Inside First Round Capital

Snapcentric Acquired by Verisign

I'm writing to report that Snapcentric, Inc., a portfolio company of First Round Capital 2006 LP has agreed to be acquired by Verisign, Inc.  As a result, we anticipate making a (small) cash distribution this month.

Snapcentric was the first investment of the 2006 fund -- we invested $150,000 in a convertible bridge note just 63 days ago on December 8, 2005.  The initial investment was smaller than our target because we negotiated a guaranteed right to invest an additional $350,000 in their Series A round.  (This allowed us to insure participation while minimizing the “funding risk” – ie, we didn’t have to put all our money at risk until we knew they had real venture interest).  Rather than pursue a Series A financing, however, the founders opted to sell to Verisign for $12 million. 

While we can’t complain about an exit at a 3.5x multiple in 63 days (and a ridiculously high IRR), we are somewhat disappointed that the company chose a short-term exit.  We believe that there was the potential for an exit at a significantly higher valuation if the company raised a venture round and continued independently for a few months. 

However, this exit helps us begin to validate some of our fund’s central assumptions

• That we have strong, quality dealflow
  
  
• That our ability to move fast allows us to get into companies that traditional funds can’t (our first meeting with Snapcentric occurred in late November and we invested on December 8^th.
  
  
• That today’s early stage companies have exit opportunities well in advance of an IPO – and that by participating in a seed-stage/angel financing, we could take advantage of these quick exits.

 

We expect to receive approximately $525,000 from the investment – returning approximately 21% of the contributed capital to date.  A portion of the proceeds will be held in escrow for eighteen months.  Assuming the deal closes as scheduled, we anticipate making the initial distribution this month.  If you’d like to receive the distribution via wire, please complete the attached form and return it to us via fax.  (Otherwise we will send a check).   

If you have any questions, please don’t hesitate to contact Howard or me.

1-800-FREE411 on Tyra Banks Show

Fourth Quarter Update

The fourth quarter brought us to the end of an exciting year. The 2005 Fund completed the year with 14 companies within its portfolio and the 2006 Fund got off to a fast pace with three initial investments in the fourth quarter; as discussed below:

First Round Capital 2005 LP

Browster, Inc. – http://www.browster.com/
First Round Capital made a follow-on investment in Browster as part of Browster’s successful closing of its Series A Funding of $5.8 Million from leading venture funds Advanced Technology Ventures (ATV) and Vanguard Ventures, both of Palo Alto, California.   Additionally, Browster has recently introduced their Open Design Program, a unique way of soliciting user involvement in the fundamental design of its browsing product; as well as announcing Steve Baloff, General Partner at ATV, and Dan Eilers, General Partner at Vanguard have joined their Board.

Jingle Networks (1-800-FREE411) – http://www.free411.com
Jingle Networks continues to experience growth in consumer adoption unlike anything I have ever experienced. Call volumes are growing by over 25% week over week – and I anticipate that the company will be handling one percent of the entire United States  directory assistance call volume by the end of this month. In Q4 the company completed a follow-on financing (led by one of our Limited Partners, Liberty Associated) that we participated in – at a significant premium to our seed investment. We anticipate that Jingle will raise a Series B round in the first quarter of 2006.

Krugle, Inc. -  http://www.krugle.net
Krugle was founded by Ken Krugler, a well-known leader of the open-source development community. Krugle helps 15M+ developers quickly find the code & answers they need to solve development problems. Krugle answers programmers’ expressed need for a single place to find appropriate source code and critical technical information. They will be launching their at DEMO on February 6th. First Round Capital participated in Krugle’s Series A Funding along with Emergence Capital and the Omidyar Network.

VideoEgg, Inc. -  http://www.videoegg.com/
First Round Capital provided follow-on financing for VideoEgg, Inc. which successfully launched its flagship product, the VideoEgg Publisher at DEMOfall on September 19th. The VideoEgg Publisher, will revolutionize the way videos are captured, edited, and published - removing technical complexity and empowering communities across the web with easy video publishing tools. Last week the company closed a Series B financing (which we participated in) led by August Capital at a significant premium to our seed investment.

