VentureBeat

updated
Kevin Fong, partner at Silicon Valley’s Mayfield Fund, is leaving the firm, VentureBeat has learned.

The move is significant because Fong was one of the first high-profile Asian venture capitalists in the valley. He was considered a rising star in Silicon Valley two decades ago, when he was first groomed to lead the firm. The departure was formalized Friday, after a consultation with the firm’s limited partners.

Fong and his colleagues had some early hits (Redback, for example) that helped bring Mayfield into a class of top-tier Silicon Valley venture firms. It was mentioned in the same breath as Kleiner Perkins, Sequoia, Accel and Benchmark.

But since the initial Internet boom ended in 2001, the firm has struggled — and its difficulties reflect the challenges of the entire VC industry. Mayfield had specialized in building the large internet infrastructure companies during the early years, but failed to adapt as the industry has moved on. We reported on the firm’s rocky times: Fong, as one of the firm’s recognized leaders, promised more than two years ago the firm would do better. It has certainly tried. It has hired several younger partners, and has expanded into China and India. It has seen several companies get sold or go public, but they haven’t been the massive hits that its investors like. Fong himself has seen few of his companies do well lately. 3Par, a storage company, did go public, but that company’s stock has declined markedly since going public in November, albeit along with the rest of the market. It’s not clear whether Mayfield will make money on the deal, because it joined other investors to pump more than $180 million into the company over many years. Tasman, another company pumped full of money and kept on life-support for years, sold at cost in 2006.

It’s also not clear whether Fong was pushed out or left voluntarily. In the valley, it’s a cliche that the only constant is change. Fong ushered in major change in the VC landscape, helping bring much needed diversity to the Sand Hill Road investing community — and he deserves credit for hire a diverse group of other partners too. It’s also true that a venture capital firms needs to renew itself to adjust and thrive, and so the move to allow a newer generation to take over is no doubt a good one.

We’ve contacted Mayfield for comment, and expect to update shortly after hearing from Fong or his partner Yogen Dalal.

Update: Dalal took the call, and confirmed the departure. Fong wanted to spend more of his time in China, Dalal said. He’ll stay on the investment committee for GSR II, a joint venture Mayfield runs in China. Dalal said limited partners were fine with Fong’s decision to leave, but hadn’t demanded it. Dalal said the rest of the team is committed, and that the firm has done well over the last year. Dalal recruited younger partners Raj Kapoor (former CEO of Snapfish) and Navin Chaddha, who has done well (top ten on Midas List). The firm plans to raise another fund next year.

Alfresco Software is the latest player hoping to kill high-priced software for large companies.

It’s one of a number of vendors of “content management” software. But it’s open source, and dirt cheap relative to others in the so-called enterprise content management (ECM) sector: Filenet (IBM), Interwoven, Documentum, Vignette, and Microsoft’s Sharepoint. Many of these emerged from the last Web boom, but they’re looking less dynamic these days.

Alfresco lets companies manage their documents online, and also lets them do everything from store those documents securely to keep them out of the wrong hands if they are sensitive.

The London, UK company has raised $9 million in a third round of financing led by SAP Ventures, bringing total funding to $19 million. Existing investors Accel Partners and Mayfield Fund also joined the round

Alfresco was built from scratch with Web 2.0 capabilities, including more seamless collaborative features. Employees at many large companies have started communicating through Facebook, for example, so Alfresco moved to make sure its application was built into Facebook’s platform (see screenshots, below). It has also built an application for iGoogle.

“Demand is going through the roof,” said John Powell, founder and CEO. He said the company is headed toward profitability, now that it has signed up hundreds of customers including five of the top ten investment banks, Electronic Arts, KLM and H&R Block. The company is about to hit an annual run rate of $10 million in revenue, Powell said. He adding he thinks the company will “be able to go public in 2009.”

People wouldn’t stop telling me about Jawbone, the Bluetooth headset that shuts out incoming and outgoing noise with technology that has been tested in battlefield conditions.

