Video is the buzz as Dragonfly, others raise capital

A flurry of recent venture activity in the online video space is promising to bring swift changes to business-to-business and consumer online viewing experiences during the coming year.

Within the past few weeks, a half-dozen startups have netted first-round venture capital or angel investments. While several provide platforms on which companies can generate their own marketing videos for business-to-business sales, others are targeting consumers. For example, San Francisco-based CrunchyRoll Inc. operates a video sharing website focused on anime, the popular Japanese animation trend. The company secured $4 million from Venrock.

Another San Francisco-based startup, Seesmic Inc., netted $6 million in first-round funding from Atomico and a consortium of angel investors. Seesmic provides technology for online video chat.

But the lion’s share of deals is focused on video-delivery platforms for businesses, such as Austin, Texas-based Invodo Inc., which sells an online video management platform that helps manufacturers place product videos on retail websites. It raised $1.2 million from Sevin Rosen Funds and S3 Ventures.

In addition, Pleasanton, Calif.-based SellPoint Inc. provides online video product tours for retailers. It garnered $7 million from Granite Ventures and Menlo Ventures.

“I belong to several angel groups and I’m seeing many startups working on Internet video. The trend is going that way,” says David Solomon, a Menlo Park, Calif.-based angel investor who was in on the first two investment rounds for upstart online HD video delivery application maker Dragonfly. The company has secured $3 million to date in angel investments from Solomon, former Washington Redskins quarterback Joe Theismann and Ed Herrington, a New York-based investor.

Dragonfly has secured such customers as Nielsen, Hilton Hotels and the Nestle Group with its Movie Maker platform, a video system targeting mid-sized companies that want to provide video across the enterprise, but don’t want to spend the millions of dollars required to build out extensive video networks.

“What we saw was a need for people who needed to put video on the Internet and needed help doing it,” says Guy Nouri, CEO of New York-based Dragonfly.

And based on consumer demand, the need is becoming more visible. Last year more than 80 million Americans viewed online video shows, according to market researcher Solutions Research Group. That consumer base pushed online video to a $1.38 billion market in 2007. Forrester estimates that U.S. online video advertising will grow to more than $4 billion by 2011.

Those numbers aren’t lost on investors, who recently saw what the liquidity market looks like for video startups.

Last month, Maven Networks, a Cambridge, Mass.-based online video platform provider, was acquired by Yahoo for $160 million. The company had raised about $24 million from Accel Partners and other investors.

Solomon has invested in video before. Nouri’s first entrepreneurial venture, a multimedia broadcast software company called VideoSite, which was acquired in 1997 by GTECH in a deal valued at $15.4 million, provided Solomon with a 40% to 50% return on investment.

Dragonfly offers analytics and metrics that bigger companies such as Maven, now armed with the Yahoo backing, are beginning to pursue.

“Video is projected to be the fastest growing segment of the online ad market, and Maven will significantly help advance Yahoo’s strategy, expanding the video opportunity for publishers and increasing the efficiency and effectiveness for advertisers,” says Hilary Schneider, executive vice president for Global Partner Solutions at Yahoo.

Meanwhile, Nouri says that what’s driving the market is simply the insatiable appetite young consumers have for video, on any platform.

“All you have to do is look around,” Nouri says. “Everyone under 30 is using video on their cell phones.”