First Round Capital 2006 LP

Mi5, Networks Inc.  - http://www.mi5networks.com/
Mi5 Networks produces a family of best-of-breed Anti-Spyware security appliances. Mi5's Enterprise Spygate appliances utilize a multi-layered spyware prevention architecture that delivers the most comprehensive protection, lowest false positive rates, and best performance available. The Mi5 Networks Enterprise Spygate family of products scales to 10,000 users per appliance and is capable of providing the necessary spyware protection for mid-to-large enterprises. They will be launching at DEMO on February 6th. We invested in their Series A finance round.

Root Markets – http://root.net
Founded on the premise that the consumer has the right to her data, ROOT Markets is the first financial exchange for consumer leads. Leads are personal data that express an individual’s intent to purchase. The quality of our leads at ROOT Markets is driven by our ability to qualify intentions through consumer focused applications. Root Markets was founded by Seth Goldstein and Lewis Ranieri (the creator of the collateralized mortgage market at Salomon Brothers). First Round Capital participated in Root’s Series A financing.

Snapcentric, Inc. – http://www.snapcentric.com
Snapcentric Verify™ provides a real-time user verification and transaction monitoring system for fighting identity theft and application fraud. Rather than focusing on trying to stop the spread of false emails and web-sites, Snapcentric provides protection at the point where it matters most – the online site.

 

We continue to review new opportunities for the 2006 Fund and evaluate follow-on investment options within the 2005 Fund Portfolio. In Q1 2006, an initial investment has been made in Precommerce, Inc. and an additional follow-on investment has been completed with VideoEgg, Inc. DEMO is fast approaching and we are excited that several of our Portfolio Companies will be launching at the conference.

We anticipate having our audited annual financial statements and K-1 statements distributed by the end of February. Howard and I appreciate your continued support and look forward to answering any questions you may have.

A busy third quarter

A lot has happened in the last quarter!  Since our last update, the fund has invested in four new companies – and has signed term sheets for two additional companies.  After closing these deals, our portfolio will now be complete -- resulting in a portfolio of 14 companies.  We will also be making a capital call for our first follow-on investments (more on that below). Here is an overview of the four new deals:

 

BazaarVoice - http://www.bazaarvoice.com/

BazaarVoice is a stealth mode startup founded by Brett Hurt (the founder and former CEO of Coremetrics the leading provider of hosted Web analytics and precision marketing solutions to customers such as Columbia House, CompUSA, Eddie Bauer, Motorola, The Weather Channel, Victoria’s Secret, and Williams-Sonoma). The company is currently beta testing their “Community Commerce Platform” with several well known brands (CompUSA, PETCO, Golfsmith are all paying for access to the beta) and they are planning on launching in Q1 2006.  Their ASP service seamlessly integrates with any eCommerce platform to drive online conversion and increase customer loyalty.  We invested in their Series A financing led by Austin Ventures.

 

YackPack – http://www.yackpack.com

YackPack is simple Internet-based voice messaging for groups.  YackPack captures and conveys the expressiveness of human speech, which leads to stronger relationships and more unified families, support groups and project teams. The company customizes the YackPack platform for corporate and consumer groups, integrating their patent-pending product into Web sites.  YackPack was founded by BJ Fogg (director of Stanford University's Persuasive Technology Lab). First Round Capital invested as part of a $1.5M angel round – investing alongside Esther Dyson, Ron Conway, Pierre Omidyar’s Omidyar Network, Terry Winograd (PhD advisor to Google co-founder Larry Page) and other respected angel investors.  Just this week YackPack launched at DEMOfall to great acclaim – winning a prestigious “Demo God” award and receiving significant press coverage, including Business Week, The Red Herring, PC Magazine and USA Today .  Starting on Monday you should be able to see a video of their DEMO launch at: http://www.demo.com/demonstrators/demo2005fall/55124.html.

 

Ojos, Inc. – http://www.ojos-inc.com

Company founder Munjal Shah (the founder of Andale), says that Ojos was built "because I found I had 31,246 photos all named DSC0009.jpg." In other words, this startup is creating a new way to search and organize photos.  The company has hired a team of Stanford facial recognition researchers and has built a product that will automatically perform face and text recognition.  Imagine if your computer could automatically identify all your family and friends – and automatically share pictures with the people in them.  Shah's cofounders include Burak Gokturk, a Stanford Ph.D. who holds 15 patents in face recognition, and entrepreneur Azhar Khan.   First Round Capital was given the opportunity to purchase shares at the same price as the company’s Series A investors (Leapfrog Ventures and BlueRun Ventures, the former Nokia venture unit).  Although the company is still in stealth mode (and plans to launch in six weeks), Business Week has written a good overview of their product – click here to read it.

