Original post is Draper University Gets Aspiring Entrepreneurs Out of the Classroom by Tech Deals.

Photograph by Erik Dreyer

Among crowdsourced Q&A sites, the winner may be whoever can answer the business question first.

ChaCha, a website where you can ask about anything and get answers from volunteers or the site’s database of 2 billion queries, doesn’t have a response yet to one big question: Is crowdsourced Q&A a standalone business?

Enter that into the search box on ChaCha‘s site, and the automated system doesn’t have an answer. But a new round of financing will buy the Carmel, Indiana-based company more time to figure it out.

ChaCha Search announced today it has raised $14 million in a funding round led by VantagePoint Capital Partners, Rho Ventures and Qualcomm. That brings the total amount raised to $82 million, said Scott Jones, the chief executive who has invested  $30 million of his own money in the seven-year-old startup. Jones previously co-founded Gracenote, a media-data provider that was sold to Sony in 2008 for at least $260 million.

Whereas Google proved many years ago that Web search is a serious business, crowdsourced Q&A has yet to find its cash cow. As ChaCha remakes its site and apps to look more like a social network, Jones said advertisements targeted at the context of a question should be very effective. Imagine asking about a restaurant and getting the option to book a reservation or call for a cab to take you there, he said.

The biggest Q&A site out there is Yahoo! Answers. It had 69 million visitors in December, an increase of 11 million compared to the previous year, according to research firm ComScore. All the while, Yahoo has made minimal improvements to the site, as it’s been overtaken by silly questions and often useless answers.

In 2010, Google acquired Aardvark, a crowdsourced Q&A startup. The next year, Google shut down the service.

Quora, which was co-founded by a former Facebook executive, is popular within Silicon Valley and raised $50 million in financing last year. But it received just 1.9 million visitors in December, though that is nearly double what it had a year ago, ComScore said. The Mountain View, California-based company, which has 45 employees, expanded beyond Q&A last week when it gave users their own blogs, Quora executive Marc Bodnick said in an interview last week.

ChaCha, with 52 employees, had 16 million visitors in December, ComScore said. Many people also use the service through mobile applications or via text message. The company, which runs banner ads alongside its content, generated $12.2 million in revenue last year, up from $7.7 million in 2011, Jones said. It hasn’t had a profitable year, although some months have been, he said.

As for when the company might go public or seek a buyer?

They’re still working on answering those questions, too.

Original post is Can a Q&A Site Be a Real Business? $14M Will Help ChaCha Find Out by Tech Deals.

Still, the 17-year-old company hasn’t received the publicity of newer ventures such as online higher education startups Coursera and Udacity, computer programming site Codecademy and the nonprofit Khan Academy.

That’s about to change, in a big way.  In the largest U.S. venture financing round on record for an online education company, Lynda.com is announcing today that it raised $103 million led by Accel Partners and Spectrum Equity. The company, located near Santa Barbara, California, plans to invest internationally, bolster its content library with 400 new courses this year, grant stock options to employees and soon air television and radio commercials to promote the brand.

“Our biggest problem is people don’t know who we are,” said Weinman, 57.  ”We’ve grown organically and watched other people get all the glory.”

According to the National Venture Capital Association, no education company dating back to 1980 has raised this much money in a single round. Only five have raised more than $100 million total, led by Chegg, which has pulled in $193.2 million over 10 financing rounds, the NVCA said. Since the end of 2010, 36 education startups have raised at least $10 million in venture capital, led by 2U, which brought in $58.6 million in two rounds.

Late last year, Bloomberg.com’s Tech Deals Blog published a five-part series on startups that have succeeded without venture capital. The founders we highlighted resisted taking money because they wanted to maintain control, were concerned about investors with different visions and didn’t want to be pushed into selling their business or going public.

For all of those reasons and others, Lynda.com has spent the past five years skirting venture capitalists. The company has had term sheets on the table with unimpressive valuations from investors who expected a definitive return within a given amount of time, said Chief Executive Officer Eric Robison. Though he isn’t disclosing the valuation, Robison said this deal is much more favorable and comes with no expectation of an IPO or sale.

“Today, the types of interactions we have with investors are very different and the deal terms are very different,” Robison said. “We got an amazing deal because we waited. There’s no exit plan, no deadline.”

Accel’s Andrew Braccia and Spectrum’s Vic Parker are joining the board. Spectrum is a private equity firm with offices in Boston and Menlo Park, California. Accel is a Palo Alto, California-based venture firm with multiple strategies, including a growth fund that invests in more mature companies, like Lynda.com. Growth investments include game company Rovio, the maker of “Angry Birds,” and business software maker Atlassian.