So I picked one up over the holidays, for its standard price of $119. Here’s how good it is: After arriving back in San Francisco, I was on the noisy public transport system, BART, when my brother called. I answered with my Blackberry, but without the Jawbone. After exchanging a few words, my brother, an impatient business man, got frustrated with the raging noise of tracks and blaring service announcements in the background. He told me to call him back when I got to a land line. I hung up, pulled out my Jawbone, and called him back. “That better?,” I asked. Yes, he said, in amazement. “Do you hear anything in the background?,” I asked. “No, I don’t hear anything,” he said, and we talked peacefully for the rest of my trip.

Jawbone must be selling well, and that’s probably why Sequoia Capital, one of the valley’s top venture capital firms, has apparently just invested $30 million more into the company’s San Francisco-based parent company, Aliph. That adds to the $14 million the company already raised (see our earlier coverage ). Jawbone’s others backers include Vinod Khosla and Mayfield.

Another reason I bought it when I did is because it caught my eye while I was in a Verizon store. Its appearance in Verizon stores is relatively recent, and gives the Jawbone even more distribution. Previously it was carried in AT&T, Apple and Best Buy stores.

Techcrunch earlier caught rumors of a “boost” by Sequoia, but the size of the boost was just disclosed to us by a well-placed source. We’re trying to get a confirmation directly from the company.

I’ve since tested it in other conditions, including loud coffee stores such as Starbucks, restaurants, and in windy, rainy outdoors. I’ve found that in the worst of these conditions, the people I talk to can sometimes get a muffled effect, especially in the wind. But if I spoke clearly, the conversation went well enough in each situation. This will create new hassles for Starbucks: The chain plays loud music, in part, to keep folks from doing too much office work in their stores. Now they’ll have to gird themselves for the Jawbone crowd.

My recommendation to Jawbone: It’s time to come out with different shape, styles and colors. One drawback to buying a Jawbone is that there are already too many people sporting the exact same thing. There are only three different colors, all conservative. How about a hot pink for Valentine’s day?

updated with input from Affinity

Monster, the giant job listing company, has acquired Silicon Valley’s Affinity Labs, a company that runs several online community sites — including for police officer, healthcare employees, teachers, government employees and technologists. The purchase price was about $61 million.

This is an eyebrow raising price, because most of Affinity’s sites are just a few months old, and we’re told they have less than 500,000 visitors a month combined. In other words, the price translates into $122 a visitor, which is relatively high. [Update: Affinity tells it gets 800,000 visitors a month, which translates into a more reasonable $76 a visitor] It’s a big win for Affinity, which received a $6 million round of capital a year ago from Silicon Valley venture firms Mayfield and Trinity (yes, at the time, we cited a source that said $10 million, but the company took only $6 million).

On the other hand, Monster has a tight relationship with Affinity’s chief executive, Christopher Michel (pictured top), who served Monster well earlier: He co-founded Military.com, and sold it to Monster in 2004, and it has since become a leading portal for military personnel and their families. Monster bought that company for $40 million when the Internet market was still depressed after the bubble burst. But Military.com has since grown to more than 7 million uniques a month, and is probably worth on the order of $700 million or more for Monster right now.

And the visitors to Affinity’s sites have focused interests, making them attractive to advertisers. They’re easier to target. Because the sites are aligned according to industry vocation, it makes them especially attractive to a company like Monster, which specializes in job listings. Strategically, this acquisition makes a lot of sense, and the overall price, while high for Affinity’s current traffic, isn’t that much considering Monster’s size.

[Update: I just talked with Michel, and he confirms that he's going to be working closely with Monster to help bring it more visibility in Silicon Valley, working with other companies with community-oriented sites to see if a relationship with Monster makes sense. Update II: He adds that a million members have registered at Affinity's sites.]

Here’s part of the statement:

Monster has acquired Affinity Labs Inc., a development stage company that operates a portfolio of professional and vocational communities for people entering, advancing and networking in certain dedicated occupations. Affinity’s network of vertical community sites will provide Monster’s overall user and job seeker base relevant content and community features while enabling the Company to increase its online advertising services to a larger, targeted customer base.

Sal Iannuzzi, Monster’s Chairman and Chief Executive Officer, said, “We believe Affinity’s model complements the core Monster business and significantly enhances our presence in key verticals within the online vocational and networking market. Our investment in Affinity provides Monster with an efficient vehicle for developing future revenue streams in vibrant career fields while permitting us to actively invest in product, technology and brand support in our core business. The addition of Affinity Labs to the Monster family will benefit both job seekers and customers in the vertical markets where Affinity operates.”

