VentureBeat

RockYou, the fast-growing online widget company — that lets you post images and slideshows in social networks and other web sites — has apparently hit a major juncture in its decision to raise funding or not. And I’m wondering if it may have decided to go a different route.

The company, which is in a cut-throat competition with Slide, needs to raise cash — or sell. It isn’t profitable, and needs to keep up with Slide, which raised $50 million at a valuation of $500 million in January — a humongous financing that was considered a coup, considering how little cash the company is generating and the anemic economy (not great for advertising revenue).

We’ve learned from several independent sources that, as of about two weeks ago, RockYou had attracted some interest from investors at a valuation of $400 million, including from venture capital firm Interwest Partners. That valuation level matches the RockYou’s initial plans, which leaked out two months ago, of wanting to raise money at a $400 million valuation. But at that level, RockYou still lacked a “lead” investor, or one willing to make a sizable investment and round up enough other investors for a total of between $50 million and $70 million in funding. What’s more, the offer, we’re hearing, carried some additional terms that weren’t very attractive to the company. Two other investors offered a $200 million valuation with more favorable terms. So the goal - again, this was two weeks ago — was to hold out for a public market investor that might lead the round at the higher valuation.

However, here’s the twist: I got in touch with the company yesterday, and initially was told that the reports I’m hearing are “old” and “inaccurate.” The company suggested it had taken a change in direction, and indicated that some sort of announcement is close. In a second call yesterday, I reached co-founder Lance Tokuda directly. He wouldn’t comment on the fund-raising effort, said reiterated the fundraising news I’d heard is now inaccurate.

It supposedly could go after some debt financing, a la Facebook, but that is dangerous, because it assumes future cash flow.

Or could it mean that the company has decided to heed the advice we’ve heard it was getting from some of its investors? That is, consider a sale instead. Why not try to sell for $200 million or so, a level where each co-founder would make tens of millions, and still return a profit to its main investors — Sequoia, Partech and Lightspeed? If RockYou really did raise money at a $400 million value, this would put immense pressure on it to reach a $800 million valuation before selling (to give investors a solid profit), which would be extremely difficult to do. If they were to fail, never get revenue, and sentiment turns sour, they’d risk losing everything.

So this comes down to a really tough call, and it will show what sort of guy co-founder Lance Tokuda is. I’ve heard he is incredibly ambitious, determined to beat Slide. On the other hand, he’s human too, and his “cautious” gene has got to forcing him to consider the sale option.

(Update: There appears to be a settlement).

A U.S. district court judge has issued a preliminary ruling favoring Iconix in a suit alleging two of its former employees committed intellectual property theft in forming photo slideshow site, RockYou.

Iconix apparently nailed them by archiving their IM conversations.

PE Week’s Alexander Haislip has done the reporting (link is here, but it is subscription only), and digs up the details from the complaint. Here’s our earlier story on RockYou, about its business model, and why high-profile venture firm Sequoia Capital led a $1.5 million investment into the company, along with Lightspeed and other investors. The firms have been mired in the suit too, according to the report, which suggests they knew about the complaint before investing.

From our earlier story, you’ll see the company has seen controversy before, including allegations of hate-mongering, but the company responded to that. The site is filled with raunchy profiles such as the one at left.

Lance Tokuda and Jia Shen, the two co-founders made the mistake of corresponding via IM about their plans, and the complaint publishes archives Iconix claims is proof they planned RockYou while still at Iconix:

Tokuda’s IM name is “phdlance” and Shen’s is “mekateK” in the following alleged IM exchange:

phdlance: basically, a funny slideshow with email distribution support could make us viral

mekateK: huh… oh rms… thats [sic] scary. I can’t tell what ur [sic] talkin [sic] about… rms [rockmyspace] or ico[Iconix]… hehe

Apologies, but you’ll have to subscribe to PE Week if you want to read the rest of the juicy gossip, about the other archived conversations, including why they approached local entrepreneur Auren Hoffman, for example, who knew an exec at News Corp., which had a big acquisition budget — and who offered them a $5 million valuation straight up.

That, or we’ll get a copy of the complaint and post it here.