“We look for companies that are bootstrapped and have flown under the radar but built incredible businesses,” said Braccia. “This is a great coming out party for the company.”

Weinman, the author of an early textbook on web design, and her husband  Bruce Heavin, 45, started Lynda.com in 1995. They later opened a brick-and-mortar school in Southern California that offered in-person training. After the dot-com crash and Sept. 11 terrorist attacks in 2001, business dried up because people were less willing to travel and there was waning demand for web experts.

So in 2002, they started producing online videos at a time when many people still accessed the web via dial-up connections. A decade later, with ubiquitous high-speed web access, Lynda.com sells access to its library of 83,000 instructional videos to schools including Harvard University, Yale University and the University of Southern California, as well as companies such as Qualcomm, Walt Disney and Apple. Individual memberships start at $25 a month, and the company sells institutional licenses with discounts.

Along with its 40 percent sales growth, Lynda.com increased its staff by about the same amount last year and now employs 400 people. Even with new players jumping into the online education market, the company insists that it doesn’t need money to fend off competitors. And that’s why the terms were so attractive.

“The best time to take money is when you don’t need it,” Robison said.

Original post is Lynda.com Lands $103 Million in Biggest Education Financing by Tech Deals.

Courtesy Lumo

The LUMO BodyTech wearable sensor to track posture.

Yahoo! co-founder Jerry Yang and Google Chairman Eric Schmidt may not agree on much, but they do see eye to eye on back pain.

Yang and Schmidt, through his investment fund Innovation Endeavors, are joining with Seattle venture capital firm Madrona Venture Group and others to kick in $5 million for LUMO BodyTech, a Silicon Valley startup that makes a wearable sensor to track posture.

The LUMOback device monitors a user’s back posture and transmits that information via Bluetooth to a smartphone application. The sensor, developed by three Stanford University graduates, is worn around the waist and gently vibrates to alert users when they slouch.

This summer, Monisha Perkash, the Palo Alto, California-based company’s co-founder and chief executive officer, raised more than twice her target of $100,000 using the crowdfunding website Kickstarter. Early versions of the device are being shipped now to Kickstarter backers, and the company plans to offer it in stores early next year.

Madrona said this is the first foray into consumer hardware for the firm, which led the funding round. Madrona was an early investor in Amazon.com and storage firm Isilon, an EMC acquisition.

LUMObody Tech is the latest to enter the movement toward using wearable sensors and data-analysis software to help improve people’s health and fitness. The area is already populated by the Fitbit and Nike’s FuelBand, as well as devices that monitor sleep.

At this rate, early-adopters may run out of spots on their bodies to attach all of the sensors. But Yang and Schmidt, who competed fiercely for years on search engines, have both decided there’s room for at least one more.

Original post is Eric Schmidt, Jerry Yang Back Posture Gadget in $5M Round by Tech Deals.

Photograph by Fragments from Olympus

One of the most successful campaigns on Indiegogo aimed to raise money to buy back Nikola Tesla's old laboratory.

In many parts of the Eurozone, now is not the best time for an entrepreneur to go to the bank and expect to skip away with a loan. But a growing alternative for some Europeans could be crowd-funding websites, which are expanding there.

Indiegogo, a popular site for entrepreneurs to raise money for their projects, added three new currencies today in a bid to draw more users from outside the U.S. Pledges can now be made in euros, British pounds or Canadian dollars, said Danae Ringelmann, the co-founder and chief operating officer of Indiegogo, in an interview.

By the end of the month, Indiegogo will also begin allowing fundraisers’ pages to be written in French or German, the company said. The site, which has been open to users worldwide, will introduce early next year home pages tailored by region for people based in either the U.S., Canada, France, Germany or the U.K, highlighting local projects, Ringelmann said.

“This is something that we’ve been building toward for a long time,” she said. “Thirty percent of our business is international, which is a shockingly big number considering our site is only offered in English and in U.S. dollars.”

By the middle of next year, the San Francisco-based startup plans to establish a subsidiary in the U.K. to reduce costs from its expansion to Europe, she said. New York-based Kickstarter, a giant rival that’s funneled $368 million to its creators, added the U.K. as its second country in October. About 2 million pounds were pledged to British projects in the first month, the company said.

Kickstarter and Indiegogo are going up against European startups, such as London-based Seedrs, which allow for small investments in exchange for equity. That’s something the U.S. companies don’t do because the practice  isn’t yet allowed . (A provision of the Jumpstart Our Business Startups Act that hasn’t been implemented yet would change that.)

