Audio clips for cell phones, movies delivered wirelessly to TVs, online classifieds, a social networking site for teenagers, a free SMS service in China. Each of these sectors is decidedly different, but they all target consumers, and that’s where Mayfield Fund is making the majority of its bets these days.
The Menlo Park, Calif.-based venture firm raised $375 million for its 12th fund in August and has lately used it to go on a consumer spending spree. In February, Mayfield disclosed financings in five consumer startups that collectively raised more than $66 million from Mayfield and other investors. In two of the deals, Mayfield was the sole investor.
The focus isn’t that much of a shock. Over the last year, Mayfield has brought aboard two new investors to focus on consumer deals: Managing Director Raj Kapoor, who founded the photo-sharing company SnapFish, and Principal Chamath Palihapitiya, who was most recently in charge of AOL’s instant messaging division. But what is shocking is the pace of Mayfield’s deal-making.
“We’ve always thought that the Internet would change consumer interaction with media,” says Managing Director Allen Morgan, a former corporate attorney who joined Mayfield in 1999 to focus on consumer deals. “What we were wrong about is how fast that would happen. We thought 1999, 2000.”
But why would a VC firm that made its name in hardcore tech deals (such as Redback Networks, BroadVision and Tibco Software) dive headfirst into the consumer market?
“Mayfield has no choice,” says Paul Kedrosky, a venture fellow with Ventures West Management in Vancouver, B.C., and a professor at the University of California, San Diego. “You have to go where opportunities and exits are, and right now, exits are in the consumer space.”
One of the more noteworthy consumer exits was last summer when News Corp. agreed to buy Intermix, the parent of social networking site MySpace, for half-a-billion dollars.
Whether Mayfield will get an exit like MySpace is uncertain, but the firm is investing in a similar space. In early February, Mayfield announced it took part in a $7 million Series A funding of the 16-month-old social networking startup Tagged, based in San Francisco.
Led by 26-year-old Greg Tseng, Tagged operates a social networking site that focuses on “13- to 19-year-olds in the United States,” says Tseng, who notes that it is an enormous market. “Teens spend $160 billion a year. Parents spend another $250 billion a year on their kids. That’s a lot of purchasing power, and advertisers are just starting to tap into that potential online.”
Tagged has 2 million registered users, compared to the more than 50 million users worldwide who belong to MySpace, but those numbers didn’t give Mayfield pause, says Managing Director Kevin Fong, who notes that MySpace caters to an older demographic. “You’re going to get finer and finer segmentation, not just because of the desires of participants but because of advertisers, too,” Fong says. “The biggest goal of advertisers is to segment the population that they’re targeting.”
Mayfield also went overseas to fund a consumer company. It recently announced a $1 million Series A funding of PingCo., a Beijing-based, three-month-old SMS service provider whose feature application is to allow users free SMS messages over Internet data services, circumventing any SMS per-message charges they might otherwise have to pay.
In the last several weeks, Mayfield participated in yet another round for Tribe Networks, one of its first consumer plays after the Internet bubble burst and its first foray into social networking. Tribe, which boasts more than 200,000 members nationwide, according to the site, and which parted ways last year with founder Mark Pincus, raised more than $3 million of an $11 million Series B funding round, according to regulatory filings. Mayfield, Knight Ridder Ventures, and The Washington Post Co., Tribe’s original investors, participated.
Mayfield also led a $48.5 million Series A round for MovieBeam, a startup that hopes to sell its on-demand movie service to consumers nationwide. It is asking customers to pay $199 for a set-top box that must be installed in their home for an additional $30. The services gives users the privilege of receiving new movie releases on the day that they become available on DVD, though the new releases cost an additional $3.99 each.
Numerous analysts have voiced skepticism over MovieBeam’s business model. But Mayfield – which was joined on the deal by Norwest Capital Partners, Vantage Point Venture Partners, Cisco Systems, Intel Capital, and The Walt Disney Co. – has seen the underlying technology before and thinks its time is due. Fong compares MovieBeam to Geocast, which was backed by Mayfield and Intel, though the multimedia networking software company is now defunct.
“Though Geocast’s first efforts at datacasting failed, MovieBeam shows a lot of merit in this area, starting with the fact that they have a very cost effective way to deliver movies, whose transmission into homes still poses huge problems,” Fong says.
Mayfield’s final consumer related investment of the month went to Phonebites, a startup that is trying to sell mobile carriers on bits of recorded audio, such as laugh tracks, that users can download and play during calls. Mayfield led the company’s $7 million Series B round, and was joined by returning investors Garage Technology Ventures, Cardinal Venture Capital and Greenpark Capital (via its acquisition of Siemens Acceleration portfolio last December). The startup is working with European and Asian carriers, but has yet to line up a U.S.-based partner. One VC, whose firm passed on the company, calls it a “swing for the fences deal.”
But this may just be the beginning for Mayfield.
Last month, Murgesh Navar, CEO of the startup Podbridge, said that he anticipates raising a $10 million to $12 million Series B round in the next month or so. The company develops technology to place targeted ads alongside podcasts.
A good chunk of the Series B round, according to Navar, will be coming from Mayfield. The firm backed Podbridge in its first round of institutional funding with $10 million in September 2004, along with Worldview Technology Partners. At the time, Podbridge was called AudioFeast, and it was a provider of a portable Internet radio service for MP3 players.