Digital Media

Shortly after announcing a favorable new royalty payment deal with the music industry, the Internet music-streaming start-up Pandora confirmed that it has raised new funding from Greylock Partners.

The size of the round is $35 million, according to a Friday report at PE Hub, a forum for private equity discussion. Pandora confirmed that Greylock Partners led the investment and said David Sze from the venture capital firm has joined its board.

"Consistent with our past practice, the amount and valuation are not being disclosed," the company said in its statement. "New funds will be used toward the continued growth and development of Pandora."

Pandora is among Internet music-streaming sites that last week reached a music royalty deal with SoundExchange, the group that collects royalties on behalf of artists and labels.

For revenue, Pandora currently plays and shows advertisements and offers a $36-per-year premium service that offers higher sound quality and eliminates the ads. Because of the new royalty agreement the company will require those who want to listen to more than 40 hours of music per month to pay 99 cents for unlimited listening that month once they reach the threshold.

That new fee affects about 10 percent of Pandora's present listeners, founder Tim Westergren said in a blog posting, but he was still jubilant about the deal, declaring, "The royalty crisis is over!...Pandora is finally on safe ground with a long-term agreement for survivable royalty rates."

Existing investors include Crosslink Capital, Walden Venture Capital, Labrador Ventures, King Street Capital, Hearst Corporation, DBL Investors, and Selby Ventures, Pandora said.

Auditude, a video advertising company best known for technology that can identify clients' video content and run ads against it, has raised a $10.5 million Series B funding round from Redpoint Ventures and existing investor Greylock Partners. This brings the company's total funding to $23 million.

Last time we checked in with Auditude, the company had inked a deal with News Corp.'s MySpace and Viacom's MTV Networks to detect both official and user-uploaded MTV content on the social network's MySpaceTV platform. It was seen by many as a savvy antipiracy measure. Since then, Auditude has started powering a broader variety of video ads on MySpace and its MySpace Music product, as well as partnered with Warner Bros. Entertainment. More content deals are on the way, CEO Adam Cahan told CNET News.

"From our perspective, we are looking to work with everybody," Cahan said. "We are trying to tackle what I think is one of the biggest opportunities and challenges on the Internet right now, which is (that) tons of people are watching video, 80 percent of folks out there, and yet very few people are really making a business of this yet."

Redpoint partner Chris Moore will join Auditude's board of directors, which also includes former Facebook executive Owen Van Natta. A member of the short list for the top post at MySpace Music, Van Natta instead took the CEO role at rival streaming service Project Playlist.

PALM DESERT, Calif.--How does one measure the effects of economic meltdown?

At Demo 09 here, there are two ways, one that's obvious, yet hard to see, and another that is both obvious and visceral.

While Demo for years has featured about 65 to 70 companies, this time around there's just 39. Everybody knows that, but it's hard to actually see it. The main ballroom where Demo presentations are held is packed, with every seat at every table full. But that's an illusion: the wall at the back of the room has been pulled in dramatically from a year ago when Demo 08 had several hundred more attendees.

And no wonder. The companies that present here pay well into five figures to do so, and most bring a group of people. The registration fee for non-presenting attendees is $3,000.

In the past, Demo has received hundreds of applicants for its coveted on-stage spots. While have complained that the show's format is pay-to-play, there's no doubt been an overabundance of companies willing to pony up for the chance at the exposure the show generally nets presenters.

This year, however, word is that Demo Director Chris Shipley and her team simply didn't have enough applicants that fit its criteria to fill out the normal-sized roster. Incidentally, Shipley recently announced she was handing off her leadership responsibilities to VentureBeat CEO and editor-in-chief Matt Marshall after this year's DemoFall.

Still, just because there are fewer companies presenting here this time around, doesn't necessarily mean the quality of those taking the stage was any lower than in previous go-rounds. In fact, it's always hard to accurately judge that quality until months later, since Demo is all about showcasing companies and products that are just getting off the ground. So, since it takes time build a business, the results are often not known for months.

Spotting likely success stories
To be sure, you can tell right away that some of the companies that present here are going to do well, or are going to fail. Sometimes their presentations just wow the audience, and sometimes you can feel the discomfort in the room. This is my sixth Demo and I'd have to say that the percentage of companies in those two categories this week feels about the same as it has in the past.

Indeed, my colleague Rafe Needleman and I nominated seven products as the best of Demo, and just one worst of. With just 39 companies on hand, that's a pretty healthy percentage.