Affinity uses a technology platform that allows for rapid development cycles and scalability in servicing multiple high growth career fields. Currently, Affinity operates 7 professional and career oriented networks that include law enforcement, healthcare, education, government and technology. The combination of Monster and Affinity Labs will enhance Monster’s service offering to job seekers by providing highly relevant content through career guides, industry job searches, trade news and social networking. Employers will also benefit by having efficient access to a targeted pool of job candidates in desirable career fields. Monster and Affinity were parties to an agreement, signed early in 2007, that leveraged Monster’s advertising sales force and allowed job seekers access to Affinity’s portfolio of sites when registering for a MyMonster account.

Affinity Labs is led by Christopher Michel, the founder of Military.com, which was acquired by Monster in 2004 and has become the leading vertical portal for military personnel and their families. Mr. Michel will join the Monster executive team and report directly to Mr. Iannuzzi.

The purchase price for the transaction was approximately $61 million in cash. The Company does not anticipate the acquisition having a material impact on financial results in 2008. Monster was advised by Goldman, Sachs & Co. on the transaction

There was struggling Classmates.com.

Now it’s more data storage companies. They’re all losing money, but running like lemmings to go public before the IPO window shuts. The window of IPO opportunity is still open, but precariously so, because the liquidity crisis hitting the markets is making investors very nervous.

The latest is 3Par, of Fremont, which has filed to raise $100 million even though its losses are widening ($4.7 million in the quarter ending June 30, up from $2.2 million the same quarter last year). Its sales are growing, but the cost of getting those sales is growing just as quickly, as its filing shows.

OnStor, a Campbell, Calif. company offering data storage for large companies, is preparing to go public, after a rocky ride. Isilion Systems went public a while ago, and is losing more money than expected. Data Domain went public, and saw its shares rise despite seeing deepening losses. Other companies, such as Siliconstor, are selling off to others.

Notably, some of these companies may feel pressure from their investors to go public. Mayfield Fund holds 19.5 percent of the 3Par, Menlo Ventures owns 17.8 percent, and Worldview Technology Partners has 15 percent, most of these having held their stakes for more than eight years. WorldView, in particular, is under pressure, having had a long struggle with its portfolio (as we’ve reported) - and is exposed to storage more than most. It’s also an investor in OnStor, for example.

3Par has absorbed more than $180 million over the years. 3Par at least provides “virtualization” technology for data storage, which gives it some buzz at a time when virtualization is hot (VMware, a leader in the virtualization sector — though not storage focused — just had the largest tech IPO since Google).

3Par’s filing wasn’t unexpected. We mentioned its plans here.

Aliph, a San Francisco company that makes the Jawbone line of headsets for mobile phones, boasting noise cancellation technology tested in battlefield conditions, has raised more than $5 million in funding from Khosla Ventures, according to GigaOm.

The company has operated since 1999, and sells this latest bluetooth headset at the high price of $120. AT&T carries it in its stores, as does Apple and Best Buy. It says it has sold more than 100,000 Jawbone units. However, it isn’t yet profitable. The company has now raised a total of $14 million. It was initially backed by Mayfield.

MovieBeam, the service that tried to deliver movies over a set-top box, has been sold for less than $10 million, a major loss for investors and sign of how quickly the movie industry is changing — and consolidating.

Movie Gallery, a major video rental company, is the buyer.

MovieBeam had tried to deliver its movies over a box costing between $100 and $200. People then had to download the movies. But few people want pay for such a box when there are so many cheaper alternatives, especially lately.

After losing $56 million in 2005 on the nascent video service, original owner Disney spun out the service last year, and MovieBeam got $48.5 million more in funding at that time from a group of Silicon Valley venture firms, including Mayfield, Norwest and VantagePoint, as well as Intel and Cisco. Disney retained a stake too.

But in less than a year, that effort apparently had failed. Movie Gallery said in its statement that it “expects that the total incremental expense related to MovieBeam, including the initial acquisition cost and any ongoing development expenses will be less than $10 million in 2007.”

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.

Here’s another story (Mercury News) about the differences between the venture and start-up communities on the East and West coasts.

