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Chat room site IMVU has been quiet for four years. But the company is announcing today that it has more than 20 million members in its online community where people can use 3-D avatars, or virtual characters, to meet in rooms and trade virtual goods.

The Palo Alto, Calif.-based company also says it has the world’s largest catalog of virtual goods for sale, with over 1.5 million 3-D items. Chief executive Cary Rosenzweig (pictured below) says the company has built the equivalent of the eBay of virtual goods. Sales of such goods are generating $1 million in revenue a month for IMVU, which thrives on a so-called “micro-payment economy.”

IMVU is now the No. 6 largest virtual world, according to Hitwise’s May data (see chart below). That’s up from No. 8 last year.

“We have quietly built IMVU into a major online economy,” said Rosenzweig, chief executive of IMVU. “We’re making money by introducing buyers and sellers of virtual goods.”

The company is the brainchild of IMVU chairman Will Harvey, a veteran game developer whose last creation was the virtual world There.com. Rozensweig says Harvey’s new effort is succeeding because it focuses on the creation of a great avatar and then builds an experience around that avatar. By contrast, There.com and other virtual worlds create an environment and then work their way down to the avatar.

The difference between IMVU and worlds such as Linden Labs’ Second Life is that there is no world in IMVU. There are countless individualized rooms created by the members. (Or they can choose from among 50,000 pre-fabricated rooms). And members interact by visiting the rooms, but there is no virtual world that is physically represented in 3-D graphics. The rooms can grow to become vast forums, although, according to Rozensweig, the company focuses on “one-to-one communication, or small groups.”  One of the big benefits of rooms over a full virtual world is that server costs are much lower for IMVU. Roughly half of the users are female, compared to typical online games that are mostly male.

Members of the world create their own 3-D animated characters and equip their rooms with virtual goods. The animations are stylistic, not realistic, but they look much better than rival 2-D experiences such as Sulake’s Habbo. People can chat instantaneously, shop through a virtual goods catalog, play games, talk on forums, and use developer tools.

The world is still in its public beta and only emerged from stealth mode last Friday during a panel that I moderated on user-generated games at the Social Gaming Summit in San Francisco. The company’s investors include Menlo Ventures, Allegis Capital, and Bridgescale Partners. The company has raised more than $20 million in three different rounds. The most recent was an $11 million round in April 2007.

In the next week or two, the company will launch prepaid cards to enable members to buy credits that they can use to buy virtual goods in IMVU. The cards will be available in major retailers such as Target, 7-Eleven, Blockbuster and Speedway. That will help younger people who don’t have credit cards to participate in the world more easily.

More than two million virtual goods have been created — about 3,000 each day. About 500,000 of those are 2-D stickers that people can use to customize their personal home pages. Other goods include clothes, accessories, pets, and scenes for rooms. People are creating the goods to express their own personalities, Rosenzweig said. (See sample room pictured left).

IMVU has 60 employees. The sweet spot for IMVU is adults ages 18 to 24.

A startup called Parascale is preparing to launch software that chief executive Sajai Krishanan says will help media companies deal with ever-increasing storage needs. The company has just raised $11.37 in its first round of venture backing.

Computing and storage in the Internet “cloud” are hot right now, with big players like Amazon and Google offering their own cloud services. There are even startups like RightScale (which raised $4.5 million from Benchmark Capital in April) providing software to make managing your Amazon servers easier.

Cupertino, Calif.-based Parascale offers storage management software as well, but it rather than sitting on top of Amazon or another sevice in the cloud, Parascale connects a network of Linux servers that its customers own. As a company grows, and its bandwidth needs increase, owning servers rather than buying space from Amazon or Google allows a company to “control its destiny,” Krishnan says. That’s particularly relevant in light of Amazon’s occasional outages.

Companies like PolyServe (now owned by Hewlett Packard) and Ibrix provide similar services, but Krishnan says those are older companies designed for an earlier wave of computing needs, rather than the intense data demands of online media. For example, he says most competing software is designed to connect a server network with dozens of nodes, while Parascale is designed to connect a network with hundreds of nodes.