 

Jingle Networks (1-800-FREE411) – http://www.free411.com

At this week’s DEMOfall conference, Jingle Networks launched their new service, 1-800-FREE411, the first free nationwide consumer telephone directory assistance service. In an aggressive move to reshape the $8 billion 411 marketplace, the new 1-800-FREE411 service introduces a pay per call advertising model – allowing businesses to acquire new customers over the phone cost effectively and with little or no risk.  Consumers get free live-operator directory assistance, saving them from $1.25 to $3.49 per call and businesses only pay when interested customers contact them via phone, meaning advertisers decide how much they are willing to pay to reach a new customer. 

For example, if you were to call and ask for the number of a Philadelphia pizza place, you would hear an ad for Domino's.  You could then press 1 to connect to Domino's instead of to your pizza shop of choice — and get a discount.  Over 35,000 leading local and national merchants and service providers are already advertising on the service, including Domino’s Pizza, ProFlowers, Rescue Rooter, Entertainment Book, ServiceMagic (an IAC/InterActiveCorp Company), Carlson Wagonlit Travel, and Terminex.  First Round Capital provided all of the seed funding for the company – and they have already received several term sheets for follow-on financing.  We plan on participating in the followon financing. 

Starting on Monday, you should be able to see a video of their DEMO launch at: http://www.demo.com/demonstrators/demo2005fall/55041.html. The company received incredible press resulting from their launch – some highlights below:

"With the market huge, the technology in place and an experienced management team, Jingle should have its pick of backers".

“…Free411, for example, could cut a chunk of revenue from land-line and wireless carriers”

“reshaping the 411 marketplace”

“a free directory assistance service with a pay-per-call advertising model”

“Calling 411 can cost $1.25 or higher. Jingle Networks' 1-800-Free411 service will cost you nothing”

“…designed to give consumers a way to avoid paying the fee wireless carriers charge for 411 access--as much as $3.49…Jingle Networks gets its directory assistance data from the
               same sources as phone carriers”

“…directory assistance as another huge market - worth an estimated $8 billion a year in the United States - that's ripe for the plucking.”

“To bypass the traditional carriers, Jingle connects callers for free to the business, government office or residence of their choice.”

“Last month I paid $27 for using 411 information so I'm in.”

We will post updates on the two prospective new companies when (and if) the deals close.  Assuming they close successfully, we will have invested virtually all of our initial capital. 

Capital Call

In fact, early next week you should be receiving a capital call notice for approximately 18% of your initial commitment.  This capital call will allow us to make follow-on investments in three portfolio companies:

•  Jingle Networks – as mentioned above, Jingle Networks has received several term sheets for follow-on funding (including one term sheet from one of our LP’s, Liberty Associated Partners).  First Round Capital plan to participate fully in this follow-on. 

• VideoEgg – First Round Capital initially invested in VideoEgg in Q1 2005 – and they just launched their product at DEMOfall to positive reviews (they also received a “DEMO God” award and wonderful press coverage (http://news.google.com/news?q=videoegg&scoring=d). They have also received significant interest from several VC firms about leading their next round – and we currently anticipate participating in a bridge financing round to allow the company to continue to grow their team while they negotiate with the VCs.

• Browster – First Round Capital initially invested in Browster in Q1 2005 through a bridge note.  The company has recently signed a term sheet with two well-known VC’s (ATV and Vanguard) for their Series A financing.  In addition to converting our bridge note into the Series A offering (at a 50% discount), we plan on slightly increasing our investment.

 
In the next few weeks, we will get you information on next year’s fund - First Round Capital 2006. It will probably be a slightly larger fund, and may allow a little more flexibility in doing non Guidewire related deals. We will be contacting all of you over the next month, and expect to close the fund in November/December.

 
We continue to be actively involved in our portfolio companies.  As always, if you have any questions or comments, please don’t hesitate to contact Howard or myself.

