Venture Capital Magnets
Investors are attracted to the big-buck potential of intranet-specific companies.
By Chris Nerney
Network World, 7/27/98
They're the new darlings of the venture capital world: start-ups that sell products and services exclusively for intranets. These industry newbies are attracting millions of dollars in investment funds from topflight venture firms that see a tidal wave of demand in corporate enterprises for Internet technologies.
Accel Partners' Jim Breyer remembers when his venture firm realized the potential of the intranet market. "In [early] 1995, we had an off-site meeting where the conclusion was that the most compelling opportunity in the second half of the decade would be in intranet start-ups," says Breyer, a general partner at the Palo Alto, Calif., company.
But in the early days of the Internet gold rush, when entrepreneurs and investors panned for more glamorous public 'Net opportunities, intranet start-ups were relatively hard to find.
Despite its off-site epiphany, Accel invested in only three intranet start-ups through 1995. Those companies were Actuate Software Corp., for its enterprise reporting software; Illustra Information Technologies, Inc., which makes object-oriented databases for multimedia; and discussion group software maker Collabra Software, Inc., which Netscape Communications Corp. bought later that year.
Accel has since added a dozen intranet start-ups to its portfolio. It picked up five companies in 1996, five in 1997 and two so far this year.
The firm plans to invest in 10 to 15 additional intranet start-ups in the next two to three years, Breyer says. "Intranets are one of the most interesting investment opportunities in the venture capital world," he adds.
Force Field
What gives intranet start-ups such incredible drawing power?
Breyer cites a move away from back-office production applications toward front-office business automation applications, as well as a migration from large to thin clients. "These trends are leading to very rapid gains in revenue for intranet start-ups," he says.
Other venture firms have noticed and rushed to cash in on the intranet boom, too. Kleiner Perkins Caufield & Byers (KPCB), the most high-profile venture firm in Silicon Valley, has invested in a number of intranet start-ups, as have other major venture capital companies (see chart, page 12).
Intranet start-ups are emitting a magnetism that isn't going to disappear any time soon, one venture capitalist says.
"As long as [intranet technology] continues to help businesses find ways to be more productive, the market will support it," says Jake Reynolds, an associate partner at Technology Crossover Ventures in Palo Alto. What follows is a look at three start-ups targeting enterprise customers that have or want their own intranets. While each start-up focuses on a different market segment, all have attracted strong interest - and millions in investment dollars - from the venture community.
Intranetics: Instant intranets
Of course, you can't be an intranet customer if you don't have an intranet. And for companies with up to 500 users, or for departments within larger corporations, that's exactly what IntraNetics, Inc. in Woburn, Mass., promises - a complete, out-of-the-box, ready-to-go intranet.
The flagship product is IntraNetics 97, a package of 19 applications customers can quickly install to create an instant intranet, says Steve Crummey, CEO and co-founder of the company.
The IntraNetics 97 applications tend toward functional and convenient, rather than mission-critical. In addition to a browser and mail server, the applications let users orient new hires, search open job listings, view supply catalogs, create company newsletters, schedule corporate meetings and browse employee handbooks.
IntraNetics 97 comes in two versions: an applications-only version that works with any frames-capable browser and one designed to work with Microsoft Corp.'s BackOffice Small Business Server. The latter version includes only 25 client licenses and costs $995.
The $4,995 applications-only package is for customers that already have Web server, standard database and browser software. IntraNetics also offers a version for $7,495 that includes these components.
Founded in January 1997, IntraNetics is one of 30 companies spun out of entrepreneur Bill Gross' idealab!, a two-year-old Internet start-up incubator in Pasadena, Calif. Idealab! provides venture financing, job placement and management consulting.
IntraNetics picked up $8.3 million in investment capital last March from four venture firms - Memorial Drive Trust Advisers, Lazard Technology Partners, FBR Technology Venture Partners and Triad Investors Corp. IntraNetics' strategy for success is simple: Sell as much software as possible, but only to small and mid-size businesses or departments within larger enterprises. "We don't want to go above 500 [users] because when you do, you go down this rat hole of enterprise and database replications," Crummey says.
To increase exposure, the company has entered into an OEM agreement with Compaq Computer Corp. and has begun offering a three-application starter package that is available for free from www.intranetics.com and other sites. The starter pack consists of a document library, a calendar program and training software.
Oblix: After bigger game
Unlike IntraNetics, start-up Oblix, Inc. doesn't mind the idea of crawling down that proverbial enterprise rat hole. The Mountain View, Calif., company offers a trio of applications designed for large workplaces. "Our applications are not intended to be an intranet in a box. We're going after . . . companies with more than 1,000 or 2,000 employees, so our applications have to be scalable," says Sandeep Johri, Oblix president and CEO.