The startup is still in testing mode, and according to Krishnan, Parascale’s already-announced customer Blue Coat Systems doesn’t require the massive storage that the company says it will offer. So it’s not certain whether Parascale will really be able to easily manage the hundreds of nodes that Krishnan claims. Still, lead investors Charles River Ventures and Menlo Ventures have found success in the storage market before — with the sales of EqualLogic for $1.4 billion and Spinnaker Networks for $300 million, respectively.

Parascale was seed funded by Amidzad Partners, also an investor in VentureBeat.

The new funding will be spent on the final stages of Parascale’s development, and on marketing once the product has launched, Krishnan says. He predicts that there will be particular demand for the company’s service in four markets that need to store and easily access vast quantities of data — streaming video and audio, movie archiving, oil and gas research and genetic research.

Social networks aren’t just for fun. A new company leverages existing networks to help students do something really useful — obtain low-cost college loans from friends, family and other benefactors in the same social circle that the students may not even know about.

GreenNote is debuting a site Wednesday that lets a student do just that. The Redwood City, Calif. company is opening up a new micro-finance alternative for students who may have trouble getting loans because they can’t pass a credit check, find a co-signer or show proof of citizenship. GreenNote matches the students with lenders who may not be aware of the student’s need; the lenders can bear just part of the cost and get the satisfaction of sending someone in their social circle to college.

Ideas like this make me realize how social networks are really useful. This idea is the latest twist on how the Internet — and social networks in particular — can make it much more efficient to gather small amounts of money for those who need it. It’s akin to Kiva.org, which we wrote about a few weeks back, as well as the original micro-finance company Grameen Bank, which both make small loans to the poor.

“All of those things have been inspirations to me in trying to build something that can scale,” said Akash Agarwal, founder and chief executive of GreenNote.

Originally from India, Agarwal had a tough time getting loans when he migrated from the United Kingdom to the U.S. in 1994 at the age of 27. He had no credit history and so he couldn’t get loans for college or even a car.

“I took out all the loans that I could get,” he said. “GreenNote is better than relying on just friends and family alone because you might find a person affiliated with your network who will support your cause. You can find someone who is proud to send someone else to college.”

Students know there is often a big gap between a family’s expected contribution and federal educational support. To fill that gap, private lenders have stepped in, proving $25 billion in loans every year. But they’re charging students with interest rates as much as 20 percent.

At the moment, the credit crisis is hurting students’ ability to get college loans. Homes are also no longer ATM machines via home equity loans. Tuition is going up and this year is one of the peak demographic years for college applications because the children of the baby boomers are hitting college. That’s why Agarwal believes there’s a need for GreenNote.

GreenNote itself isn’t a new social network; it leverages existing networks to find lenders. Among those it will support include Facebook and Open Social-based networks.

The student’s closest friends don’t have to be the source of the most money. The friends’ big purpose is to pass the request on to their own network of friends. Eventually, the request can reach someone who really doesn’t mind parting with some part of the money or all of the money for the loan.

The current GreenNote interest rate is fixed at 6.8 percent. To get a loan, a student fills out a profile and loan request. GreenNote formalizes the agreement into a legally binding loan and handles all details from loan documentation through repayment. Payment can be deferred for up to five years and repayment terms can be as much as 10 years with no prepayment penalties. But the loan isn’t a donation (unless the lender specifically designates it as such). If the student fails to pay off the signed promissory note, his or her credit history gets a black mark.

The company raised $4.2 million in its first round in October, 2007, from Menlo Ventures and Glenbrook Partners. Its board includes the former CEO of both Intuit and PayPal, Bill Harris. The company has 15 employees. Agarwal says he is likely to look for more money in the future.

GreenNote plans on marketing its services through financial aid officers in post-secondary schools across the country. Richard Toomey, associate vice provost at Santa Clara University, said that the GreenNote service is a powerful new way to finance college through people you know.

You know, I’ve got some kids who are going to hit college age eventually. I guess I better befriend Bill Gates and all of the other billionaires I can find on Facebook, so I can be ready to use GreenNote when those bills start rolling in.

Mobile entertainment provider PlayPhone is announcing today that it has acquired Pitch Entertainment Group as part of its global expansion. The purchase price wasn’t disclosed.

San Jose, Calif.-based PlayPhone aggregates mobile content and offers it directly to consumers, who can download it onto their mobile phones. Pitch Entertainment Group, based in London, does the same thing in the European and Brazilian markets.