Q2 Update

We recently sent out an update on for the second quarter which included financial statements and a capital account summary.  Below you will find the update:

This is a busy time for us – as we are actively reviewing companies that will be launching at DEMOfall next month.  In addition to the six companies outlined on our Q1 letter (Browster, Satori Labs, Portaga, Inboxer, VideoEgg, and MediaTile) we have made two small new investments, discussed below:

Digital Railroad, Inc. – After launching at DEMO 2005 this past February, Digital Railroad has quickly become a leading provider of Web-based application services for the professional photography industry.  The company has developed a unique suite of Web-based services that enable professional photographers and photo agencies to manage, market, and sell their images with greater efficiency than with existing solutions.  We invested as part of a $5.2 million Series A venture round that was led by Morgenthaler Ventures and Venrock Associates.  More information on Digital Railroad can be found at http://www.digitalrailroad.net

Odeo, Inc. – Odeo was founded in 2004 by Evan Williams (the founder of Blogger.com – which was sold to Google in 2003) and Noah Glass to make podcasting simple.  In simple terms, podcasting is a new way to create and listen to radio.  More specifically, podcasting is a way of publishing audio files to a website that allows users to subscribe to the site and receive new files as they are posted. Because new files are downloaded automatically by subscribers, podcasting allows individuals to have a self-published, syndicated radio show. 

Odeo is a leading player in the podcast space – offering a suite of tools that allows users to find, create, and listen to podcasts. Even though they are still in Beta, Odeo has been featured in dozens of publications – from the NY Times, to the WSJ, to Business Week.  Fortune magazine has already named Odeo one of its “25 Breakout Companies of 2005”.  We participated in their Series A venture round, led by Charles River Ventures.  More information on Odeo can be fount at http://www.odeo.com.

Finally, we have a term sheet outstanding for an investment in a company that will launch an innovative pay-per-call service at DEMO fall next month.

To date we’ve invested approximately $1.85 million, or 58% of the investable capital from our initial close.  We continue to review new opportunities, and expect to invest in one or two additional companies that launch at the DEMO fall conference this September.  However, we will only make additional investments if we believe they can provide the substantial returns we all seek.  Howard and I thank you for your support and look forward to answering any questions you may have.

Digital Railroad

Last week we invested in Digital Railroad -- a company that launched at Demo this past February.  We participated in a $5.2M round, led by Morgenthaler and Venrock. 

Dow Jones Venture Wire Professional:

"Digital Railroad Inc., a provider of Web-based services designed to streamline the photo editing and distributing processes, said it has raised $5.2 million in Series A funding....Morgenthaler Ventures and Venrock Associates co-led the Series A, which closed last week and was the company's first to include external investors. Unnamed individual and venture investors also took part. Digital Railroad will use the Series A proceeds to continue developing its online photo management, distribution and archiving platform, as well as for adding employees...."

More info here.

Q1 Update

We recently sent out  Q1 2005 financial statements and a capital account summary.  You should have received them via US mail already -- if not, please don't hesitate to contact me.  Below is a recap of the investor update...

Our portfolio continues to grow, and now consists of investments in six companies.  In addition to our prior investments in Browster, Satori Labs and RealTime Enterprises (now known as Portaga, Inc.), we’ve made new investments in:

Inboxer, Inc. – Bad email is bad for business. Messages sent by employees can lead to lawsuits, regulatory investigations, and the unauthorized dissemination of sensitive and confidential information. Several high-profile law suits and regulatory investigations have drawn attention to the problem, but the pain is being felt broadly (think Harry Stonecipher at Boeing). One out of five employers had email or IM subpoenaed in a lawsuit or regulatory investigation, according to a 2004 survey by the AMA/ePolicy Institute. This is up from the 14% reported last year and more than double the 9% reported in 2001.

Inboxer’s new product offering, OutBoxer, proactively reduces email liability by analyzing outgoing mail messages after SEND is pressed, but before the message leaves the PC. In an age of multi-million dollar harassment lawsuits, government regulations (such as HIPAA and Gramm-Leach-Bliley), and privacy concerns, email needs more than simple monitoring. It needs active risk reduction. OutBoxer uses advanced language technology, based on InBoxer, and other techniques to identify potential problems and to give senders a chance to fix them.

VideoEgg, Inc. - As more people gain access to broadband internet connections and video-enabled digital cameras and cell phones, they will want to incorporate rich media into these interactions. Where today they are uploading still photos, in the future they will upload home movies to share with friends, walking tours to accompany their real estate listings, and videos to augment their online dating profiles.

