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Digital pen-and-paper maker Adapx has received an undisclosed strategic investment from In-Q-Tel, the independent investment firm founded by the Central Intelligence Agency. The purpose of the funding, says Adapx chief executive Ken Schneider, is to increase usage of Adapx’s Capturx platform (pronounced “adapts” and “captures,” respectively) in the CIA and the intelligence community in general.

Even as more documents move into the digital realm, there are still situations when you need good old pen-and-paper. For example, you probably don’t want to drag out your tablet PC when it’s raining. That’s where Adapx comes in — using the Seattle startup’s pen, you take notes as you normally would with pen and paper, but the writing is recorded with a digital camera. Users can later import their notes into Microsoft Office OneNote (documents for tablet PCs), AutoCAD (architecture) and ArcGIS (mapping).

In my small-town newspaper days, I would have loved to get my hands on something like Adapx. Now that I’m at VentureBeat, I do less all-weather reporting, but I still have plenty of notebooks filled with my indecipherable scrawls, and it’d be great to digitize them.

Adapx offers a product for consumers, but Schneider says the company focuses on selling to other companies and to government agencies, where Capturx could be a boon for field work. (Competitor LiveScribe is more focused on building a fancy pen — it records audio as you write — than on software, and more on consumers than enterprise sales.) Adapx has landed around 300 customers so far, including a number in the government, but the In-Q-Tel investment should lead to more growth in that sector.

Schneider says Adapx will continue to focus on its established “beachheads,” as well as add more compatibility with different kinds of forms. The company raised a $10 million first round in December, and plans to raise a full second round in the last quarter of 2008.

You can watch video demos of Capturx here.

Even spooks need their virtual worlds. Where else, after all, could they rehearse their training missions against the bad guys of the world?

Forterra Systems and IBM said today that they’re teaming up to create virtual worlds for U.S. intelligence-gathering agencies. The so-called “Babel Bridge” project will allow spy agencies to use virtual worlds and Web 2.0 technologies to share intelligence information. Last month, Forterra raised a $10 million round (our coverage).

The project will feature a 3-D “unified communications” world which ties together voice, e-mail, text messages and other forms of communication. Users would access intelligence data from computers or mobile phones with secure connections. The two companies have already completed a prototype and will begin development in the second quarter, said Chris Badger, vice president of marketing at Forterra in San Mateo, Calif.

Intelligence agencies could soon use a virtual world to rehearse how they could attack a location that houses a terrorist cell, according to Forterra. The same technology could be used to prepare a hospital’s staff on how to react to a natural disaster.

Forterra was founded as part of There.com in 1998. In 2004, Forterra spun out of There, while Makena Technologies focused on its own consumer-oriented virtual world, There.com.

Forterra’s backers include the CIA-funded In-Q-Tel venture firm and Jerusalem Venture Partners, Chichen Itza Ventures, and Sutter Hill Ventures.

While Makena Technologies pursued consumer technologies, Forterra focused on using the virtual world technology for military simulations. Video demos of its projects are available here.

Badger said the alliance with IBM gives it a stamp of credibility as virtual worlds have gone through their own cycle of hype and despair. Deb Magid, director of software strategy at IBM’s venture capital group, said in an interview that business and government applications are now clearly becoming viable as virtual worlds spread beyond entertainment and games.

PurpleYogi, one of the earliest Silicon Valley companies to focus on “extreme personalization of the Internet,” has finally been sold for $158 million after a dramatic series of twists in business strategy.

The Mountain View, Calif., company launched in 1999.

It later abandoned its initial model of focusing on media and consumers, and offers some valuable lessons to today’s entrepreneurs focused on Web 2.0, who may also be panicking for lack of a business model: It helps to be scrappy — and to raise plenty of money in good times, so that you can keep plugging away so that you do find a model that works. And the answer may not be in the sexy media/consumer sector.

For PurpleYogi, the strategy worked: After changing its name to Stratify, burning through a few CEOs, and ripping up its plans a several times, it finally focused instead on electronic-discovery software for the legal industry, a relatively boring area, but one that paid the bills. Now the company has just announced that Iron Mountain will buy it for $158 million in cash.

Back to 2000: I remember using PurpleYogi that year on my desktop while reporting for the MecuryNews. The downloaded client sat in the corner of my screen nicely. It fetched news from around the web that was relevant to me. For example, I selected the terms “start-up”, “technology” and “venture capital” and PurpleYogi would bring in the free available content so that I wouldn’t miss anything.

