Reports

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Digital Media

The amount of funding and number of companies funded dropped off slightly for the Digital Media sector, with total funding down 18% to $329 million with the number of companies closing deals up slightly from 27 to 29.

Leading the way was Adconion Media Group with an $80 million round lead by Index Ventures and Wellington Partners. The company is ranked tenth in total reach by comScore, serving 8.8 billion advertising impressions worldwide and 2.1 billion in the United States.

The company plans to use the money to expand operations in the U.S., which is reflected by job openings listed primarily in the company's Santa Monica, CA and New York, NY offices.

Only three companies are on the record as receiving Series A funding, possibly signaling a slow down in early-stage investment in digital media startups. Big Bear Entertainment, which creates music video software, landed $550,000 led by an investment from El Dorado Ventures; GoldSpot Media, which powers dynamic advertising insertion for mobile media, secured $3 million from Exa Ventures; Sparkplay Media, which is developing browser-based multiplayer game Earth Eternal, received $4.25 million from Redpoint Ventures and Prism VentureWorks.

IGA Worldwide, an early entrant in the nascent in-game advertising market, secured $5 million in Series B funding from Translink Capital, Presidio Venture Partners and Itochu Corporation. The market potential is considerable, with Nielsen having reported in 2004 that males 18-34 are now spending more time playing video games than watching television, on average.

eCommerce

eCommerce funding remains in the doldrums where only the very best opportunities are financed. Arcot Systems Inc, a 3D security software and services company, was the stand out investment. A round totaling $7.3 million led by Accel Partners brings Arcot's total funding to $26.3 million since its Series A in October 2005.

One surprise was the $5.34 million Series A round secured by Wigix Inc, a community based eCommerce service, led by Draper Fisher Jurvetson. Community services are a dime a dozen so it will be interesting to follow Wigix progress in this highly competitive market.

Software

Software financing was healthy with 44 transactions at $10 million or above out of a total 191 transactions. nGenera Corp, which received $20 million in July 2007 took a further $43 million this quarter, led by Oak Investment Partners. NGenera, which changed its name from BSG Alliance, is active in the so-called Enterprise 2.0 market, helping companies transition from functionally siloed operations to collaborative units through a combination of software and services. Mzinga, a business social media company, secured $32.5 million led by W Capital Partners.

In a transaction for an undisclosed amount, Mzinga acquired Prospero Technologiees, a social media provider with a strong client base in the media, entertainment, and publishing sectors. ABS Capital Partners led a $30 million Series A for Invision Inc, a provider of advertising systems to the media marketplace. This transaction was unusual in that it is being provided for working capital and dividend purposes to a company that's been established since 1993. BackOffice Associates, a company that specializes in data quality solutions in SAP environments, received $30 million from a round led by Goldman Sachs. The funds will be used for product and geographical expansion.

Integrated Media Measurement, which provides software that measures advertising effectiveness as measured by consumer action raised $25 million led by WPP, bringing total funding to $37 million. Open source style businesses will see the $14.5 million Series D received by SugarCRM and led by Draper Fisher Jurvetson in January closely followed by an additional round of $20 million led by New Enterprise Associates as a further validation of the commercial open source business model.

Hillcrest Labs secured $25 million in a Series D round led by Alliance Bernstein. Hillcrest is addressing the problem of giving consumers an easy way to navigate and control the delivery of any kind of video content to television sets. In the business analytics segments, Palantir Technologies received $36.7 million, led by In-Q-Tel while Endeca Technologies Inc received $25 million led by Bessemer Venture Partners.

Table 1

Venture Funding Activity – 1st Quarter 2008


Industry Total
Amount
Funded
% Change
Vs. Prior
Quarter
Number of
Companies
Funded
% Change
vs. Prior
Quarter
Internet $1.48 Billion + 38 % 187 + 34 %
Digital Media $329 Million - 18 % 29 + 7 %
eCommerce $17 Million - 70 % 4 - 20 %
Software $1.27 Billion + 32 % 191 + 29 %
Total $3.25 Billion + 31 % 411 + 28 %

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