PlayPhone specializes in obtaining content from big brands from Disney to Sony. Then it takes that content direct to mobile phone consumers. Combined with Pitch Entertainment Group, the two companies will be able to reach 400 million mobile phone consumers, said Ron Czerny, CEO of PlayPhone, in an interview.

“We grew 400 percent in 2007,” said Czerny.

The top content — more than 60,000 branded items — includes music, particularly hip hop; games, videos and wallpapers. Czerny said that the company plans to reach a billion users by the end of 2009.

The companies will have 200 employees and offices in dozens of countries including Europe, North America, Brazil, Africa and China.

PlayPhone has raised $30 million to date. It last completed an $18.75 million third-round of funding in May, 2007. Its investors include venture firms Menlo Ventures, Cardinal Venture Capital and Scale Venture Partners. Pitch Entertainment Group was privately owned. PlayPhone plans to raise a new round soon.

The combined company will compete with rivals such as Spain’s Zed Group and Jamster, which is owned by News Corp. and Verisign.

Every part of our visual life is being taken over by video.

SellPoint is just the latest company to conspire with the takeover: The start-up produces online video tours for products, and is replacing that comely sales representative who once greeted you at your neighborly electronics store. To develop the tours, SellPoint studied everything an on-site salesperson might provide, then tried to offer an online equivalent. Potential buyers can look at a product, of course, but they can also get an overview of its features and download pamphlets and other material. (Check out a sample product tour here.)

The popularity of SellPoint’s tours has increased dramatically in the past year, says chief executive Rick Martin. Manufacturers are realizing that even if online sales aren’t a big moneymaker, many shoppers are doing their initial research on the web.

Manufacturers like Canon, Epson and TiVo have hired to SellPoint to create these tours and syndicate them through a network of more than 100 online retailers.

Web Collage syndicates promotional material and Vendaria Media can create similar content, but Martin says SellPoint is the only company that both produces the content and syndicates it.

SellPoint started out in 2000 under the name Ten Toe, but it didn’t find its current business model until 2005, which is also when it raised a its first $7 million of venture funding. This second round money comes from Granite Ventures and previous investor Menlo Ventures.

Leading video-sharing web site YouTube may have just launched a new mobile web version of its site, but startup mobile video site Mywaves doesn’t seem to care, because its growing fast around the world.

Mywaves launched towards the end of 2006, and is now getting around five million unique visitors a month, with the average user spending 24 minutes per session. A total of 18 million phones have been used to watch videos on Mywaves, it claims.

The Sunnyvale, Calif. company offers both a mobile-compatible web site and a mobile download application that lets you watch user-submitted videos, or watch professional videos provided by partners like Fox, CBS and other big media companies. The site includes user profiles, email and text messaging, a way to rate videos, and a channel for your favorite videos. It uses demographic information about users to serve them relevant videos, based on where they are in the world.

It has just released versions mobile download application for Palm Treo 680, 700p, 755p, Palm Centro and BlackBerry Pearl 8130. Windows Mobile compatibility is slated to be introduced later this year. It otherwise works on 3G, EDGE, BREW and EV-DO carriers, and other most video-capable mobile phones,

It has received funding from here).

Silicon Valley company NComputing has quietly emerged as a significant force in distributing cheap computers, and has just raised $28 million in a second round of funding to help it expand.

The company has a valuation in the hundreds of millions of dollars, Stephen Dukker, Chairman & CEO of NComputing, told VentureBeat.

The company, which uses “virtualization” technology to hook up multiple devices to a centralized computer (see image below), sells the PC devices for $70 each. VMWare, another Silicon Valley company, had one of the hottest IPOs last year, because it offers virtualization software for corporate servers (lets multiple operating systems operate on a single server, thus reducing the number servers needed, and thereby lowers costs). NComputing takes the same concept to PCs, which is considered the next wave.

Forget the One Laptop Per Child (OLPC), another low-cost computer effort, which is seeing management and investor defections, and limited sales. OLPC was supposed to sell for $100, but it is selling for more. Because it sells directly to governments, and relies on those governments to provide support service. The total costs of each OLPC ends up being closer to $800, Dukker argues.

