Webware

An executive from social-music site Imeem told CNET News just days ago that the company would not be going through a round of layoffs.

Well, not quite.

Imeem's vice president of marketing, Matt Graves, said the question was actually "whether we had done layoffs, not whether we were going to," and that he answered accordingly. Sneaky! He proceeded to confirm a report from PaidContent that a quarter of the company has been laid off.

"There's not as much money floating around the market, and we had to cut our costs to accommodate," Graves said. He added that the layoffs are companywide--"finance, marketing, communications, product, technical operations"--clarifying the PaidContent assertion that the layoffs had been primarily "on the technical back-end side."

He would not comment on the other half of PaidContent's report--that Imeem is planning to shop itself to prospective buyers. PaidContent's Rafat Ali added that Imeem's projected valuation is more than $200 million, a figure that many media and technology companies might not be willing to fork over at this point.

Imeem has taken venture funding from Sequoia Capital, a firm that has advocated extreme caution and frugality amid financial panic. Another Sequoia-backed company, Jive Software, cut a third of its employees within days of the now-famous letter from the venture firm to its portfolio CEOs.

This post was updated at 12:23 p.m. PDT with comment from Imeem.

Ron Conway, an investor in more than 100 contemporary tech start-ups and about that many in the last tech boom, sees the current financial environment as very similar to the 2000-2001 tech economy meltdown. His advice, as he laid it out to me earlier today and to his portfolio companies yesterday in an e-mail (after the jump), is the same as it was then: "Raise money internally by reducing cost."

He says, "The funding climate is going to tighten no matter what we do. The sooner we can prepare for it, the better."

At least, he says, entrepreneurs are more mature and proactive than they were in the last downturn. They're coming to him, some with cutback plans and some just seeking advice. As he puts it, the ones who come to him and say, "Walk me through the steps I should be taking," are the ones that will weather the storm.

Conway still feels it's a great time to start a company: if you're a "great entrepreneur with a great business idea," he says, "now is as good a time as any." But "hold on to your day job while you are raising money."

The opening party of Boston-based Northbridge Venture Partners' West Coast office in San Mateo, CA could not have come at a more awkward time. With the U.S. stock market sinking fast and rumors of venture capitalists being unable to access funds committed to them, I did not expect the shindig to be a happy affair.

Wall-to-wall hope...

(Credit: Rafe Needleman / CNET)

But it was, on the surface at least, with free-flowing wine and sushi, and a crowded new office filled with hopeful entrepreneurs and curious VCs. The giant flat-screen in the conference room was tuned to the Red Sox game, not CNN.

Were the players in the venture game whistling past the graveyard? Fortunately for everyone, the tenor of the VCs was more realistic than enthusiastic.

Northbridge partner Jeffrey Beir told me, "We're going to lose some good companies" in the coming years. New companies with new ideas should still be able to get funding, and mature companies with positive revenue growth (in this economy, that's saying something) will be able to survive, although they may grow more slowly until the markets loosen up. But those in the adolescence of their start-up may not be able to raise the funds necessary to stretch their business development to the time when the economy is more favorable.

For all companies, Beir says the formula for figuring how much additional funding, or "runway" a company needs is simple: "Add two years."

... and free-flowing sushi.

(Credit: Rafe Needleman / CNET)

And even then, it's not clear if the "exits" (IPOs or acquisitions) will be providing the windfalls that VCs and many entrepreneurs count on to make their work pay off. Northbridge co-founder Richard D'Amore indicated that he isn't really holding out for the IPO market to re-ignite for 5-year-old (or younger) tech companies, as it did for firms in the first dot-com bubble, and that without IPOs injecting money into companies, even if it's only the large, well-established ones, the M&A market isn't going to be active. IPOs are the direct precursors of M&A, he explained.

Beir said that while in the last bubble "there were some stupid companies," in this economy "there's a level of maturity" among the CEOs. When it comes to cutting back on staff or projects to extend the survival time through this economic trouble, "I'm not getting resistance," Beir said. It's "not like last time, when CEOs were running into walls at 200 miles an hour."

Elsewhere in the halls of Northbridge Venture Partners, there were whispers of new models for the venture business. I heard people talking about funding agreements that put the VCs on the books to take income from the companies they fund. Even without the big exits, funders may still find a way to eek returns out of their investments.

See also:
Tech entrepreneurs changing strategies, not products.
How start-ups can survive.

After the last on-stage pitch at the TechCrunch50 conference on Tuesday, co-host Jason Calacanis asked the assembled panel of four judges which of two companies, Fitbit or Swype, they would invest a million dollars in, if those were their only options.

Both companies had been the judges' winners in their respective demo blocks. Fitbit (review), the $99 wearable activity monitor that will shame you into exercising, won the "Mobile" session, in which I was one of the judges. New keyboard technology company Swype (review) won the next, "Language and Platform Tools," and is being talked about by many attendees as the presumptive winner of the conference.

So which company did the judges Tom O'Reilly, Josh Kopelman, and Evan Williams want to invest their hypothetical money in?

Fitbit. Cowards.

Now, don't get me wrong: Fitbit is a great product. Josh Kopelman rightly called the decision to purchase one not so much a financial decision as an IQ test. And as a business, I think my co-judges would agree that it would take a creative and determined executive team to screw it up. It should make money, and a nice amount of it. It is a safe bet.