PurpleYogi, started by a group led by Rakesh Mathur (pictured atop; see the happy story of its beginning), a founder of Junglee, initially raised a whopping $30 million — them were easy times — but with little idea of how to make money. By 2001, after the bubble burst, it was left scrambling for a way to make money. Luckily, however, it had been frugal. It still had $20 million in the bank. It made its first significant change: It focused instead on helping companies mine the web for “unstructured data” related to their business, and then manage the data for them by selling them software. For example, after Sept. 11, the company began serving the CIA, trawling through millions of Web and other electronic documents, including those written in Middle Eastern languages, looking for specific relationships between words within pages. Even this didn’t work. But transformation had begun. By mid-2003, Stratify realized that serving the legal industry was more lucrative.

There was significant pain along the way. At one point, the company had to reset its value to zero, buy back shares from some investors, and take on a fresh round of about $8 million. The company went through several CEOs. But notably, the CEO who got it done in the end was Ramana Venkata (pictured left), an original founder. Mathur, meanwhile, left a few years back (see our coverage here and here) to start Webaroo, a company that itself is going through twists to its model.

The faithful backers of PurpleYogi finally hit pay dirt, too. The few who hung in there included Mobius Venture Capital (a firm that, ironically, decided to close shop last year, and not raise another fund, in part because of lack of success after the downturn) and the CIA’s In-Q-Tel. Other investors along the way were Intel Capital, Infosys Technologies, At India and Skyblaze Ventures, though it’s not certain whether they got any return.

2001-11-07

Start-up helps CIA in terrorism fight

Agency’s venture arm takes stake in Stratify

By Matt Marshall
Mercury News

The Central Intelligence Agency may seem a bizarre source of support for struggling Silicon Valley start-ups, but it may be a sure patron in a dour economy.

Ask Nimish Mehta, chief executive of Mountain View’s Stratify, formerly known as Purple Yogi. His company combs through billions of Web pages to find answers to users’ questions.

This week, it accepted millions in venture funding from the CIA’s venture capital arm, In-Q-Tel. In return, In-Q-Tel wants Stratify’s help in trawling through millions of Web and other electronic documents, including those written in Middle Eastern languages. “That would be nice to have,” says Eric Kaufmann, a partner at In-Q-Tel’s Menlo Park office.

Neither the CIA nor the company will disclose the exact amount of the funding, for fear of offending the CIA’s other portfolio companies, which have gotten less. The amount was more than $1 million but less than $5 million.

The deal could be a good omen for Stratify, which wasn’t pulling in much revenue under its dot-com business model. Indeed, if Mehta has his way, he’ll be stealing a page from Oracle CEO Larry Ellison’s playbook.

Rewind about 25 years. Back in the late 1970s, the spy agency became Oracle’s first customer. A happy camper with Oracle, the CIA helped open doors for Ellison at other government agencies and corporations.

This way, Ellison survived through the recession years of the early 1980s with no venture capital injections at all. And by not watering down ownership with VC investments, Ellison emerged with 39 percent of Oracle’s shares — and since has become the nation’s second- or third-richest man.

Mehta, a former Oracle executive himself, says he doesn’t want venture capital, and didn’t seek out the CIA’s investment. He joined Stratify in February, when it was still Purple Yogi, a frugal company that still had $20 million of the $30 million venture funding it had received over the past two years.

But like Ellison, Mehta sees a good customer in the CIA, one that can open similar doors for his company. “I’ve seen Larry fight that battle, and I want to fight it the same way,” says Mehta, who once reported directly to Ellison.

The parallels run deeper. Mehta wants Stratify to tap into what he believes is a huge potential market for mining, and then ordering, “unstructured” data. Oracle and its early competitors discovered the database-software market — which orders “structured” information.

Of the information that a typical company carries on its Web server and computers, 85 percent is unstructured, Mehta says. That’s why Mehta says he can build Stratify into a giant that rivals Oracle.

That’s also the reason why the CIA is interested. In-Q-Tel’s Kaufmann says Stratify is better than its competitors because it creates a hierarchy for the information it seeks, has superior classification technology, and is nimble in the way it allows users to decide what research to conduct. The company is brainy. It has about 15 employees with doctorate degrees. Twenty of its 75 employees are engineers based in India.

Stratify recently won a deal with Infosys, a management-consulting company that uses Stratify’s software in the products it offers to clients. Investors say Stratify is more advanced than Autonomy, a publicly traded U.K. competitor. “It can handle millions of documents and can crawl over everything looking for stuff,” says Bill Burnham, a partner at Softbank Venture Capital and an earlier investor.

