VentureBeat

If I told you that a game company you’ve never heard of will be a top ten entertainment company in 2009, you’d probably laugh. But that’s the ambition of Alok Kejriwal, chief executive of Games2win, and his cofounder and chief technology officer, Mahesh Khambadkone.

It sure sounds like bluster. But I wouldn’t bet against these guys. They run one of the fastest-growing casual game companies in India. The Games2win site is a portal for casual Flash games of all kinds, and they also provide games to other game sites.

They’ve figured out how to expand beyond the Indian market into the U.S. and China. And the two men have a couple of sister companies, Invizi Ads, an ad network for in-game advertising, and Gamecurry.com, a search engine geared to finding free Flash games on the Internet. The search engine debuts today.

Both of those sister companies serve an interesting purpose. They allow Games2win to thrive, even amid a sea of piracy and competition, says Sumant Mandal, managing director of Clearstone Venture Partners, which invested in Games2win. Invizi Ads uses an ad technology that works even if the game is “scraped,” or stolen from a web site and pirated to another. The ads will still run on the pirated site, allowing Games2win to monitor the plays on the pirate site and still collect payments from advertisers.

“The more piracy there is, the better they will do,” said Mandal.

And Gamecurry.com is a way to sift through and find games to play in the so-called long tail; it enables gamers to find Games2win games despite an ocean of rival games.

Kejriwal is one of India’s more successful serial entrepreneurs. He founded Mobile2win, a Chinese mobile games company which he sold to Disney in 2006. He also founded Contests2win and Media2win. The casual, free Flash-based game business is just the latest in the string of Kejriwal’s startups.

The Games2win business includes simple games like “Bombay Taxi,” where the object is to park a car in a crowded environment, or “Naughty Beach,” where the object is to titillate yourself with bikini-clad cartoon babes. In just a year, the site grew to become the 71st-largest game site on the web in July, 2008, when the company got 5.1 million unique visitors from 200 different countries. The company is smaller than Zapak, another Indian company which has more than 600 games. Zapak has 250 employees and just moved into the Russian market.

The Games2win strategy is to put a lot of games up fast and see what sticks. It has 170 games now and is adding 16 a month. A lot of those games are trash. But Games2win can make them extremely inexpensively, thanks to its development team in India. From time to time, when the company comes up with a big hit, it can apply that hit to different cultures.

Gamers play on the site for anywhere from 12 to 30 minutes per visit. The demographics are broad. While the games are made in India, only eight percent of the audience is from there. About a quarter of the gamers come from the U.S.; a quarter are from China, and another quarter are from Europe.

“They have a very strong grasp of how viral Flash-based casual games are and how to adapt fairly standard game mechanics regionally to different cultures,” said Edward Hunter, an analyst at comScore.

Khambadkone says the new game search engine will find free games based on keywords, such as “dress up games.” You can mine the search site for data, such as “what games do girls in Israel play?”

“We’re trying to reach the masses, not just rich kids,” said Kejriwal. The company has 50 employees and it has raised $5 million from Clearstone Venture Partners and Silicon Valley Bank. The company hopes to raise a second round in the first quarter of 2009.

[Editor's Note: Taking a break from the doom and gloom of the economic downturn, venture capitalist William Quigley offers a more optimistic assessment of the current situation.]

It is hard to believe that just 8 years ago, venture capitalists were facing what we all thought would be the ‘great crash’ of our lifetimes. Meaning the one and only significant crash we would see before we retired. After all, even with two world wars, a cold war, and an unprecedented energy shock in the 1970’s, the 20th century only had one Great Depression. The Dow dropped 90% from its high during the Great Depression. NASDAQ dropped 80% from its high after the tech bubble burst. Market collapses of that order are only supposed to happen once in a lifetime. But now, due to the financial crisis of 2008, the consensus opinion among wall street and venture investors is that we are at the beginning of another great crash and long term economic malaise (note Sequoia’s amazing comment about a 15 year secular bear market).

If this were my first bubble bursting experience, I might buy into that dire consensus view. But it isn’t and I don’t. The figure that stays with me more than any other during these trying times is the performance of the Internet and hospitality sectors from 2002 to 2007. In the dark days of 2002, two years after the tech bubble collapsed and a year after the terrorist attacks, the hospitality sector was crushed (who wanted to fly) and many Internet stocks were trading near their cash balances. What happened? Over the next 5 years, Internet and hospitality stocks, which you could barely give away in 2002, were the #2 and #3 best performing sectors out of 75 tracked by the Wall Street Journal. The only better performing sector was coal - due to unprecedented growth in emerging market energy consumption.