Update: Here are links to the complaint, to the IM conversation, and to the judge’s order, which comes courtesy of Venkat at Spamnotes. Let us know what you think. The evidence clearly suggests they plotted RockYou while on Iconix’s time — not good.

Other related links below in comments.

Also, check out attorney Todd Rumberger’s advice about what to consider when leaving a company to start a new one, and how to not get sued. Most people assume California is liberal in letting employees leave, but that’s not true in certain cases.

The round-up of crucial stuff in Silicon Valley:

Did MySpace’s Chris DeWolfe and Tom Anderson get shortchanged? — VentureBeat has heard that MySpace, the biggest success of the Web 2.0 wave so far, in terms of users, wasn’t such a great a hit for the co-founders. Word is, Chris DeWolfe ended up with a mere $5 million, even though the company was sold as part of Intermix for $580 million. We haven’t been able to confirm this (MySpace declined comment), but that’s a pittance, if true. The founders were watered down considerably by investors.

The Mercury News has an interview with Ross Levinsohn (pictured above), who runs News Corp’s Fox Interactive division — and who was behind the purchase of MySpace — and asks him whether the co-founders are unhappy. He responds: “There’s no indication to me that they’re unhappy.”

Levinsohn spoke at the Web 2.0 conference today, and addressed a different thorn — Brad Greenspan, the former chief executive of Myspace, who keeps suing the company on allegations it lied to its investors about its value. Levinsohn said:

He’s lost every single motion he’s charged against us. It’s like when Mike Tyson kept trying to win this fight, and the guy kept getting up …It’s kinda sad…two years before we bought the company, they kicked him out. For a guy who got $40 or 50 million from the sale, I mean…life’s too short.

(via Valleywag)

Yahoo’s acquisition binge at screeching halt? — Yahoo’s stock is in the toilet, and maybe that’s why its lost is appetite to buy companies. Check out this chart of acquisitions by the big three over the past years. Google and Microsoft are munching companies as eagerly as ever (18 between them), whereas Yahoo has acquired just one (Jumpcut), according to this chart at least.

Timebridge raises $6 million for… yet another calendar-scheduling company? — The San Francisco start-up, founded in March of last year that, lets you schedule meetings easily within your calendar. It has launched a private testing version. Chief executive Yori Nelken showed VentureBeat a demo Monday, and it has some cool features to save time organizing meetings among two or more people — like letting users block out possible meeting times, and letting their friends or contacts see the times through a central “meeting space.” When the friend selects a time, the slot is automatically booked for both people. So why all the dough? The company has invested resources into integrating various clients — it has a plugin for Outlook, for a Web version, for Blackberry/Treo, Apple, Thunderbird, Notes, etc — that it can work on whatever calendar you have. Timebridge wants to serve the busy professional, and is letting Google conquer the consumer market.

Mayfield and Norwest are the backers. More details at the site’s tour; see top-right). The basic service will be free, but revenue will could from a subscription for added security, archiving and admin features. Nelken thinks the market would accept a range of $30 to a $100 per user per year. It might also get referral fees from companies like Open Table.

Mashery lets you outsource your development — It handles the open API process for companies.

FON now the largest WiFi access network — VentureBeat caught up with Neil Rimer Wednesday, investor in FON, a company that lets people share each other’s WiFi routers. He says the service is doing well in Europe, particularly in Spain, and now has more access points globally than than any other WiFi access point network, including Boingo and T-Mobile. It was also a good move to hire Joanna Rees Gallanter for U.S. operatons, because she can apparently “talk a dog off a meat wagon,” a different skill than running a venture firm. The Madrid company also bought the popular Firefox extension, GSpace, for an undisclosed amount, GigaOm first reported. The FireFox extension allows users to treat their GMail accounts as an online file storage locker — to be launched in Feb 2007, it is essentially a FON router that will have a USB 2.0 port.

Workday’s missed opportunity — Dave Duffield, the founder of PeopleSoft may be back with new start-up Workday, but critique Jeff Nolan says it missed the opportunity to say something new. In other words, it got great media coverage because of Duffield, but it was ho-hum in the details.

