Comet Systems Soars in Third Round

Hoping to transform its designer cursor technology from just a cute online toy into a powerful marketing tool, New York-based Comet Systems Inc. is expected to announce today that it recently secured $20 million in its third round of institutional funding.

Idealab Capital Partners led the Series C financing with a $16 million participation, which represents the largest single investment ever made by the incubator spin off. It is also the Pasadena, Calif.-based firm’s first investment in an issuer headquartered in Silicon Alley.

“The New York Cityventure scene has not gone unnoticed out here,” said Jim Armstrong, managing director with idealab Capital Partners. “A lot of our limited partners are based there, and during our weekly partners meetings we invariably see some New York deals, and there really isn’t an especially good reason why we hadn’t done one yet.”

Additional participants in the transaction included existing investors Prospect Street Ventures, Scripps Ventures, Advantage Capital, Carlin Ventures, Hudson Venture Partners and Robert H. Lessen Venture Capital.

“We were originally looking for $15 million but it proved to be a very popular offering,” said John Reid, president and chief executive of Comet Systems. “The main reason we accepted more was that we wanted to bring in ICP but, at the same time, every one of our existing investors took the maximum preemptive rights possible so that they could stay in the deal.”

Reid added that the company does not currently have any future financing plans, although he “doesn’t want to cross off any options.”

Comet Systems is the developer of a proprietary technology that allows Web site operators to install a broadcast or customized graphic in place of a traditional “arrow” cursor. Despite some published reports to the contrary, Comet does not track the Web browsing activities of its users, a fact which will likely speed its growth as online privacy concerns continue to mount.

“What this technology could eventually be used for is a sort of third-party hyperlinking,” Armstrong said. “This is a real interesting space… because instead of making people – especially those who don’t have DSL service – make four or five clicks to get to a certain piece of desired information, they’ll be able to get the information in one click so long as they have Comet software on their system.”

Prior to the Series C funding, which closed in April, Comet had raised a $2.5 million seed round in April, 1998 and a $7M Series B deal last June.