NComputing, based in Redwood City, Calif., says it has already blown past the OLPC in sales, having sold almost 600,000 of its devices already, including 180,000 of the devices to the entire student body of Macedonia. It says OLPC has sold fewer, but didn’t say what the total OLPC sales figure is.

The funding was led by Silicon Valley venture capital firm Menlo Ventures with participation from existing investors Scale Venture Partners and Korea’s Daehong Technew Corp.

The company, which launched its offering 18 months ago, aims to sell its computers to a billion people who so far haven’t been able to access computers.

The technology was developed in Germany, Poland and Russia over the past decade, said chief executive Dukker.

We asked Dukker, who is quite the salesman, about how his margins look (we had a half hour conversation and managed to get in about four or five questions edgewise). He said the marings are significant: NComputing lets distributors take a ten percent-plus cut, and end-dealers will take between 20 and 30 percent cut on top of that — all of this from the sale price of $70. The cost of the device cost “as little as $11″ to make, and so my back-of-the-envelope math suggests the company is making at least a 200 percent return. “You’re in the right neighborhood,” Dukker said in response.

Each device uses about a watt of power, versus 85 watts for a regular PC, he said. With a regular PC, only one to five percent of a PC processor’s power is used at any one time. So NComputing lets up to 30 users share a single PC. See illustration below.

NComputing’s PC devices are attached a central computer, and so the devices (”dongles”) can used through multiple upgrades of a single computer — thus are less likely to become obsolete, said Dukker.

In an earlier incarnation, Dukker ran Emachines, a low-cost ($400) computer company that emerged during the last Internet bubble. It sold two million systems in its first year, and was the “fastest growing company in the history of American business” said Dukker — but it had a difficult time making money because of the intense price competition in computers. It that was later acquired by Gateway.

NComputing serves consumers, and has few direct competitors. Companies like VMWare, Citrix and Mcirosoft sell to large companies, and typically charge much more money for a similar setup (on the order of $700 per user).

NComputing earlier raised $8 million from ScaleVC, formerly known as BA Venture Partners (see our earlier coverage).

1. Invidi gets $25 million from WPP, the world’s second largest ad conglomerate
2. Amazon building out its webs services
3. Atheros Communications buys micro GPS company
4. Google may be looking at wireless spectrum in the UK
5. Tiny Pictures, a mobile photo-sharing company, adds international language support

Invidi gets $25 million from WPP, the world’s second largest ad conglomerate — Most people think of Google and Yahoo as the new online advertising giants. But WPP is moving aggressively to upgrade its ad technology. It’s most recent move is to invest in Invidi, a company that targets ads to TV set-top boxes of individuals depending on their age, gender, location, income and ethnicity. It gathers the data by analyzing remote control, ratings, and program guide information along with census data. The Princeton, NJ startup earlier got capital from EnerTech Capital, InterWest Partners and Menlo Ventures, all of which returned to invest in this latest round. More details here.

Amazon building out its webs services — It has released SimpleDB, which provides database functions for young companies, without the need for a database administrator.

Atheros Communications buys micro GPS company — Atheros, the Santa Clara, Calif., maker of wireless chips, said it will buy u-Nav Microelectronics, a company that boasts the smallest and lowest power Global Positioning System (GPS) chip, including the one used in the Casio wristwatch for runners. The price is $54 million. More details here.

Google may be looking at wireless spectrum in the UK — That’s the gist of this CNET article, at least. The British telecommunications regulator OfCom will auction off a wide range of wireless radio spectrum within the next couple years, including the 700MHz band. However, A federal law prohibits Google from commenting on its plans outside of the US, as the company has committed to bid on spectrum in the US. The US Federal Communications Commission will auction off the 700MHz spectrum in January, which Google could use to offer its own mobile phone and mobile internet services. The company says it may reveal more of its international plans after the US auction is complete.

Tiny Pictures, a mobile photo-sharing company adds international language support — The San Francisco company’s service, known as Radar, lets you share and comment on photos from a mobile device and from the web. It already has 70 percent of its 630,000 total users outside of the US (previous coverage). Now, it is adding French, German, Italian, Spanish and Portuguese WAP versions of its site, hoping to encourage existing users in many countries to add their friends. Chinese and Japanese versions are soon to follow, the company says.