Will Flock’s new chief executive turn things around? — From the beginning, Flock, which was supposed to be a social browser, failed to meet hyped expectations. It had potential, but never executed. A new chief exec, Shawn Hardin, has taken over the Mountain View company. He’s a media veteran, having worked at Yahoo, AOL Broadband and NBC. We’ve just had a sneak peak at Flock’s 1.0 browser, and it’s got some promising features — question is, can Flock convince people to make their browser their central work place or not.

Charles River Ventures STIRRs — Fresh from announcing its new attractive seed investment strategy (where it gives out $250,000 checks to promising ideas, Silicon Valley venture firm Charles River is getting submerged by entrepreneurs eager to pitch. It’s also been invited to mix with the masses — at the Nov. 15 STIRR event, a gig usually reserved for start-ups to give one-minute pitches. The Charles River gang — George Zachary, Bill Tai, and Susan Wu — will get 60 seconds to pitch the crowd. We bumped into Susan Wu today at the Web 2.0 conference; she said she was overwhelmed with dealflow.

Lightspeed Venture Partners keeps adding — Silicon Valley venture firm Lightspeed just named three new associates, Patrick Chiang, Andrew Chung and John Vrionis (as you’ll see on this page of blue shirts). This is the firm that recently saw a split, with several partners leaving to form Opus. We won’t call the Opus guys renegades, because they also like blue shirts ;)

Updated

Thefind.com is the latest in a long list of search engine companies swinging for the fences.

The Mountain View start-up has just launched its new offering. It aims to be the most comprehensive shopping search engine on the Web. It has crawled more stores (500,000) and products (150 million) than any other search engine, it boasts. While that may be true, and while its model is simple and compelling, Thefind.com also faces some challenges.

The graphic below (source: thefind.com) shows how crowded the field is. Some, like Nextag, aren’t listed. Most incumbents emerged during the first Web boom: These, including Shopping.com, Yahoo Shopping, Shopzilla and Pricegrabber all try to improve on the general search offered by Google. By limiting their results to the shopping experience — products, and perhaps some research too — they seek to become the first place people come to look for things to buy.

Thefind.com is better, say its execs, because it crawls the entire Web, takes every product it can find and lists its price and other relevant information. The company does not force merchants to pay for listings. Rather, Thefind.com ranks its product listings objectively — with an algorithm based on logical factors like price and model popularity. If you search for “phone,” for example, it searches its database for the most popular phone by global sales, and puts that phone atop the results page — along with the store that stocked the most of those phone types.

What’s not to like about this? Most other search engines charge their merchants for listings, or at the minimum charge the merchant if a user clicks through on their listings. This seems almost backward, like in the old days of 2000 when search pioneer Overture charged companies for listings — opening the way for Google to take the high-road and list search results based on relevance.

It turns out, though, that web crawling has many challenges, because it will pick up all kinds of unreliable data. It will find products, but won’t be able to tell if the price associated with the products includes shipping fees. Sometimes, it will find old Web pages with obsolete data. Other times the crawler will mistake a shipping cost price for the product price, and so on. All of these problems forced Google’s Froogle and others to give up on crawling, and to rely on accepting feeds of listings from merchants. That’s also what Become.com settled for, according to chief executive Michael Yang.

On Thefind.com, if you search for “Elnett” hairspray on Thefind.com, or “vienna acoustics bach,” you will get more listings than you do on Become.com or other engines. But if you search for other things, there can be lots of bugs. For examples, say you search for “Canon SD450.” You’ll find TheFind has prices all over the map. It has some going for the going rate of $299, but also has listings for $210. If you click on the one for $109, you end up on a page with no such camera.

These are intractable problems, says Become.com’s Yang. However, for Thefind.com chief exec Siva Kumar and vice president of marketing, Larisa Hall, such things are short-term bugs related to its test launch, and can be ironed out later. We shall see.

There’s also a question of how thefind.com will make money. The company will turn more seriously to revenue building next year, its execs said, by listing ads beside results — like Google does.

Of the company’s 27 employees, 18 are developers, Kimar said.

Thefind.com is the latest incarnation of Fatlens, which focused on searching for event tickets (which we wrote about here). The company raised an $8 million first round of capital last year from Redpoint Ventures, Lightspeed and Cambrian.