He and other investors encouraged Mehta to take up the relationship with the CIA. In times like this, any funding at all is “nothing but positive,” says Purvi Gandhi, a venture capitalist with H&Q Asia Pacific, who also invested in the company.

The CIA deal was in the works before the Sept. 11 attack, and it was sought out by Gilman Louie, In-Q-Tel’s chief executive. Louie, otherwise known as Q — a reference to the technologist Q in James Bond movies who shows 007 the latest gadgets — is a man who “pulses with energy,” according to Mehta. That the CIA sought a deal that is relevant for the attack’s aftermath is a coincidence, Mehta says.

Mehta has presided over a 21 percent reduction in workforce, preparing the company to survive through 2003 — even before the CIA’s investment.

Mehta learned the hard way. His previous company, Sunnyvale’s Impresse, went out of business early this year after burning through about $80 million in venture capital.

Purple Yogi was frugal, but Mehta says newly named Stratify is even cheaper now that he’s arrived. Forget credit cards, free food, massages or big-budget outings. To have fun, the company created a 21-hole miniature-golf course on premises. Employees went to a baseball game on public transit.

And Mehta’s cubicle is tiny. He recalls his senior vice president’s digs at Oracle: a sprawling private office, a waiting room, a secretary, a training room and sauna. “My personal bathroom was as big as my cubicle,” he says, pointing to his new humble digs.

He’s not Ellison yet.

END

Perpetuum is the the latest company hoping to harness an new kind of power source: Vibrations.

That’s right. Most vibrations caused by mechanical operations –caused in most places where equipment and people are at work — are wasted. Perpetuum, a London, UK company, transforms these vibrations into electrical power. It does this by hooking up a mechanical resonator to a microgenerator, which transforms kinetic energy caused by things like rumbling machines into electrical current.

It has just raised a £5 million ($10.1M) second round of financing to bring it to market. The funding comes from Environmental Technologies Fund (ETF), Quester and Top Technology.

The company says its generators may be better than battery technology for low-power electrical needs such as operating wireless sensors. These sensors can then monitor the performance of the very industrial machines that are powering them.

This sort of thing also has use in military and security settings, where you don’t want humans around. Indeed, the CIA’s venture arm, In-Q-Tel, last year invested an undisclosed amount in a competing company AdaptivEnergy in Hampton, VA. No word on what the CIA will use it for.

Here’s a summary of the latest action. See below for more:
1) In-Q-Tel invests in Forterra Systems, a private virtual world creator
2) Appfuel, another Facebook ad network, but with better ad targeting
3) AOL to spin out advertising arm?
4) Project Playlist, for sharing music playlists on other sites, raises $3 million
5) Four Interactive, a local business review site, gets $10 million from Valley VC’s

In-Q-Tel invests in Forterra Systems, a private virtual world creator – San Mateo-based Forterra’s software platform lets developers quickly create private, online virtual-world scenarios for organizations that can be used to simulate potential real world events, such as a government’s secret spy missions.

After running a scenario, the software lets its users get integrated reports that analyze participants’ actions to figure out what when right and what went wrong.

Besides government agencies, Forterra serves organizations in healthcare, education and other industries.

The amount of funding was undisclosed. The company said a “technology advancement agreement” was part of the deal, which sounds like customization for the needs of the US government. In-Q-Tel invests in technology companies that in some way further the interests of the US intelligence community.

Appfuel, another Facebook ad network, but with better ad targeting – RockYou, VideoEgg, Social Media and other Facebook ad networks have already been active for months. Today, San Francisco-based Appfuel is launching with the claim that it can more quickly and accurately serve targeted advertising within Facebook applications

In one example, if you state you’re a fan of the band the FooFighters on your Facebook profile page, then you might see an ad that shows you information about the band’s latest shows or where you can buy band t-shirts. GigaOm has more.

The company has raised an undisclosed amount of angel funding.

In other Facebook news, chief executive Mark Zuckerberg has been spotted in Seattle, on his way to talk to Microsoft — possibly about selling them some Facebook shares (our previous coverage).

AOL to spin out advertising arm? – New Techrunch editor Erick Schonfeld has the potential scoop.

Project Playlist, for sharing music playlists on other sites, raises $3 million – Another social music site with a widget, the Beverly Hills company lets you create, embed and listen to playlists on MySpace, Facebook and other social networks; PEHub reported the funding, although no investors were named.

Four Interactive, a local business review site, gets $10 million from Valley VC’s — The Bangalore-based company owns AskLaila.com, a Yelp-like site in India where you can read others’ reviews about local businesses and add your own. It includes proximity search, SMS notifications and other services. More here.

