PhotoPoint Shutters $16M B-to-C Offering

With business-to-consumer plays falling completely out of favor with investors after last year’s dotcom disaster, it’s hard to believe any start-up with even a hint of traditional e-commerce in its business plan would have a prayer of getting funded.

San Francisco-based PhotoPoint Corp.’s long shot became a reality last week, however, as the provider of online photo-sharing sealed a $16 million Series B deal at a $70 million post-money valuation. The offering had been in the market since July.

Part of the reason that PhotoPoint has been able to defy down market gravity is because it’s not merely consumer-oriented, claimed Ed Bernstein, the company’s chief executive. It also has shades of b-to-b and application service provider elements, and offers corporate event photography services.

Its jack-of-all-trades approach has certainly turned corporate investor heads. First-time backers Epson America Inc. and Sun Microsystems Inc. stepped in to close the deal with a combined $8 million investment.

For its part, Sun purchased $950,000 in Series B stock and will provide PhotoPoint with an additional $15 million in equipment financing as the start-up ratchets up its hardware, software and disk storage space over the next year or so.

Series A venture backers U.S. Venture Partners and Softbank Venture Capital also came back for more in this round, kicking in $8 million.

“Despite the immediate near-term turmoil going on in the Internet and dotcom spaces, the digital photography sector is going through a large technological change,” said Steven Krausz, general partner with U.S. Venture Partners. “Digital photography [as we know it] is going to re-form into a completely different business, and PhotoPoint and other companies like it will be the beneficiaries.”

Flooding Its Revenue Stream

Until very recently, two-year-old PhotoPoint was completely consumer-focused. That approach has served it well, as it has more than $1.4 million members and 27 million photographs in its archives, with an additional 100,000 pictures being uploaded each day.

Historically, a majority of those services were available for free, so as the company started looking at ways to generate revenue, it shifted more towards becoming an active digital photo-imaging provider. However, Bernstein said the company plans to start charging fees for some of its consumer services over the next six months.

Still, a large portion of its revenue will come from strategic partnerships as PhotoPoint has already begun licensing its technology to build and power digital photo-centric Web sites for well-known players such as Intel Corp., Epson America and the College Club. It will then host the storage services necessary to keep the sites up and running.

Yet another revenue stream flows from the company’s corporate event photography arm. It snaps photos at highbrow functions for firms such as Volkswagen, then creates Web sites where attendees can view their pictures.

With 65 employees and a burn rate of slightly less than $1 million per month, Bernstein expects PhotoPoint to reach profitability by the fourth quarter of this year. As for an exit strategy, Bernstein said that, at this point, the company is open to either an initial public offering or a possible acquisition, if the price is right.

Robyn Kurdek can be contacted at Story Feedback.