Last week, I wrote a story asking the question, do we still need Demo and conferences like it when the economy is falling apart and when companies have more choices than ever to promote themselves and their products. My conclusion? We do, but only some of them. As Eric Faurot, whose TechWeb company puts on the Web 2.0 conferences, put it, "In the event business, the stronger events, the really healthy events that have a real purpose to them, will emerge stronger, and weaker events will just die. They just won't survive."

After the last company finished its presentation here, I asked Christine Herron, a principal at San Francisco-based First Round Capital, what she thought of the event, especially given the smaller size.

Herron said that size really doesn't matter that much at Demo. What matters is companies' relative health and their funding situation.

"This year, there's a lot of companies who have made it here without a big check, so that's more interesting," Herron said. "If you're a venture capitalist coming to Demo looking for undiscovered investment (opportunities)...I'd like to see companies without a big check."

The lessons of Demo
She's talking of companies that can handle the five-figure presenter's fee, as well as Demo's criteria, without having taken significant investment from a VC. Herron seemed to be suggesting that this is a sign that even in this toxic economy, there are still a number of companies that have been able to get to the stage where they are qualified to present at Demo--including paying the fee--with very low costs. And that could well be a sign that companies, albeit a limited number of them, are seeing ways to weather the recession (or depression, if it gets that bad) by more quickly and efficiently getting products and services to market than has been the case in recent years.

If so, this is good news. It seems to me that this is the only model that is going to succeed in coming years. A panel here on Monday about venture capital in the post-downturn era pointed out the obvious reality that VC investment is down significantly. Eric Tilenius of Tilenius Investments said, for example, that his firm's investments are down 67 percent and that of those that are getting money, most are companies that have already gotten at least one round of funding. The number of new companies getting VC money, he said, "has dropped precipitously."

What does this all mean? Clearly, that the salad days are over. We all thought that after the dot-com bust, only companies with viable business models could get funded. In reality, I think we saw that the lessons learned in the tech industry really had more to do with the levels of funding VCs were willing to put into companies. In the 2003 to 2007 years, as the stock market rebounded and Google millionaires started impacting real estate values throughout the Bay Area, companies could still get funded. They just weren't getting $50 million just because they had a badly-spelled URL like in the pre-2000 days.

Now, companies are still going to be getting funded, but seemingly only if they really do have a solid business model, and likely only if they've already convinced previous investors to get involved. Venture capital is only going to flow to companies that have demonstrated they know how to get to profitability without spending a fortune and without needing to be propped up because they don't have any revenue.

In that regard, then, Demo looks like it could well be an interesting barometer of the state of the (technology) economy. Some companies will succeed. Many will fail. And those trying to make it are going to need to keep their eyes seriously on the prize, even as the grim reaper circles around.

"There's a suspension of disbelief that goes into start-ups," said Herron. "You have to have a certain suspension of disbelief if you're going to quit your job, anger your spouse, and work 14-hour days. You have to have a certain Pollyanna vision."

(Credit: Dan Farber/CNET Networks)

Marc Andreessen is adding venture capitalist to the growing list of titles he wears in the tech world, which includes serial entrepreneur, angel investor, and browser technology pioneer, according to a report in peHUB.

Andreessen is launching the venture fund with Ben Horowitz, a former Netscape veteran and co-founder of Opsware, two companies that Andreessen co-founded, the report states.

The venture fund is the latest evolution to the angel investment relationship Andreessen and Horowitz share. Last year, for example, the pair were angel investors in mobile video service Qik and virtual world company Metaplace.

And Thursday night, Andreessen made an appearance on the Charlie Rose show, in which he discussed his role as an entrepreneur, investor, and now a venture capitalist.

Andreessen is launching a venture capital fund at a time when VC investments into start-ups has taken a hit, falling 71 percent in the fourth quarter to $3.4 billion, over the previous year.

Nonetheless, Andreessen does have a track record for creating companies that have gone public or been acquired for big bucks, from the former browser pioneer Netscape to the .

Picture this: more venture funding for an advertising-related start-up operating in hard economic times.

Apparently, Tremor Media has gotten just that--to the tune of an $18 million third round of funding, according to a Silicon Alley Insider report.

Meritech Capital Partners led the round in the Web video ad network company, with existing investors Canaan Partners, Masthead Venture Partners, and European Founders Fund participating, according to the report.

Tremor Media, which provides advertisers with in-banner and in-stream video advertising on various publisher sites, has raised a total of $37 million in venture funding, SIA notes.

