Finding Foes Faster

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One Size Doesn't Fit All
There are many ways to bankroll a startup -- and other alarm:clock news from the land of private venture funding.

It's common wisdom that venture capitalists are keen on making big bets with their money. Even if it's a long shot (which it usually is), VCs like to see a financial projection in which their $5 million investment turns into $100 million after just a few years. Of course there's the downside: the $5 million plummeting to zero.

There are plenty of ways to start a company, however. We've encountered a range of approaches over the last week. Although we found one example of the "big bet" approach, we also encountered a mid-sized investment with a well-defined target market and a classic bootstrapping scenario, in which feisty entrepreneurs are eschewing venture capital dollars and trying to go it alone.

One can only imagine the kinds of eye-popping projections Caspian Networks, a San Jose, CA-based developer of routers, must have shown its investors when the company first came on the scene in 1999 -- since U.S. Venture Partners, New Enterprise Associates, Lucent Venture Partners, WorldCom Ventures, Vulcan Ventures, Alloy Ventures, and Applied Technologies all lined up to contribute a total of more than $140 million to the startup by late 2000. They accepted Caspian's claim that it could challenge Cisco's dominance by building a smart router up to 1,000 times faster than a typical router.

By 2002, though, Caspian was unable to deliver on its claim or land any significant customer base. Consequently, investors decided to scrap the initial business plan and re-start the company with a new approach. Now, using the same core technology that first mesmerized investors, a humbler version of Caspian is building routers that help service providers control, manipulate, and monitor IP-based traffic on their networks. More simply, the company helps to ensure that packets aren't dropped. This is particularly important to clients like Northrop Grumman, a defense contractor.

Indeed, Caspian just closed a round of $55 million in funding. Investors include Oak Investment Partners, U.S. Venture Partners, Morgenthaler Ventures, New Enterprise Associates, Alloy Ventures, and ABN-AMRO.

According to a 2001 Wired article, the execs at Caspian used to "tell the people it offered jobs to that they had to give an answer before they left the building. Caspian says 97 percent of its offers were accepted." Kudos to the 3 percent who told interviewers to shove off. Let's hope the joint is now being run with a bit more humility.

Another company pursuing a big payday for its investors is Quorum Systems, a San Diego, CA-based startup. It's creating a chip that allows both Wi-Fi and cellular functions to operate at the same time in a handset. Quorum plans to overcome the separation that currently exists between wireless data networks (such as the one at Starbucks) and the wireless cellular networks that connect mobile phones, which would create unrivalled network coverage for people using dual-mode handsets.

In May 2005, the company raised $15 million from Greylock Partners, Kleiner, Perkins, Caufield & Byers, and Enterprise Partners Venture Capital. To date, the company has raised $24.4 million.

While a number of other chip makers have been able to make such dual circuits, Quorum claims its success will come thanks to a low-cost design that handset manufacturers will be able to afford. If Quorum's chip can find its way on to these handsets -- a risky bet because the market is so young -- the opportunity looks good. Some market researchers believe dual-mode phones could break through 100 million units by 2010.

With all the big bets being placed, it's always refreshing to come across a startup that is self-funded and has a relatively modest approach to building a business. Bootstrapped Stamford, CT-based startup Indeed is offering a search engine for jobs. The company was founded by Paul Forster and Rony Kahan, who previously developed a finance jobs site, JobsintheMoney.com, which they sold to Financial News in 2003.

Their new venture, Indeed, is an aggregator that indexes more than 500 job sites, including Monster.com and Hotjobs. The company also powers job searches on other sites, starting with Clusty.com and Info.com. And the service allows users to create custom searches, say, "engineer - Sacramento - part time" – and have the results delivered via email, MyYahoo, or other RSS feed readers.

Rather than charging subscriptions, as some other job sites do, Indeed earns its revenue from advertising -- a model that worked well for search aggregators in other sectors, notably, travel.