Investors include Lightspeed Venture Partners, Silicon Valley Bank and returning investor Matrix Partners.

In-Q-Tel, the investment arm of the nation’s intelligence services, has invested an undisclosed small amount of money into video enhancement company MotionDSP and also awarded it with contracts.

MotionDSP chief executive Sean Varah wouldn’t say what the CIA wants do with the technology. However, he said the investment lends credibility to the company’s technology, which was dismissed by Google during a pitch last year when Google told Varah it could something similar. The company has since gotten better, he said. The technology improves low-resolution images by tracking pixels as they change frame by frame, making intelligent conclusions about blurred objects or areas. Take, for example, a blurry photo of a person running in a white shirt in the dark. MotionDSP can follow the pixels of white as they move in a video, determine they are part of a coherent object and then reconstruct the shirt’s shape in a higher-resolution video.

See the “before” and “after” videos we’ve embedded below.

The company is conducting several pilot tests. It hopes to sell its technology to Internet video sites and mobile carriers to improve the quality of video captured by their customers. The company has raised a total of just less than $1 million, with $500,000 of that coming last year from angels. It has $1 million in contracts, Varah said.

The company is also helping to do filtering for videos, to help video producers avoid copyright violations. The DSP product comes in a desktop application, and also as a hosted Web service.

Mariachi Band (Unenhanced)

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Mariachi Band (Enhanced by MotionDSP)

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Updated

Here are the latest ups and downs of Silicon Valley’s venture capital/investor community:

Mayfield Fund — The well-known Silicon Valley venture firm with a good pedigree, but a rocky recent past, is on the upswing in China. Tomorrow (Friday), it announced its own China fund, merging with Chinese firm GSR Ventures with a new $200 million fund. Mayfield partner Kevin Fong (pictured here) is a full managing partner of the fund. Mayfield was earlier an investor in GSR’s first fund, which in turn has made 11 investments into Chinese companies. It is early staged focused, unlike….

Sequoia Capital — The big-name venture firm is already out raising another fund for investments in Chinese companies, VentureBeat has learned, having made lots of investments in things like hotels.

Garnett & Helfrich — This is was the hot-shot San Mateo, Calif. private equity firm run by the energetic and enthusiastic Terry Garnett, along with his partner David Helfrich. They raised a first fund of $250 million in 2004 and did so well investing that that they raised another $100 million in 2005, and then started raising another $750 million fund in November. They expanded to India, driven by their partner, Mark Barrenechea, who had run Computer Associates and Oracle operations there. But then something happened. Turns out, Barrenechea has left, according to PE Week’s Dan Primack. This comes after it recently lost director Mike Guthrie, and Betty Hung, who had been hired just six months earlier as vice president of portfolio company operations. G&H has even removed the “Team” page from its website. A spokeswomen told VentureBeat the firm has no comment.

In-Q-Tel — This is the venture firm of the CIA, and it has seen its fair share of defectors, too — in part because of frustration about its diluted mandate. It has too many masters. Lately, it has been forced to answer to other intelligence agencies, beyond the CIA. Ben Choi, an associate at the firm, is just the latest to leave, turning his coat to the private sector. Last fall, he did a stint as VP of strategy at ad company Greystripe (which we’ll write more about soon), and is now an associate at valley venture capital firm, Storm Ventures. Finally, we’ve found a photo of him on the Web (pictured here).

Alsop Louie — Speaking of In-Q-Tel defectors, Gilman Louie, the guy who used to run it, left last year to join venture capitalist Stewart Alsop to invest through a new firm, Alsop Louie Partners. They’ve finally finished raising their fund. They’ve made their first investments: in Mountain View’s Duality, Chicago’s Cleversafe and San Francisco’s Active Athlete.

Related, but separate — The CIA infiltrates social networking company, Facebook. ;)

Leapfrog Ventures — Is croaking, not leaping. After Leapfrog investor Peter Rip left to join San Francisco firm Crosslink Capital, the firm downsized from $100 million to $65 million, and agreed to make a couple more investments, before winding down. [Correction: It appears our sources (two people) presented us with one side of the story. One of the two remaining partners, Pete Sinclair, tells VentureBeat he has an option of keeping the fund at $100M if he finds another partner by March 2007 2008, and that he has no intention of winding down!]

Founders Fund – More details on the politics social networking site, Philotic, the first investment by Founders Fund partner, Sean Parker, of Napster/Plaxo/Facebook fame.