American crowd-funding popularized the rewards-based system, where a pledge of, say, $30 gets you a T-shirt or $60 gets you a copy of whatever it is you’re backing. Considering that most startups fail, a shirt might not be so bad — unless it’s the one off the entrepreneur’s back.

Original post is Crowd-Funding Site Indiegogo Is Going International by Tech Deals.

Courtesy Zoho Corp.

Zoho CEO Sridhar Vembu doesn't want to bring in venture capitalists who could ruin the fun of running the business, he said.

This is the fourth in a five-part series called “No VC,” which highlights startups that have succeeded without venture capital, the lifeblood of Silicon Valley.

At first, Sridhar Vembu couldn’t raise money for his enterprise software startup because he didn’t know how to run a business. Since figuring things out, he’s shunned investors because he doesn’t want venture capitalists telling him what to do.

Vembu, the chief executive officer for Zoho, has no aspirations to take the company public. In 2000, he turned down a venture capitalist who would have valued the company at $200 million, he said. Now, Zoho makes nearly that amount in annual revenue.

“If you take venture capital, your goals change,” he said in an interview, adding that investors ultimately will push for an initial public offering or a lucrative sale. ”I have trouble seeing myself as a public company CEO, to be honest. I couldn’t care less for Wall Street and for quarterly earnings.”

Vembu’s company started out as an excuse for him to move back home to Chennai, India. He had been working on wireless technology for two years at San Diego-based Qualcomm, as did his brother, a software engineer. Then in 1996, the pair decided to do their own thing.

“We didn’t have a very strong business plan,” Vembu said. “It took us about a year and a half to settle on what products would make money.”

The brothers also took a while to decide on a name. The company had operated under Vembu Systems, Advent Network Management and AdventNet over the years. One reason for the changes was fear of being sued over trademark infringement, which can kill a company without venture capital, Vembu said.

Early on, the startup sold software to network-management companies, including Cisco Systems and Motorola. At the height of the dot-com bubble in 2000, when there were hundreds of networking companies in Silicon Valley, AdventNet sold its products to about half of them, according to Vembu. When the industry imploded, the company’s revenue dropped precipitously.

Then in 2004, AdventNet introduced ManageEngine, a software suite for corporate information-technology departments that now accounts for $120 million in annual revenue. The following year, the company created Zoho, which includes Web-based sales management, communication and productive tools.

In 2009, Vembu changed the company name to Zoho, and for good reason: The online tools have become its fastest-growing business. He forecasts that the cloud-software division could overtake ManageEngine in revenue in a year and a half. Zoho’s customer-relationship management programs compete with those from Salesforce.com and SugarCRM. The name Zoho is a take on the product’s target market: small office/home office (SOHO).

Vembu credits some of his company’s success to its long-term research projects and extended training program, which pays high school graduates in India and the U.S. to learn to code. Graduates of Zoho University make up about 15 percent of programmers employed by the company.

He said those types of endeavors might have been frowned upon by outside investors. It would be easier and quicker for Zoho to just hire qualified engineers, he said, but they wouldn’t be as connected to the independent corporate culture that Vembu has cultivated over the years.

Workplace climate is of special interest to Vembu. With 1,500 employees, most of whom work in Chennai and Pleasanton, California, his goal is to prevent these offices from turning into a “corporate environment,” something that would be difficult to do if investor expectations needed to be taken into account.

“It would take out the fun of work,” he said.

Original post is No VC: Zoho CEO ‘Couldn’t Care Less for Wall Street’ by Tech Deals.

Photograph by John Lamb

TranscribeMe has raised a total of $1.5 million to develop its text-to-speech service.

Note to self: Good speech-to-text services aren’t cheap.

TranscribeMe, a startup that charges customers between $1 and $3 per minute for audio transcription powered by people and machines, closed a round of about $900,000 last week, co-founder Alexei Dunayev said in an interview.

The round was led by Keiretsu Forum, with Ice Angels, Maverick Angels, Sand Hill Angels, Sierra Angels and Tech Coast Angels also kicking in money. The company has raised a total of $1.5 million, Dunayev said. TranscribeMe is not profitable, but he expects to be by the end of next year.

The startup competes with Apple’s Siri and Google’s audio transcriber, which rely on computers to try to figure out what the user is saying. Anyone who has shouted at their iPhone’s virtual personal assistant will know that these tools aren’t always reliable, especially for longer ramblings. Nuance’s popular Dragon Dictation has similar issues (though the company also offers paid services targeted at health-care professionals in which audio is transcribed by people).