Johri, formerly a Silicon Graphics, Inc. executive, helped found Oblix in June 1996. The company received $3 million in venture funds from KPCB of Menlo Park, Calif., last December.
Oblix's IntraPower Suite is Java software that automates corporate services by unifying information across multiple departments. An employee directory lets an enterprise publish and manage employee information so users can find the appropriate people quickly and easily. A group manager lets team leaders set up shared workspaces for document sharing and collaboration. The third application, a shared-resource scheduler, allows any employee to locate and reserve corporate resources.
IntraPower Suite works within a customer's existing infrastructure, using Lightweight Directory Access Protocol (LDAP) directories to maintain up-to-date information. The software supports Windows NT and Solaris and runs on Netscape and Microsoft Web servers.
Customers include 3Com Corp., CSX Corp., DHL Airways, Hitachi Computer Products America, and NASA.
3Com is using IntraPower Suite to help integrate 6,000 new employees from its acquisition last year of U.S. Robotics, Inc. The product provides 3Com the ability to make information such as phone directories, training schedules and employee benefits available to workers around the world, all through an identical interface.
At Hitachi, IntraPower Suite reduces by one week the amount of time required to establish network services for a new employee, says Ron Valadez, IS manager at the company. IS uses IntraPower Suite in conjunction with an LDAP directory to inform appropriate departments instantly when a new worker is hired.
Oblix charges $20 per user for IntraPower Suite, plus an annual support and maintenance fee. For customers in the 10,000-plus employee range, Oblix offers site licenses for between $100,000 and $200,000.
Intraware: Software help
Intraware, Inc. wants to make the entire intranet experience easier for large enterprises.
Founded in September 1996, the Orinda, Calif., start-up offers network professionals one-stop shopping for intranet software. "The three biggest headaches for network managers are research, integration and keeping up-to-date on the technology. So we built technology that addresses those needs," says Peter Jackson, Intraware co-founder and CEO.
From www.intraware.com, customers can learn about and test intranet software from a variety of vendors, purchase software and receive automatic notification from Intraware of any upgrades.
Intraware helps with the research through the Compariscope service it launched in April. For $10,000, customers get access to a database containing information and comparisons of intranet products from companies such as Netscape, Informix Software, Inc. and Applix, Inc.
Once a company has purchased a software license from an Intraware vendor partner, it can sign up for SubscribNet, a service that notifies users of software updates and offers centralized license management and software downloads. Intraware charges 6% of the software's list price for the service.
"The problem for customers and developers is once they've bought a product, they have no idea when revisions occur or how to get them and when to integrate them," Jackson says. "We take care of all that." One large enterprise customer says Intraware saves him time and hassles.
"Intraware is almost a single-vendor source for best-of-breed software in a variety of areas," says Dave Klinzman, IT director at Long's Drugs, a national chain in Walnut Creek, Calif. "I don't have to put staff on an exhaustive one- or two-week research project and, since it typically offers most of the better products, I can make purchases, too."
In May, Intraware closed a third round of venture funding. It grabbed $11.8 million from several firms, including Attractor Investor Management, Technology Crossover Ventures and Hambrecht & Quist. The KPCB Java Fund gave Intraware an undisclosed amount of capital last December.
On the horizon
Meanwhile, intranet technology is spawning another wave on the horizon: extranet start-ups.
As companies begin to build out from their intranets to reach channel partners and business customers, companies touting extranet-specific technologies are starting to capture the attention of venture investors. Among the extranet start-ups getting venture cash are Webridge, Inc. in Portland, Ore., which makes software that allows manufacturers to conduct business with suppliers via the Internet.
Founded in 1996, Webridge last fall received $5.7 million in first-round funding from Sevin Rosen, Olympic Venture Partners and Worldview Technology Partners.
Another extranet company, Eprise Corp., formerly known as NovaLink USA, received $5 million in initial funding late last year from First Prism Partners, Still River Fund and Tredegar Investments, Inc. Eprise, in Framingham, Mass., makes extranet management software.
One extranet start-up already has hit the jackpot for its venture backers.
New Oak Communications, Inc. in Acton, Mass., last September unveiled a $50,000 extranet access switching device. Before its launch, the company had raised nearly $12 million in venture funding from North Bridge Venture Partners, Venrock Associates and Highland Capital.
Last January, just a month after its first product shipped, New Oak was sold to Bay Networks, Inc. for $156 million.
Now that's investing.
Nerney is a senior editor who follows intranet companies for Network World. |