Tremor's funding comes as other Web video advertising players are looking to teach retool their delivery methods. Yahoo, for example, is gearing up to offer images and video as part of its paid search advertising results.

Mobile advertising start-up AdMob announced on its blog on Thursday that it has added $12.5 million to the Series C funding round that it began amassing last fall.

The money comes from the Draper Fisher Jurvetson Growth Fund and Northgate Capital, adding to the round's existing lead investor Sequoia Capital and repeat investor Accel Partners. The funding brings its Series C total to $28.2 million.

AdMob recently launched a business unit specifically to handle advertisements on Google's Android platform. The reason for the Series C round, the company said, is to keep up growth, even as the advertising industry takes a hit. It'll be focusing on some new international markets, as well as expanding its sales and business development teams in the United States.

"We believe that now is a critical moment for us to cement our leadership position by making the investments that will help us to come out of this challenging economic environment even stronger than when we went in," AdMob's blog post read. "As mobile Web and application usage continues to grow rapidly worldwide, and smartphones--from the iPhone to the G1--gain in market share, we see a real opportunity to expand the mobile-advertising market."

TechCrunch is reporting Saturday night that Twitter may have signed a term sheet with one or more venture capital firms that would value the microblogging company at $250 million.

Although it did not provide specifics, the report cited "a source with knowledge of the deal."

Last fall, Facebook was said to have made an offer to buy Twitter worth as much as $500 million.

"Rumor is Twitter hit up more than a few venture firms to pitch the $250 million valuation, and got more than one 'no,'" TechCrunch wrote Saturday. "But someone's bit, perhaps encouraged by Twitter's breakneck growth and the interest from Facebook. That means Twitter gets a new cash injection and time to figure out its business model at an even more leisurely pace."

That certainly would be a boon for Twitter, which until now has not shown signs of a viable business model. Though it is growing rapidly and has millions of users, no one knows how the company could support itself. Some have worried that while it is increasingly useful to the many people who rely on it, it might not be financially viable over time.

If the TechCrunch report is accurate, however, it would be a signal that Twitter has managed to show investors enough of a structure of a business model to loosen up the cash it needs to get over that hump. Given today's general economic crisis, that would be a notable accomplishment.

Venture capital investments in IT companies plunged 40 percent to $2.18 billion in the fourth quarter, their worst level in a decade, according to figures released late Friday by VentureSource.

The data further confirms concerns entrepreneurs have already been raising about a funding pullback by VCs over the second half of the year and dire warnings by the VCs themselves, such as Sequoia Capital's infamous R.I.P. PowerPoint presentation.

IT Venture capital dropped to $11.64 billion for all of 2008, down 14.5 percent from the previous year, according to VentureSource. During the past year, IT investments posted growth in the first quarter and a slight decline in the second, but significantly dropped off in the second part of the year, VentureSource said.

Software companies, which continue to capture the largest slice of IT venture investments, dropped 16.4 percent during the year, to $4.73 billion in funding.

Venture investments in communications and networking start-ups fell 32.3 percent to $1.68 billion in 2008, while investments in semiconductors dropped 23.5 percent to $1.25 billion year over year. Electronics and computer companies, meanwhile, saw venture investments fall 15.5 percent over the previous year, reaching $1.31 billion.

Despite the doom and gloom of 2008, the Web-savvy information services sector posted a 16.9 percent year-over-year gain in venture investments last year--to the tune of $2.67 billion. While that sector managed to shine through most of the year, venture investments did fall off 30.5 percent to hit $513.2 million in the fourth quarter.

Yodle, a New York-based company that helps small businesses generate leads and power local advertisements, on Monday announced that it has raised a $10 million Series C funding round.

Led by Jafco Ventures, the round was completed with contributions from the Draper Fisher Jurvetson Growth Fund, and previous investors Draper Fisher Jurvetson and Bessemer Venture Partners.

The reason for raising the money? According to a release, it's because Yodle is growing fast and plans to expand further. At the end of 2008, the company had 250 employees and 5,000 customers, and reported 700 percent revenue growth from 2007.

"It's been a watershed year for Yodle, and thanks to our incredible team working hard to deliver for our customers, we expect that growth to continue in 2009," CEO Court Cunningham said in the release. "While our competitors retrench in the face of financial adversity, we are stepping up investment in our customers' success. This new funding round will accelerate product and technology development to provide increased online exposure and even stronger results for our local business owner clients."