For years, companies like Cisco, and all the little piranha start-ups nibbling at Cisco, have sought to make communications simpler for companies and their employees.

Adomo, of Cupertino, Calif., is the latest Silicon Valley start-up attempting to give employees a way to bring together voice and email messages on a single networked “platform.” It comes at a time when there are more opportunities than ever to open up such platforms to integration with other social web services — which could make employees more productive. Whether or not Adomo exploits this or not, remains to be seen.

It has raised a new round of $15 million from Menlo Ventures and Storm Ventures.

Adomo lets companies integrate their existing phone systems with internet phone systems (VoIP) and other business communication software, such Microsoft Outlook and Exchange. You can choose to get your messages and email on your PC or mobile phone, or both. You can do things like receive emails with audio files of your phone messages, with subject lines that include the name and number of the caller. The company matches up callers with company and personal address books, so you can learn more about who’s calling and figure out who you need to call back, first.

Adomo clients — Fortune 5000 companies in finance, health care, manufacturing and other industries — have customized, complex amalgamations of communications software that their IT departments have pieced together over the years. So-called “unified messaging” has the potential to make these companies’ employees more efficient through streamlining their communication processes.Competitors like Cisco offer complete telephony hardware and software packages for hooking up internet-based phones within organizations. But this may require replacing existing telephony system. Adomo’s modular software can provide a similar service more cheaply and easily, chief executive Mathew Frazer tells us.

Interestingly, the company also says it will begin offering more communication software on top of the messaging system. The company didn’t give us any specifics but it’s worth noting that consumer-facing web services are beginning to merge with business software. For example, business software company Oracle has joined Google’s new OpenSocial initiative, a developer platform. Here, a third party could build an application that runs inside of Oracle as well as other OpenSocial partners, such as business social network LinkedIn.

While OpenSocial is still in the early stages of development, an application that automatically shows an employee LinkedIn data within Oracle software could help the person to make connections with people they might not otherwise find.

Adomo has an interesting opportunity to tie big business communication together with these social web services. If employees could match their messages in Adomo with their contacts in related software provided by Oracle and LinkedIn, they might make useful connections even more efficiently.

Adomo says it will use the funding to expand product development, marketing and sales efforts.

This is the company’s second recapitalization, as VentureWire notes (subscription only), which means it has apparently struggled and had to revalue itself. It raised nearly $8 million between 1999 and 2002 from individual investors, strategic investor Hexagon and Bridge Venture Fund III, an angel fund.

Since its first recapitalization in 2002, it had previously raised $20 million from Menlo Ventures, Storm Ventures and private individuals.

Update: Phiar has shut its doors, according to GigaOm.

A competitor to semiconductors would break a 50-plus year monopoly on everything from processing power to communications. Yet that’s exactly what Phiar says it can do, with a new technology called metal-insulated electronics.

The new technology uses a phenomenon called quantum tunneling to achieve greater speeds and efficiencies than semiconductors. It essentially makes low-energy electrons tunnel directly through the insulating material of the electronics, whereas most semiconductors change the electrical states of electrons to channel them through specific bands. Think of it like pinball; semiconductors shoot the electron around the side, while Phiar’s technology prods it right through the barriers.*

However, there are decades of history behind using semiconductors. Even if it’s possible for Phiar to spark a computing revolution, it won’t happen overnight, or even in a decade. That’s why the company is starting off in two vital areas it thinks it can dominate: Short range communications and flash memory.

Take communications. Imagine, if you can, transferring a movie from your computer to a nearby television in as much time as it would take to slide a DVD into the player.

That’s possible today, using the 60 gigahertz wireless spectrum, but the materials used for the semiconductors, indium phosphate or gallium arsenide, are extremely expensive and difficult to integrate with silicon, the cheap standard material used in semiconductors. Several corporations are at work on modifying semiconductors for 60GHz, but Phiar says its devices will be much cheaper.

The metal-insulated chips used by Phiar will also be less power-hungry than semiconductors, meaning they can be used in devices like cell phones and laptops without quickly draining their power. And metal-insulated electronics can be “grown” on top of silicon. Phiar is currently in a co-development deal with Motorola for the devices, among partners.

