VentureBeat

Merus Capital, a venture firm founded by former Google and Microsoft executives, is raising $125 million for its debut fund, and has raised $10 million so far, according to an SEC regulatory filing cited by VentureWire. The firm focuses on three areas of investment — algorithm intensive software, online marketplaces and Web-based consumer software and services.

The Palo Alto, Calif, firm was founded last November by Salman Ullah (pictured, left) when he left his position as Google’s vice president of corporate development (a story that VentureBeat’s Eric Eldon broke); Sean Dempsey, who also left Google’s corporate development group; and Peter Hsing, a general manager of corporate strategy at Microsoft. Before leaving Google, Ullah was the public face of its acquisition efforts, heading the purchase of 35 companies since 2004, including YouTube.

Dempsey told VentureWire that in the short-term, Merus’ founders see opportunities in their connections with Google, particularly with Googlers leaving to found their own startups. The firm won’t be investing in any companies that are normally classified as “Web 2.0,” namely companies based around social networking and other social and collaborative tools, Dempsey said.

Limited partners in the new fund include the Freidenrich Family Partnership and Shea Ventures. Merus Capital has already made six investments, including identity theft protection startup Debix and DeviceVM, whose products load your computer faster.

DeviceVM, a maker of software that lets you check your email, chat and surf the web within seconds of turning on your computer, has raised a small third round of funding.

The backing, $1 million, comes from Merus Capital, the new firm founded by departed business development executives at Google and Microsoft.

The company hopes Merus can use its connections with computer manufacturers to get its software more widely distributed.

San Jose, Calif.-based DeviceVM’s software is called Splashtop, and is built into the motherboards of desktop and laptop computers. It is available for ASUS desktop PCs that run Windows or Linux. ASUS plans to introduce Splashtop to its line of laptops, as well (see review here). It is also aiming for widespread adoption by other PC manufacturers around the world.

The investment is notable because it is the first investment the firm, founded by Salman Ullah, the recently departed vice president of business development at Google, Sean Dempsey, former Principal of Corporate Development at Google, and Peter Hsing, former Managing Director of Corporate Strategy at Microsoft (our coverage of Ullah’s new fund, here). Separately, Larry Augustin, founder of open source code repository SourceForge, has also joined the DeviceVM board of directors.

While Merus says it is focused on early stage investments, DeviceVM has already raised two rounds of venture funding from a large group of investors, for a total of around $21 million before the Merus investment.

The company raised more than $10 million last fall (our coverage) and another $10.5 million in 2006 (our coverage).