Online advertising startup NebuAd, which claims it provides a different and far-reaching form of ad targeting, has closed a $20.5 million second  round of funding, the company said on Tuesday.

Existing investor Menlo Ventures was joined by Sierra Ventures, bringing the company’s total investment to about $30 million.

Redwood City, California-based NebuAd partners with Internet service providers to track which web sites the ISP’s customers view. This can work via cable, DSL, or satellite Internet service.

This technology, known as deep packet inspection, allows NebuAd to not only see what web sites people visit but also what queries those users enter into search engines, and which web sites they go to from those searches.

The technology is similar to what is used by anti-virus companies to scan a vast amount of web traffic flowing through ISP networks and is also used by some ISPs to limit the overuse of peer-to-peer networks.

The company then has contextual targeting technology that serves specific ads based on user interest. NebuAd also provides ad serving.

NebuAd claims to provide a much deeper level of information—while keeping individuals anonymous—about a user’s interests online, compared to cookies, or search engines. For advertisers, NebuAd says it offers a much more targeted audience, finding “microsegments” for big brand advertisers such as, for example, those interested in iced tea or Mountain Dew rather than Pepsi.

Privacy advocates are not likely to be happy, given that many already have criticized Google’s proposed acquisition of DoubleClick, which could allow Google to compile both a user’s search history and web browsing history.

But NebuAd CEO Bob Dykes said the company does not store individual user’s web browsing history, but rather uses the information to essentially mark check boxes of interest, such as “travel/South of France,” though not storing the precise web site that particular user viewed about the South of France.

In addition, Mr. Dykes said the company does not store information on things about which it does not serve ads—such as pornography or illegal items. NebuAd also doesn’t collect information about a user’s searches on pharmaceuticals, viewing that information as too private, Mr. Dykes added.

Vancouver-based Adzilla, which closed a $10.25 million Series A round in August, also does contextual ad targeting with ISPs.

ISPs are required to inform their customers that they will employ NebuAd’s technology and give them the opportunity to opt out—in which case they will see generic ads instead of targeted ads.

The advantage for telecoms and other ISP companies is that they don’t have to pay to implement NebuAd’s service, but still get a revenue share from the ads. “ISP’s are very excited that they don’t have to make an investment,” said Mr. Dykes, who was previously CFO at Juniper Networks. “We provide all the equipment, deploy the boxes, and start sending them checks.”

Historically, ISPs have not been able to access the Internet ad market in a significant way, said Menlo Ventures managing director Sonja Hoel Perkins.

For Ms. Perkins, NebuAd was compelling because of the rapidly growing online ad market, and the technically complex problem that NebuAd has solved. “To me as a venture investor I’m always trying to invest in the next billion-dollar company,” Ms. Perkins said. “This has a great opportunity to be very large very quickly.”

NebuAd is testing with some ISPs but hasn’t released the names of any partners yet.

NebuAd may not make search engines like Google happy, because NebuAd can grab a user’s search queries and click-through history in the same way that Google does. Google uses that information not only to develop its search engine rankings, but also to determine which ads get placed where, and to personalize search and advertising results.

But according to Mr. Dykes, users can do whatever they want with their search information. “It’s the user’s information, not the search engine’s information.”

What remains to be seen is whether users are willing to give up more of that personal information in return for more relevant and targeted ads.