When the tech bubble burst, lead by collapse of the Internet and telecom sectors, there was widespread believe that these were not ‘real businesses’. It was easy to see why people felt that way. Few Internet or telco executives were talking about cash flow and profits. Of course, the reason for this was that the public markets were not rewarding those things. Five years after the dot com crash, investors came to realize that in fact Internet and telco centric business models (think Google, RIMM) were among the most profitable businesses of our era. This lesson is now well known. What does that mean? I believe this time around the entire tech sector will not be abandoned. If anything, there will be more conviction around the best businesses and business ideas. This very same phenomenon is happening now in the banking sector. In the middle of the panic phase of the financial crisis, investors speak highly of BofA, JP Morgan, US Bankcorp.

We can’t deny that people are worried, even scared, about what is happening on Wall Street. Venture capitalists read the headlines and assume the worst. I believe the root cause of the deep anxiety being felt about the stock market and economy is the speed and severity with which it has taken hold. People have only so much capacity for dramatic change, especially when that change is negative. The pace of mortgage defaults and bank failures this year has been too much for most of us to keep up with. Images of a banana republic come to mind. But consider this point. Over half of all subprime mortgages originated in the trouble years of 2005-2007 have already been written off – to zero. Many of the remaining troubled loans are being worked out. The upshot? There is a historical wealth transfer taking place between global financial institutions and US home owners. Housing debt ratios for consumers will be cut by 40% when the write-offs and loan adjustments are complete. Consumer leverage will be close to what it was in 2001, at the beginning of the housing bubble. While unsettling, the speed at which financial institutions and governments are disposing of problem assets and injecting liquidity into the economy will accelerate economic recovery by 2010, perhaps beginning in the second half of 2009.

And what of those shaky financial institutions that triggered the crash of 2008? The consensus view, reflected by their stock prices, is that more banks will disappear and most will be permanently impaired. Now look at the numbers. The book value of global financial firms was $4 trillion in 2007. Today, it stands at $4.2 trillion. This takes into account the $300B of asset write-downs (net of tax effect) offset by $300B of equity infusions and $400B of newly retained earnings. The stock prices don’t reflect it yet, but the bulk of financial firms have addressed their problems, either by taking massive write downs or merging with stronger partners. So why does it feel so awful? Because these corrective actions have place at a speed we have never seen before. The 1980’s S&L crisis was 5 years in the making and took another 5 to fix. 2000 banks failed during that period. This time feels worse because we are taking all of the bad news at once. In just a few months, US banks have written off more of their troubled loans than the Japanese banks did with their problem loans in 15 years. Have faith in this: once the bad loans have been charged off, a process that might take another 6 months, US banks will have confidence in their own - and each other’s - balance sheets. At that point, reasonable lending practices will return. That is what always happens.

Aside from the painful –- but ultimately positive — massive deleveraging by consumers, the scourge of inflation is being wiped out. Headline inflation (which includes food and energy costs) has been running 5% per annum over the past 5 years. It is now projected be near zero for the next 2 years. Reductions in housing, energy and basic consumer staples are the primary reasons for the decline. That means growth in real wages.

Goldman Sach’s recently proclaimed that a deep recession was likely. In their estimates, the US economy could contract by 7% in the next 12 months. We must keep in perspective, however, that just a few weeks ago Goldman was rumored to be on the road to collapse. I can’t help but assume that their deeply pessimistic institutional views have been colored by their proximity to the financial epicenter. But even if we assume that Goldman’s 7% economic contraction estimate is correct, that means that 93% of business and consumer spending continues. Certain sectors like automotive, housing and hospitality will undoubtedly be hard hit. On the other hand, affordable entertainment and productivity enhancing purchases, like investments in business technology, should fare much better.

In summary, this is not a normal economic cycle. The problems in our economy were created by irresponsible home borrowers and lenders, not the typical recessionary forces triggered by excess industrial capacity The blast radius of this crisis has threatened to engulf the whole economy because banks uniquely touch every aspect of commerce. They provide the liquidity for borrowing and lending. There is reason for optimism. With the measures being taken by banks and our government, we are working our way out of this mess. We understand the problems and are addressing them. When we get to a period where 90 days go by without a major financial institution failing, I believe the frayed investor nerves will start to heal. Until then, we must have the discipline to remain informed and objective.

William Quigley is managing director at Clearstone Venture Partners, where he focuses on investments in Internet and communications related technology. He blogs at The Quigley Report.

Corrected

Mimosa Systems, a startup that helps companies archive emails and other files, has raised a $17 million fourth round of funding. Mimosa calls the latest financing a “mezzanine round,” meaning it should be the last round before an IPO.

