VCs back free internet telephony firm
In a deal reminiscent of 1999 and the advent of investing in free "viral" internet applications, Luxembourg-based Skype Technologies SA, raised a second round of venture capital worth $18.8 million.
The transaction was co-led by Draper Fisher Jurvetson, which has offices in London and Silicon Valley, and the London office of the Geneva-based Index Ventures
Other investors include the Silicon Valley firms, Bessemer Venture Partners and Mangrove Capital Partners.
Skype, pronounced like “hype”, is headed by Niklas Zennstrom and Janus Friis, who created the popular KaZaA music download service during the dotcom era, which grew much bigger than Napster, according to the firm.
Skype’s technology relies on P2P networking, like KaZaa, but it is voice files that are “shared” over the internet. It is voice communication from one PC to another PC.
This makes it different from competitors, such as Edison N.J-based Vonage Holdings Corp. or the Santa Clara, CA-based company 8X8 Inc, whose products are based on Voice-over-IP, a telecommunications industry protocol that enables callers to reach the public phone system, a market that is now in a rapid growth curve.
Dotcom era
The fact that the firm is giving its software away for free and has not yet proven that it can generate revenues does not mean that venture capital investors are moving as a whole back into the folly of the dotcom era.
Industry insiders say an investment like this is a “blip”. So it is not time to dust off all those old business plans with dysfunctional business models.
“They will probably do a quick flip, or trade sale to a larger company that can develop, package, and commercialise the software in the traditional way,” a source close to the investors told SwissVenture, adding that there are only very few venture capitalists that can successfully pull off a deal like this.
Indeed, a quick look at the other companies in the Index Ventures’ portfolio, shows that proven business models and growth by gaining paying customers, rather than giving the product away for free, is the norm these days.
by Valerie Thompson
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