The principal barrier to this interactive multi-media future is the complexity of putting digital video on the web.  Uploading video requires a technical understanding of video formats and codecs, encoders, players, and streaming servers. The average internet user simply does not know how to prepare video for the web.  VideoEgg removes this barrier, allowing companies to add easy-to-use video encoding and posting capabilities to their existing web sites with minimal effort and cost. The VideoEgg package is a complete encoding, upload, hosting, and streaming solution that can be easily incorporated into any web site. Once installed, VideoEgg allows everyday internet users to publish video to the web by reducing the complex video encoding and posting process to a simple “drag-and-drop” interface.

For an effective overview of VideoEgg’s functionality, you can see an online demonstration that they’ve prepared at:  http://video.firstround.com

The MediaTile Company – In retail over 70 percent of purchase decisions are made at the shelf.  To influence consumer decisions at the shelf, US manufacturers spend $17 billion annually on Point of Purchase (POP) Promotions.  However, approximately 60% of this spending is wasted due to lack of store compliance (ie, the store doesn’t deploy the promotional material as promised).  

Digital signage, with 99% compliance, is a new and growing industry.  It grew to $1 billion in the last two years and is expected to exceed $4 billion by 2008. Research has shown that specific brands advertised on digital signs will result in a 30% increase in sales, while overall store sales can increase by as much as 12%.  Networked digital signage provides both the Retailer and the Manufacturer with significant advantages – messages can be instantly deployed to thousands of stores and all individual stores are guaranteed to run the promotions, (ie, assured compliance).

New problems, however, are introduced when deploying standard networked digital signage. The number one barrier to deployment is “in-store infrastructure”. To support network digital signage, in-store infrastructure has to be purchased and installed. This adds tremendous costs and time. To date, networked digital signage solutions have required Wi-Fi and/or Ethernet-based networks with in-store video servers, network appliances, broadband connections and IT staff for ongoing support and maintenance.

MediaTile’s MediaCast System is a combination of proprietary software and cellular-based data services that delivers promotional content directly to Digital Displays eliminating the need for any in-store servers and networking hardware. The company is already in discussions with several well-known national retailers and has proposals out that will save these retailers significantly on installation and maintenance over standard Digital Signage deployment.

To date we’ve committed approximately $1.7 million, or 53% of the investable capital from our initial close.  We continue to review new opportunities, and expect our pipeline to increase as we get closer to the DEMO fall conference this September.  However, we will only make additional investments if we believe they can provide the substantial returns we all seek. 

DEMO 2005 Update

Howard and I just returned from the DEMO conference, and wanted to give you all a quick update.  First, now that we’ve been through one DEMO-cycle, I think it’s important to review our fund’s thesis and our initial assumptions.  Second, I will discuss the companies we’ve invested in (and those we’re still considering).  And third, I’ll give my high-level thoughts on the DEMO conference.

As I’m sure you recall, First Round Capital was created to capitalize on an agreement with the Guidewire Group which gives us the exclusive first look at the companies launching at the DEMO conference – the launch pad for dozens of successful companies (including Palm, Salesforce.com, Excite.com, E*Trade, Webex, Tivo, and Half.com).  Indeed, of the 32 un-funded companies that launched last year at DEMO 2004, several have already sold (Oddpost to Yahoo, Stata Labs to Yahoo, Mailblocks to AOL, Turntide to Symantec, MagniFire to F5).  So, let’s review our initial assumptions: 

1. Having exclusive access to the DEMO deal flow will provide us with introductions to high-quality companies…
   This year DEMO was the launching pad for over 70 companies – including 38 companies which had not yet received any venture financing.  Howard and I spoke with every one of these companies over the last three months – and have selected four of them (three of the investments have closed, and the fourth has signed a term sheet with a no-shop provision).  In general, the quality level of the candidate pool was high – and we are happy with our selections.  However, I do notice a high-level change in the companies selected to launch at DEMO – more on that below.