The kind of comprehensive archiving that Mimosa offers is necessary for the “eDiscovery” process — namely, the process of searching through a company’s electronic records. With the growing number of legal requirements for corporate record-keeping, including the Sarbanes-Oxley Act, there’s been a lot of money entering this field. Last June, for example, Automatic acquired market leader Zantaz for $375 million (although the startup’s founder and early investors didn’t see much of a payoff). Correction: The company that acquired Zantaz was Autonomy.

When we wrote about Mimosa a year ago, we portrayed the company as playing second fiddle to Zantaz, but the Santa Clara, Calif. startup seems to be doing pretty well for itself. It has raised a total of $51 million and has offices in Germany, the United Kingdom, Japan, China, Australia and India. Mimosa recently moved beyond emails, attachments, instant messages and backup tapes and now says it can archive any file. Even more interesting, chief executive T.M. Ravi says Mimosa will make its application programming interfaces (APIs) available to third-party applications later this year.

The recent funding was led by Focus Ventures, with participation from existing backers August Capital, Clearstone Venture Partners, JAFCO Ventures and the Mayfield Fund.

 (Update: Part of the financing was debt; we’ve updated accordingly)

The Rubicon Project, a startup that wants to streamline the process of dealing with multiple ad networks, has taken $6 million in venture and debt funding. It plans to start private testing of the product next week.

The company’s fully-automated software solution will be a platform designed to help publishers sell their unused ad space to the highest bidder.

The company is being quiet about plans, saying only that its service gives any website “the most complete access to the total available advertising market.”

CEO Frank Addante got his start before the dotcom boom with L90/admonitor, a startup later sold to DoubleClick. At the time he started in the internet ad industry, there were only 15 ad networks, he aid. Today there are over 300 to deal with.

As that number continues to grow, publishers find it ever more difficult to choose the best network to use at any given moment. “Websites need to be able to connect to all the funding sources, but that takes some pretty sophisticated technology,” Addante said. “What we’re really doing is giving these websites more access to the advertising markets, and giving them the smart technology to do the work.”

A startup called Pubmatic, which started testing a similar service two weeks ago, with 400 publishers already signed up, helps publishers pick the best ads for their site from a handful of the largest networks. The Rubicon Project seems likely to play to a more sophisticated set of publishers, who want to have access to every ad network possible.

Still, big challenges remain for both companies, because ad networks don’t like to share their data, and so having real time oversight of the ad pricing and other terms across networks may not be possible

Based in West Los Angeles, the Rubicon project will be launching its private beta service in October 8th. Of its $6 million in funding, $4 million was provided by Clearstone Venture Partners, with the remainder coming in debt from Square1Bank.

(Update: Corrected market spending figure to $400 billion)

The search engine revolution continues to ripple through to other parts of the business economy.

SupplyFrame, of Pasadena, Calif. is the latest to offer a specialized search engine for electronic components — and is also offering useful widgets about those components to embed in spreadsheets or Web sites. It has raised $7 million in a second round of funding.

Companies spend $11.6 billion annually in the U.S. to market electronic components, including to influence decisions around design and selection, the company said.

So far, designers, manufacturers and procurement managers have relied on a mishmash of imperfect ways to search for components. They start with a Google search, may consult with eBay, or contact a player such as Partminer.com, which tries catalogs parts and tries to resell them. But searchers have no way to find dynamically updated component specs, pricing, market pricing trends and key vendors all in one place, explained Steve Flagg, chief executive of SupplyFrame

Another player is Octopart, which also lists specs and compares price, and is backed by YCombinator. It lists parts from Allied Electronics, Digi-Key, Mouser, Newark InOne and more — and has partnerships with some of them.

SupplyFrame has also built relationships with component companies, but gets all its information directly from them, and does not scrape information from Web sites like Octopart does, according to Flagg. SupplyFrame launched its new site in January, and will get a million searches monthly by the end of this year, Flagg predicts. This is a niched market. There are about 2.5 million design engineers in the components industry, making design decisions and influencing about $4 billion $400 billion in spending on components, he said.

The company has been around since 2003, and restarted a year and a half ago when its first strategy — selling business process automation software — foundered. It raised $5 million for the restart, from Clearstone Venture Partners and Arcturus Capital. The latest round includes those investors, and was led by USVP.

See screenshots below for an example of a search for a part called “MAX232.” You can click to see more details about the results. Arrows below show how the site carries the part’s specs, four quarters of pricing, identical components and key vendor information. Compare this to a search on eBay for the same thing

We noted a few bugs on SupplyFrame. After initially being able to search through on results, we were hit by error pages on later tries.

The site plans to make money from targeted advertising.

It also offers a widget: Designers and other industry folks can download a software that allows them to mouse over a part listed in a spreadsheet, which calls up a widget with the latest spec and pricing information. See below. This can also be embedded on Web sites.

.

.