOR: N/AOTHER INVESTORS: UndisclosedNOTEWORTHY: Soliloquy is in the process of raising an additional $5 million to $10 million for its first institutional financing round. The company named Susan Berkowitz, formerly a senior VP at Wit Capital (now Wit Soundview), as its new CEO. MORE INFORMATION: Businesswire
WITCOMhttp://www.wit-com.comYoqneam Illit, IsraelFUNDING: $20MPRIOR FUNDING: N/AROUND: N/ACATEGORY: Wireless EquipmentDESCRIPTION: Makes fixed wireless broadband equipment for the telecom, data, and Internet access markets. LEAD INVESTOR: N/AOTHER INVESTORS: ABN AMRO Venture Capital; Nomura International Plc.; East-West Ventures; The Challenge Fund; Clal ElectronicsMORE INFORMATION: Businesswire
ELEVATOR PITCH
SIMPLYLOOK, $4Mhttp://www.simplylook.com San Jose, CA THE PITCH: "Wireless users want images, but problems such as transmission speed make it difficult to serve images. Simplylook provides software products and consulting services for real-time optimizing and intelligently caching/streaming interactive images to wireless devices. The images are optimized for the device requesting the image, and the unique interactive images allow the user to smooth zoom in/out, pan around the image and access additional information linked to the image. The software is based on three pending patents developed by the Simplylook team. Funds will be used to hire engineering staff, release a commercial version of the product, and build up marketing, sales, and business development functions."WHY WE LIKE IT: Good interim solution for size/transmission limitations over wireless that could encourage more wireless applications, such as maps and diagrams.WHAT THEY'RE UP AGAINST: Other digital imaging companies could easily move into the wireless space. CONTACT: Kunal Khattar, cofounder and vice president of marketing, kkhattar@simplylook.com
(Looking for funding? Drop us a line at elevator@redherring.com. Let us know who you are, how much you're seeking, the funding sources you're targeting, your contact info, and, of course, your pitch. Please keep the pitch to no more than 100 words. Do not send attachments. One tip: pretend you're actually pitching a VC in an elevator. Submissions should have "Seeking Funding" in the subject line.)
DEALWOE
IDEALAB http://www.idealab.com Pasadena, CA STATUS: In discussions with several parties about strategic partnerships with its Idealab Europe subsidiary, possibly involving a stake in the unit.TOTAL VC: More than $1 billion NO. OF ROUNDS: At least 3 BACKERS AT RISK: Bancboston Capital; Dell Computer; Hikari Tsushin; Kline Hawkes; Petersen Properties; Sumitomo; T. Rowe Price; 24/7 MediaTHE HERRING TAKE: Idealab owns 100 percent of its Idealab Europe subsidiary, but that could change soon. Amid speculation that Idealab is looking to sell a stake in the unit, a spokeswoman says that the situation is reversed; she says Idealab Europe has been approached by several companies regarding partnerships, deals that would "potentially" involve the purchase of a piece of the London-based incubator. Idealab Europe's model is a hybrid of two troubled models -- an American VC firm expanding to Europe, and an incubator -- so the circling vultures may smell trouble and depressed valuations in the air. In any case, Idealab Europe offices house both European incubatees (including Scan.com, a mobile comparison shopping service), as well as European offices for a few American Idealab companies that are expanding into that region (including Carsdirect.com, Goto, dotTV and utility.com). The spokeswoman confirmed that Idealab is "exploring" the possible partnerships, but declined to specify who or what types of firms have made advances. --J.L.
DEALFLOP DISSECTION
GREATENTERTAINING.COM http://www.greatentertaining.com San Francisco STATUS: Shutting down. TOTAL VC: $33M NO. OF ROUNDS: 3 BURNED BACKERS: Benchmark; Attractor Investment Management; Infinity Capital; Technology Crossover Ventures; Information Technology Ventures DESCRIPTION: Online party planning and commerce Web site. THE HERRING TAKE: After failing to find a buyer despite three months of trying, Greatentertaining.com said Tuesday it would shut its doors, according to a source close to the company. The closure has nothing to do with management and everything to do with "no one wanting to be in a consumer e-commerce company these days," says the source.
Greatentertaining.com posted a sign saying "The Party's Over" on its site and slashed the prices on its inventory, telling its customers "we felt it best for our loyal customers to receive the benefits of deep discounting rather than the liquidators." (The last day to shop is January 29.) Greatentertaining.com didn't run out of cash, our source says, but Red Herring was unable to ascertain if it will return any money to its investors.
The writing was on the wall last October, when cofounder and CEO Tanya Roberts was suddenly replaced, 40 employees were laid off, and the struggling startup announced a major strategy shift. Like so many other B2C failures, Greatentertaining launched itself with great fanfare. VCs gushed to the press about the high margins they'd soon be raking in.
Benchmark Capital general partner Kevin Harvey told Red Herring in November 1999 that "female oriented e-commerce is about to take off." Mr. Harvey wouldn't comment for this story. Neither would CEO Christy Ross, who replaced Ms. Roberts.
Greatentertaining.com tried to position itself as "the" online planning resource outlet, selling candles, plastic turkeys and Tupperware, and helping coordinate event planning. When the B2C strategy didn't work, executives moved to a corporate focus, while pouring about $10 million of their VC into a marketing campaign. They also launched a failed partnership with AOL which cost them another $3 million. --R.B.R.
Dealflow is reported and written by Matthew A. DeBellis, Carole-Anne Elliott, Julie Landry, Richard Byrne Reilly, and Steve Silverman. The Elevator Pitch is selected and written by Julie Landry.
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