2. …and that these companies will be interested in receiving some seed-stage capital.
   Of the 38 companies we spoke with, 35 were willing to consider receiving an investment prior to DEMO.  While I’m happy with that ratio, I am disappointed that we didn’t get a shot at one company in particular – Flickr.  Shortly after we were introduced to Flickr, they were approached by both Google and Yahoo about a possible sale of the company – and, obviously, Flickr decided not to pursue an investment from us.  (For more on Flickr, see this article in this month’s issue of Business 2.0)

3. That we could get good terms from these companies.
   I am very comfortable with the terms of our four deals – two are convertible bridge notes, and two are Series A equity (with an average pre-money valuation of $2M).  However, there was one company (Metavize) where we issued a term sheet for a convertible bridge note but were unable to reach agreement on terms.  The company chose to do a “friends-and-family” bridge note instead – and was unwilling to give us some of the basic protections that we required.  Interestingly enough, we ended discussions with Metavize on good terms – and are still talking with them about participating in their Series A round. 

4. We would close the deals before the DEMO conference
   My initial assumption was that we would need to close all of our deals prior to the DEMO conference – in order to insure that we weren’t kept out by competition.  This forced us to move very quickly and make quick decisions.  While I am excited by the deals we’ve invested in, I think that for future DEMOs we might not need to have all the deals closed prior to the conference.  Going forward I think we can lock in an “option” on some of these companies by signing a term sheet with a no-shop prior to the conference (but not actually closing the deal).

5. And that the deals we invested in would get benefits from the DEMO launch platform – enabling them to raise additional capital quickly.
   Obviously, it’s too early to tell anything yet.  But I am very pleased by the level of press coverage our portfolio companies have received – our companies have been featured in USA Today, Business Week, Forbes, PC Magazine, CBS Marketwatch, InfoWorld, eWeek, and dozens of other publications.  I am also happy with the preliminary VC interest our portfolio has seen in the last 48 hours.

Our portfolio currently consists of three companies – with on additional company signed under a term sheet with a no-shop.  In addition, we are in active discussions with several additional companies that launched at DEMO.

            Realtime Enterprises –  A company which integrates web-services into your existing applications.  It’s new product, Aurora, will connect Microsoft Outlook directly to travel  providers.  Through an agreement with Sabre, this application will let you book your flights, hotel and car rentals directly from your calendar.  If any of you use Avis to rent cars, they are already shipping “Book Avis”.  This application lets you book an Avis car directly from Outlook – you can access it for free at http://outlook.avis.com/

More info on Realtime at http://www.demo.com/demo2/demonstrators/realtimeenterprises.html. 

      Browster - Browster launched a plug-in for Internet Explorer that makes Web browsing fast and more secure. It provides a web page preview simply by mousing over it’s link, reducing the time required to evaluate search results by up to 50%. It’s prefetch function alerts users of security threats before they load the page. This deceptively simple IE plug-in dramatically improves the Web browsing experience, while also making it more secure. And Browster’s business model breaks advertising networks free to present in context on virtually any Web page. 

A beta version of Browster is available for download now – you can access it at http://www.browster.com .

More info at http://www.demo.com/demo2/demonstrators/browster.html.

      Browster has already received significant attention from the press, including:

·         A little of everything turns up at Demo showcase - USA Today

·         Internet Tools Shine at DEMO - PC Magazine

·         Net Stocks - CBS MarketWatch

·         Why prefetching is rising once again - IT Manager's Journal

·        INVENTION MANIA - OregonLive.com

Satori Labs - Satori Labs’ FusionForm™ captures and transforms handwritten data using an ink-based pen into digital text that is easily integrated into computerized physician order entry and electronic medical records systems. Healthcare professionals can acquire patient information in a natural and familiar manner and still satisfy HIPAA mandates and insurance carrier requirements for digital data.  The company targets healthcare providers implementing electronic medical records (EMR) and computerized physician order entry (CPOE) systems. The Lewin Group estimates the cost of implementing electronic records nationwide at $27B to $50B. It is estimated that US hospitals will spend $16B on new technology in 2005 alone.  More information at http://www.demo.com/demo2/demonstrators/satorilabs.html.

·         FusionForm for Healthcare - Medgadget.com

·         Future arrives for some products - Arizona Republic

Audiotrieve’s Outboxer - OutBoxer proactively reduces email liability by analyzing outgoing mail messages after SEND is pressed, but before the message leaves the PC. In an age of multi-million dollar harassment lawsuits, government regulations (such as HIPAA and Gramm-Leach-Bliley), and privacy concerns, email needs more than simple monitoring. It needs active risk reduction. OutBoxer uses advanced language technology, based on InBoxer, and other techniques to identify potential problems and to give senders a chance to fix them.  More information at http://www.demo.com/demo2/demonstrators/audiotriev.html

