VentureBeat

RSS services company NewsGator has gained a promising number of business clients even as its consumer-focused feed reader services face increasing competition from Google, Yahoo and others.

RSS, often called Really Simple Syndication, has proven to be a key web standard, and NewsGator is one of the many companies to benefit. RSS is a method of formatting data in a software service, such as the text or photo of a blog post, structured so that the data can be sent to and displayed by other sites.

Hoping to gain more market share both with businesses and consumers, the Denver, Colorado company has closed a $12 million round in a fifth round of financing. It previously raised $17 million.

RSS feeds can be useful for anyone from news junkies to a company’s employees — “feeds” can be aggregated from blogs, wikis and other software, to help people more quickly process large amounts of information.

NewsGator is perhaps best known for the two desktop feed readers it purchased — Windows feed reader, FeedDemon and its Mac feed reader NetNewsWire — along with related services like feed readers for mobile devices. These feed readers display a list of feeds that you choose to subscribe to, a substitute for going to each web site you want to follow each day. Although NewsGator’s feed readers have been available for years, they are facing increased competition from Bloglines and Google Reader.

NewsGator has a quality list of business clients, however. Its “Enterprise Server” lets IT departments install local versions of its software, so employees can get feeds from the web, and integrates this with the other software the employees use. NewsGator says more than a hundred mid to large-sized businesses are using this service to aggregate information from internal blogs and wikis (more here).

The company also has more than 50 media companies using its widget distribution service, including USA Today, Newsweek and the San Jose Mercury News. These widgets are distribution mechanisms for RSS feeds, where another web site can put a widget showing these feeds on their own web pages (see USA Today screenshot).

Social networking developer platforms have also opened up new opportunities for NewsGator RSS feeds and widgets to reach consumers. The company quickly jumped on the Google-led “OpenSocial” set of standards, whereby third parties can build applications that can work on any OpenSocial member network. It created a Flash widget called Didjahear!?, that displays video, photo and text content from the two million RSS feeds that NewsGator collects on the web.

This widget, the company told us last month, gathers data on what content you and your friends click on and share, within social networks that are a part of OpenSocial.

If you use NewGator to create a widget for Myspace featuring your favorite online videos of, say, soccer clips, NewsGator will learn which videos your Myspace friends clicked on, spent the most time watching and forwarded to others.

Mobius Venture Capital, which first invested by itself in 2004 (before Bloglines sold to Ask), is returning, along with Masthead Venture Partners. Vista Ventures is joining this round.

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

Judy’s Book, a site that let you search business listings for discounts and coupons, has hit the end of a $10.5 million runway and shut down, raising more questions about local business listing and community sites.

The collapse of the Seattle-based company follows the closure of BackFence this summer. BackFence said it had experienced unspecified “internal” problems, suggesting its failure was company specific. But the subsequent failure of Judy’s Book raises more questions about the sector at large. Judy’s Book started as a place where neighbors could share information about their communities, and shifted its model over time to search business listings.

Did both of these companies face a problem of execution or are there deeper issues with the local web site model as a whole? Regardless, locally focused sites continue to raise money, and it’s not clear that the sector is doomed. Yelp, for example, has done a solid job of local business and event search and continues to grow steadily, with around four million users.

Judy’s Book, like Yelp, aimed high and expanded nationally quickly. But unlike Yelp, its traction never kept pace with its ambitions or the expectations of its investors. As the company’s chief executive, told the Seattle PI, “our investors were tired…The board members said there wasn’t enough terminal velocity to see the types of returns that they were looking for.”

The company was backed by investors that included Mobius Venture Capital (itself going out of business), Ignition Partners, Ackerley Partners and angel investors.

Technorati Inc., the San Francisco company that offers a blog search engine and other services, has raised another $1 million, but still has not articulated a clear strategy.

The latest capital adds to the existing $10.52 million already raised as part of its third round of financing, started last June.

DG Incubation, operator of Technorati Japan, is listed as a new shareholder, alongside existing backers Draper Fisher Jurvetson and Mobius Venture Capital, according to PE Wire, which referenced the filing. VentureBeat hasn’t confirmed this.

Technorati continues its search for a chief executive, and has also appeared unfocused lately (see our recent coverage; scroll down). While its traffic appears to be growing, its search tools have remained somewhat weak, even as upstarts like Sphere improve their blog searches.

Spehere recently started offering better visuals of blog stories, and related content, for example. Take a look a the screenshot below. In this example, VentureBeat is part of the “technology” coverage. As you scroll through Sphere’s headlines, a fuller summary of the story pops up along side. To the far right is related content to the story you’re looking at.

Technorati has now raised more than $15 million.