Swype, in contrast, is not a safe bet. But it is a much bigger one. If the company gets a licensing agreement with Microsoft, Swype could end up baked in to every Windows smartphone and Vista PC made. It could end up as the keyboard for living room technology products like Nintendo Wiis. Apple or Symbian could license the product as well. A smart executive team could maneuver the product into licensing arrangements with all of these companies, on the pitch that the more people are familiar with the technology, the better it is for all the companies that adopt it. Multiply the potential market of a few billion devices by a modest licensing fee, and you have yourself a swell business.

Previously, Swype inventor Cliff Kushler invented and sold T9, which ended up installed on 2.5 billion devices from numerous manufacturers. So he has some experience in this field.

The potential for the failure of Swype is real. There are competing technologies. There will be patent battles. Microsoft may go another direction. But the potential upside is so vast, and so important, that I can't stand the thought that most venture capitalists would turn it down in favor of funding Fitbit -- a predictable business, but an unsporting bet.

I want to see our venture capitalists earn their money. I them to help Swype succeed.

Previously: Where are the big ideas?

For extra credit: On a re-read, I believe I may have found a flaw in my logic. Can you spot it? Does it matter?

The judges' view of the TechCrunch50 audience.

(Credit: Rafe Needleman / CNET)

Zynga, which specializes in games for social-networking sites, has received $29 million in a new funding round led by Kleiner Perkins Caufield & Byers and Institutional Venture Partners.

The round, announced Wednesday, also includes funding from previous investors Union Square Ventures, Foundry Group, and Avalon Ventures.

Zynga, based in San Francisco and started by Tribe.net social-network founder Mark Pincus, added that Bing Gordon, a Kleiner Perkins partner and former chief creative officer of Electronic Arts, is joining Zynga's board. Zynga also announced its acquisition of YoVille, which it describes as the "largest virtual world game on social networks."

The start-up announced an initial funding round of $10 million in January with investors including LinkedIn Chairman Reid Hoffman and PayPal co-founder Peter Thiel.

Zynga's social games include a poker match that lets players send virtual drinks to friends. According to its site, Zynga also offers other casino games, word games, role-playing, and board games.

The service, which boasts 18 million monthly visitors, makes money through ads and selling customers add-ons to the games.

Open-source Web conferencing provider Dimdim has raised $6 million in Series B funding, the company is set to announce on Wednesday.

The funding round, which was led by current investors Index Ventures, Nexus India Capital, and Draper Richards, will enable Dimdim to introduce enhancements to the free service and expand its market reach.

Dimdim competes with fee-based services like Webex. Because it is open source, it could become a platform for real-time communications if it garners enough developer support, my CNET colleague Rafe Needleman predicts.

Since its private launch 10 months ago, Boston-based Dimdim has attracted more than 500,000 users in more than 180 countries, the company says.

Another day, another clump of Facebook financial dirt.

Kara Swisher at All Things Digital wrote early Tuesday that "according to sources," Facebook is considering the possibility of a massive new investment round. If this turns out to be true, it could lift the company's much-talked-about valuation even further into the stratosphere. Facebook's last investment round, a $25 million bounty in 2006, pushed its pre-money valuation to about $525 million. This rumored new round, which Swisher claims is "well beyond" that scope, could solidify Facebook's position in the $6 billion to $10 billion club (where, thus far, only speculation has placed it).

Swisher also speculates that Microsoft could be one of the potential players in this murky new investment round; Microsoft, after all, is responsible for the advertising contract that makes up a considerable chunk of Facebook's revenue, and it's also one of the names that pops up the most as buyout rumors surface and resurface.

"While its revenues are growing strongly, insiders report, so are its costs," Swisher's post explains, "as it ratchets up headcount and features and services. Thus, it will need a lot of investment to kept competitive, including increasing its international profile."

This morning, venture capital firm Bay Partners announced that it is kicking off AppFactory, a special funding program for Facebook developers.

Bay is a typical Silicon Valley venture firm, operating three large funds. AppFactory will draw resources from the latest, a $300 million pile of cash and commitments that Bay will funnel, in chunks as small as $25,000, to promising Facebook developers.

Unlike its larger and more traditional technology investments, Bay will not run its AppFactory candidates through weeks or months of due diligence. At the funding levels it's thinking about, it's not worth the effort. In part, "we'll rely on instinct," Bay's Salil Deshpande told me.

AppFactory will also offer Facebook developers easy access to people its connected with at supporting companies like Amazon, whose Amazon Web Services server farm can be employed to run Facebook apps. Bay also hopes its Appfactory developers will form a community and help each other out.

Bay's move is smart. There's no question that Facebook is a very important Web platform. While it's not like the Web itself, which is open to all comers and not controlled by any one company, one could compare the Facebook platform to eBay. It's a platform that's easy to build businesses on.

The exposure, of course, is that Facebook will not be run as a platform. "A lot of companies get it wrong," Desphande told me. "Facebook is just getting started. They are going to have to make the investment and behave properly." However, if Facebook gets it right--and indications are, so far, that it will--apps on the platform can take easy advantage of the built-in, interconnected user base.

If you're got a killer idea for a Facebook app, and skills to begin development on it, check out baypartners.com/appfactory and apply.