·         A Sneak Peek at Tomorrow's Tech -BusinessWeek

·         Tech gadgets in the pipeline seen at Demo -San Jose Mercury News (subscription)

·         Watching Outgoing E-mail - Forbes

·         No more sender's remorse? -CNET News.com

·         E-mail and blog monitors are launched - InfoWorld

·         Enterprise Security, Compliance Prove Hot Topics at DEMO – eWeek

We are also in discussions with a number of other companies that launched at DEMO – including Metavize (the company we had issued a term sheet to prior to the conference), Teleo (which offers a VOIP (voice over IP) application), Digital Railroad (a company which launched a marketplace for digital photography), and iControl (which launched a slick home automation package).  In addition, we have a term sheet outstanding with a company that launched at DEMO mobile 2004, called MediaTile.  They provide a unique cellular-based solution to digital signage – and are experience strong adoption in the marketplace…

Finally, I want to close with my thoughts and observations on this years DEMO conference.  In prior years at DEMO, I thought there were more companies that went in “swinging for the fences”—big ideas that would either experience remarkable success or spectacular failure.  But big ideas.  This year, I think most of the companies were singles or doubles – more of a play it safe mentality, nothing awful but nothing completely amazing.  It seemed as though many of the launched products were features or add-ons to existing ideas, rather than revolutionary ideas – making an existing product more effective, more usable or just more affordable.  This poses an interesting challenge and opportunity to our fund.  On the positive side, I believe that these incremental improvements – if implemented correctly – could quickly get acquired by larger companies.  On the negative side, the lack of “big ideas” makes it more challenging for an investor with a long-term horizon.  Time will tell…

Over the coming weeks, we will be working with our portfolio companies to take advantage of their DEMO momentum – and begin screening companies that will be launching this September at DEMO fall.  Feel free to drop me or Howard an email with any questions…

The Whirlwind Begins

The potential deals are flowing in, fast and furious.  And Josh and I are trying to keep up with screening and due diligence.  To that end, we spent Wednesday going up and down Silicon Valley to meet with the most promising of the 20 companies we've been screening. 

I thought it would be  useful to let our LPs know a little about our process.  First, we get quick summaries of companies from Guidewire Group.  Josh and I take a quick look, and if  it seems at  all interesting, we schedule a conference call.  Often these calls also involve a web based presentation. We have been good users of Webex, GoToMeeting and similar technologies.  While on the call, Josh and I are IMing each other in a more confidential channel (when we're not in the same room, city or state, which is often).  At the end of each call, we post our notes to a database we maintain on our intranet (provided by intranets.com).

Once we've decided that followup is justified, we begin a rapid due diligence. We're doing some of this ourselves, and some using a few contractors that have experience in banking and venture capital.  As that proceeds, we then schedule a face to face meeting - nothing beats that for understanding whether or not we can work with a particular entrepreneurial team.  Since we're both East Coast, and the vast majority of deals we're seeing are West Coast, this means trips like last Wednesdays.

We've been looking at several deals in the "help consumers and businesses to professionally publish stuff " - MyPublisher improved would be the 2  word pitch.  As you'd expect, there are a few VOIP related deals. These get my juices flowing, since I am a big user and believer in it, and think there is a lot of room for service and technology offerings.  Security, as we had predicted, continues to be  a hot area.  Given our past successes with Cylink and Turntide, we are looking closely at security deals.  Finally, home automation and monitoring is getting closer to the mainstream.  Both Josh and I have heavily wired (and wireless) homes, and have to temper our personal enthusiasm for deals in this area with the reality of the business propositions.

So we went from Palo Alto to San Francisico, to Foster City, San Jose and back to Palo Alto, and are getting closer to selecting our first two deals.  We'll keep you all posted, but it's looking like the basic premise that the Demo deal flow would a good source is going to pan out.

We have been working with counsel to develop some draft term sheets, and are almost finished with our booklet on how to maximize the value of these conferences.  It's always fund doing things you like.

Advisory Committee

Just a quick note to inform everyone that we have now selected our LP Advisory Committee.  Our Committee consists of three Limited Partners -- David Berkman, David Rubenstein and Steve Graham.  The purpose of this Committee is to “advise the General Partner on potential conflicts of interests and on such other matters about which the General Partner may from time to time in its sole and absolute discretion refer to the Advisory Committee…”