Separately, note that the most ridiculous examples of self-absorbtion do not necessarily hail from Silicon Valley, as some might assume.

The start-up that filmed itself during the boom era of 2000, Govworks.com (the company of Kaleil Tuzman’s, pictured top, which became the documentary Startup.com) was based in New York City. And this year’s self-absorbed company, PayPerPost, is based in Florida (we wrote about PayPerPost here). It has launched Rockstartup to video-chronicle its journey. It has the obligatory episode of the founder Ted Murphy in the car, before and after meeting with venture capitalists (click on image above for video). Of course, Murphy comes back after the meeting, boasting he’s raised $3 million in three meetings, and is going to make his partner so rich. Both PayPerPost and Govworks raised money from Silicon Valley VCs (Govworks raised $60M, including from Mayfield, PayPerPost from DFJ), so valley VCs are partly responsible for this sort of excess too. What do you think? Will PayPerPost bomb, like Govworks did? Techcrunch also takes note.

Also, not sure what the Mercury News meant by the East Coast having an advantage in biotech. There’s evidence that the Bay Area is ahead of the Boston area in this field too.

(Updated with Web site URL)

San Mateo start-up BlackArrow has raised $14.75 million to develop a way to insert advertisements in TV and Internet video programming, and it shows the ads even if people try to skip over ads with their DVRs.

It has been secret until now. But this is pretty serious cash for an unknown company. It is, after all, a pretty serious proposition.

Here’s how it works: Take ABC, a network that sells 30-second advertising spots. Roughly a quarter of US households have digital video recorders, and that percentage is growing — and they’re skipping the 30-second spots in greater numbers. Advertisers are now saying that’s uncool, and so ABC says, “Aha, but we can offer enhanced ads — those that are played during the pause, ffwd modes” in video-on-demand and DVR households. So after the original show airs on TV, ABC syndicates the show to their own video web site, potentially other websites. The 30-second TV spots are removed and replaced with a group of pre-roll, mid-roll, post-roll ads, as well as companion ads (those that occupy real-estate around the video window) that are shown in the various playback modes. BlackArrow handles the brokerage and placing process by providing these new forms of ad inventory.

The funding comes from Intel Capital (yes, there is a trend here lately), Mayfield and Polaris Venture Partners, as well as Comcast.

Filling out its portfolio of online office applications, Google has acquired wiki company JotSpot for an undisclosed amount.

Co-founder Joe Kraus (pictured here) says he “couldn’t be more excited,” and we can understand, given his rocky ride several years ago at search engine Excite.

Kraus had been badly burned, and we could sense in Joe an intense, but quiet determination while building Jot that he was going to do this one right.

Way back in 1993, Kraus was 23 and a senior at Stanford, when he and five others co-founded Excite. Excite went public and was valued at $183 million in 1996, and was acquired AtHome in 1999 for $6.5 billion in stock. Pretty giddy times.

But then things went poof. ExciteAtHome imploded when the Bubble burst, after some major strategic and management blunders, let alone the market problems — many of them out of Kraus’ control. It shut down, and its assets sold for $10 million.

We don’t know how much Jot was sold for, and it’s probably not for much, but was almost assuredly for a profit — otherwise Kraus wouldn’t have sold. Kraus had raised more than $5 million from Redpoint and Mayfield.

It is also a victory because Jot was founded in late 2003, after other wiki companies like Socialtext. Socialtext is struggling.

We’d tried various wiki software programs, and ended up selecting Jot for our internal project to launch VentureBeat this year — and even paid for it — mainly because its user interface is intuitive and friendly.

From Joe’s blog:

Three years ago my friend Graham Spencer and I set out to start a new company….. We brainstormed scores of ideas, debated late into the night and ultimately exchanged a mountain of email and documents. We realized we needed a tool to help us organize our thoughts or we’d quickly become overwhelmed. So Graham set up a wiki. I was hooked because it immediately changed the way we worked together. Everything was kept in one place, not locked in email threads or on different computers. We could both make changes to the same document, without having to know HTML (well, without me having to know HTML). After twenty minutes of using a wiki, I was convinced that they were like the Internet in 1993 — useful, but trapped in the land of the nerds (which both Graham and I proudly inhabit). So we set out to start JotSpot as a way to bring the power of wikis to a much broader audience.