For flash memory, Phiar similarly promises to make large strides forward, again in speed but also in miniaturization. There are currently two competing types of flash memory, NAND and NOR; the former being slow but densely made (and thus small), the latter being fast but less dense.

The company says it can bridge the gap between the two technologies, packing more cells into less space but using the innate properties of metal-insulated electronics to break through speed barriers that semiconductors have not yet reached.

Bob Goodman, Phiar’s CEO, told us that the company has a deal with a major flash manufacturer, but couldn’t disclose which one.

We’re talking about a potentially huge story for the computing world here — that is, if the company is successful in spreading its technology. However, it’ll be tough to break the existing relationships around semiconductors — a $200 billion industry — and create a new ecosystem for technology that is still unproven.

Goodman acknowledges that ongoing research in semiconductors could yield a breakthrough to challenge metal-insulated electronics. Everyone is eager to add 60GHz networking, the equivalent of Bluetooth sped up hundreds of times over, to their products. A partnership between IBM and semiconductor maker MediaTek is just one of the many projects chipping away at modifying semiconductors for 60GHz.

Phiar thinks its technology will win out, though, as it’s a physical impossibility for today’s semiconductors to achieve the speed feats of metal-insulated electronics. Mark Siegel, a partner at investor Menlo Ventures, told us it’s unusual to see a technology with as much potential, saying, “It’s very infrequent that we’d invest in something so early, but the technology really is novel.”

He thinks that the company has the potential to raise money through a public offering at some point in the future, which would help it to build production facilities and make the chips on its own.

A semiconductor market analyst we talked to,Vahé Mamikunian of Lux Research, said he thinks Phiar’s chances are good based just on its scientific expertise. “They seem to have a good hold on how physics work at the nanoscale, better than some of the leading companies in the markets they’re looking at,” he said.

Phiar received its first funding, for $9 million, from Menlo Ventures. It’s currently working on raising another round.

*(Continuing from the explanation above: This is just the tip of the diode. Phiar is actually a double take on an older single-insulator technology that’s been used for almost as long as semiconductors, creating their own metal-insulator-insulator-metal model — think of it like a sandwich. Where one insulator tends to raise its resistance to electrons passing through as they gain energy, with two, Phiar can cause the materials to create single-directional “quantum wells” that mimic empty space, allowing the electrons to perform their tunneling trick and pass through. For further information, go get a Ph.D.)

(Updated, to include precise amount of funding, and reporting about privacy controls NebuAd has implemented not included in the first version of this story)

NebuAd, a controversial advertising firm, emerged from secrecy today to announce it has received $20.5 million in a second round of financing.

Its “targeted” advertising technology is likely to add fuel to the debate about privacy. The service can be used by your Internet service provider to get an unprecedented look at the types of Web sites you visit. While it will bring smiles to the faces of marketers, it may enrage people worried their privacy is already non-existent on the Web.

Targeted advertising usually relies on “cookies” that a Web site places on your browser when you visit it. The cookies can afterwards track which individual pages the visitor accessed. Cookies have a number of limitations, not least their inability to see what a user has done away from that particular website. Technology developed by Redwood City, Calif.’s NebuAd  a different technique called “deep packet inspection,” which can be likened to poking through all the mail that arrives at or leaves your house to get an idea of who you correspond with, and what you tell them. NebuAd offers its packet inspection software to internet service providers, the services you use to access the internet. NebuAd then turns around and provides the traffic information to advertising networks.

Surfers visiting pages with ads from NebuAd-affiliated networks will find the ads more likely to be meaningful to them; a user researching electric cars, for instance, might be less likely to see an ad for an SUV, and more likely to see one for a Prius.

NebuAd’s CEO, Bob Dykes, claims that such targeted advertising is superior to even the best offered today by companies like Tacoda, which collect cookies from all the webpages that connect to a particular ad network. Tacoda was acquired in July by AOL for a reported $300 million. NebuAd’s technology will collect more information than Tacoda’s cookies do. The more targeted the advertising, the more money can be generated — up to dozens of times what an untargeted method might be worth. Under NebuAd’s system, all stand to take a cut of the enlarged pie.

The funding was led by Sierra Ventures. Menlo Ventures, which provided the company’s first $11 million round of funding in May, also participated. Founded in early 2006, NebuAd has about 90 employees.

In an interview with VentureBeat, NebuAd’s Dykes said the company has taken measures to avoid collecting information users are uncomfortable with. For instance, any traffic going to or from websites with pornography or information on illegal acts would be filtered out. NebuAd’s data is also collected in a way that it can’t be used by anyone to identify individual users, even if it fell into the wrong hands, he said. As data about an individual’s Internet behavior flows NebuAd’s appliance, the individual is represented merely as a hash number, he said. It doesn’t know the individual’s name, because it hasn’t asked for it from the ISP.

Privacy advocates, who have long decried even the tracking performed by cookies, aren’t happy with closer scrutiny of surfer’s habits — but are apparently consoled by NebuAd’s promises to keep the information anonymous. Scott Bradner, a technology security officer at Harvard backtracked on an original critique in Network World, in which he called the approach “disgusting.” He now says NebuAd is acting responsibly.

ISPs are also required to mail or email documents to their users asking for permission to track their surfing habits, Dykes said. There is more than one way of going about getting agreements, however, and our concern is if ISPs prefer to simply bury a clause in the inevitable legal agreements that accompany every modern service.

Finally, users will be able to permanently opt-out through a separate NebuAd service called Fair Eagle, assuming they know of its existence. NebuAd, in response, says its opt-out option is obvious enough; it is stated on its Web site.

NebuAd isn’t alone in attempting to pull packet information from ISPs, although it has taken the most funding so far. Vancouver-based Adzilla uses the same techniques, and has so far signed up eight ISPs, according to its homepage. NebuAd, which is scheduled to have its official launch in November, has been testing on several ISPs, but wouldn’t tell us how many.

Now that the deep packet inspection cat is out of the bag, it isn’t likely to climb back in, despite the objections of onlookers. Owners of websites and ISPs will find the technology well-nigh irresistible, if it delivers on its promises of valuable, always-targeted advertising. Advanced tracking also holds promise for ad-supported internet access, which has not yet successfully implemented.

For more information about targeted advertising and ad networks, visit this VentureBeat post, written by contributor Jeremy Liew.

[Updated: The father, Karl, has responded to an inquiry. We've updated below. See comments too.]

A Silicon Valley company co-founded by a 12-year-old has just raised $6.5 million in venture capital.

PlaySpan, based in Santa Clara, Calif. says it offers game publishers a technology that lets users make payments and shop for other items. It calls itself the first “publisher-sponsored in-game commerce network.”

Arjun Mehta, a 6th grader, says on his Web site that he is passionate about software that can make the game experience more “rewarding,” and that he started the company last year in his garage. He paid for it from earnings made from selling online game items he won from quests he fought.

This has got to be downright depressing for most budding entrepreneurs, most of whom strike out while pitching investors for funds, even in their 30s or 40s.

This is the second company led by a middle-schooler of south Asian heritage. In May we wrote about 13-year old founder and chief executive, Anshul Samar, who runs an educational gaming company.

The difference is that PlaySpan is making all the sounds of a traditional silicon valley company, right down to the slick web site and a press release manufactured by a PR firm that is barely decipherable. Mehta will probably learn to write his own press releases within a year. While the “company” section of the site profiles only Arjun, however, a closer look at the press release reveals that the actual CEO is Karl Mehta, which we presume is an older relative — so there’s adult supervision at least.

[Update: Rafat has some thoughts about this in comments below, suggesting this is a gimmick. We're awaiting response to questions we've posed to the company, and should note that the PR person who responded to us stressed that Arjun prefers email correspondence.]

[Update II: Arjun's father, Karl, responds: "Arjun does not work full-time on PlaySpan business. As a gamer he has a great deal of input in PlaySpan's product and technology, but his primary focus is on his academics and his mom doesn't want much media attention for him.... I am the Co-Founder and CEO and I run the company"]

New York based Easton Capital led the funding round, along with Silicon Valley based Menlo Ventures, South Korea based STIC International and Hong Kong based Novel TMT Ventures.

The release said the market for “in-game commerce” has surpassed $2 billion this year and continues its rapid growth as more publishers adopt micro-transaction based revenue models.

Shawn Carolan, of Menlo Ventures, has some experience with gaming, as a board member of virtual world game, IMVU. The young Mehta even knows how to pick his VCs.