How can TranscribeMe compete with free? Dunayev touts the quality of the service, which relies on computer algorithms as well as human ears. Freelance workers can sign up to be paid $20 for every hour of audio they transcribe, according to the website. The system splits audio tracks into pieces, in part to preserve the customer’s privacy, and transcribers can work in 30-second intervals during their free time, Dunayev said. Each time a person contributes an accurate transcription, the computer can learn to associate a particular accent with a word, he said.

“We can rely more and more on computers, and less and less on people,” Dunayev said. “Over time, computers will do more and more of the work, but you still need people.”

Dunayev started TranscribeMe in Auckland, where a dozen employees are based, before opening an office in Emeryville, California. He said TranscribeMe is headquartered in the Bay Area, despite having half as many employees based there, in order to focus its strategic efforts on the U.S. market and connect with investors there.

“I like the approach of running a business that bridges Silicon Valley and New Zealand,” said Andrew Hamilton, the director of Auckland-based investor Ice Angels. “I’ve seen a lot of companies that try to make the transition. Some succeed, and some fail.”

With money in the bank, success for TranscribeMe could depend more on whether computers can ever surpass the accuracy of the human ear.

Original post is TranscribeMe Takes On Apple’s Siri With Man and Machine by Tech Deals.

Photograph courtesy of Quizlet

Quizlet founder Andrew Sutherland (left) hasn't found the need for venture capital.

This is the third in a five-part series called “No VC,” which highlights startups that have succeeded without venture capital, the lifeblood of Silicon Valley.

(This post was updated to correct the site’s pricing to $15 a year.)

One night this past summer, Andrew Sutherland was eating takeout at the office of his San Francisco-based startup, Quizlet, when a knock came at the door. He answered to find partners from a well-known venture capital firm. Based on the e-mails and phone calls he received from the firm before, Sutherland surmised they wanted to discuss a possible investment.

“I guess they thought that if they couldn’t get in through other channels, maybe we’d take an in-person meeting,” he said. “We turned them away.”

The 22-year-old  Sutherland has rebuffed numerous investors since becoming one of the hottest new stars in education tech. Quizlet, the program he created as a high school sophomore to prep for a French exam, has grown into one of the most popular study tools for students. The website has more than 12 million unique visitors a month and the company’s app has been ranked as one of the top educational programs in Apple’s App Store for the past three months.

Yet unlike high-profile startups such as Inkling and Kno, which have raised tens of millions of dollars from VCs eager to cash in on the boom in smartphones and tablets in the classroom, Quizlet remains entirely bootstrapped.

“We don’t need the money right now,” said Quizlet Chief Executive Officer Dave Margulius. He said the company is cash-flow positive and predicted that revenue would surpass $10 million in two years.

Quizlet became profitable soon after it was created in 2005, according to Sutherland, who built the flash-card program for the Web and supported it by selling Google AdSense promotions that let marketers place ads on the site. As the game grew more popular and server costs rose, he raised $30,000 from friends and family and invested profits from a separate site he helped to create — an e-commerce service called Collectors Weekly — to grow the business.

He also hired Margulius — a tech veteran who founded Boston.com in the early 1990s and worked as an executive at Evite — to help run Quizlet while he attended MIT. Last year, Sutherland dropped out of college to focus on Quizlet and help produce its first app for Apple’s iPhone.

Investors may like Quizlet because it’s not selling anything to school administrators or teachers, which usually involves clearing red tape and waiting out budget approvals. Instead, the simple and fun-to-use app appeals directly to students.

“A kid in California can create a Quizlet around a topic and 45 kids in South Carolina who don’t even know him can leverage that for their own studying,” said Semil Shah, an entrepreneur-in-residence at Javelin Venture Partners who has written about education for the blog TechCrunch.

Aside from selling ads, Quizlet also offers a $15-per-year version with no advertisements.

While Sutherland sees sales continuing to grow at least 150 percent a year for the foreseeable future, he’s more focused on getting his service into the hands of more students around the world. That’s a vision that may be at odds with outside investors, he said.

“A lot of VC companies go for a subscription business and try to monetize quickly,” Sutherland said. “We can build a bigger business that can serve a lot more people if we’re more open and not trying to get money out of every single user.”

Original post is No VC: Education Startup Quizlet Makes the Grade Going It Alone by Tech Deals.

Photograph by Petrified Collection

FreshBooks says it has paying users of its Web-based accounting software in 120 countries.

This is the first in a five-part series called “No VC,” which highlights startups that have succeeded without venture capital, the lifeblood of Silicon Valley.

Mike McDerment was shacked up in his parents’ basement in Toronto when the first venture capitalist called. It was 2006 and the entrepreneur was in his fourth year of work on FreshBooks, Web-based accounting software he’d created for small businesses. His startup had a handful of employees and no salespeople, but it was getting enough market traction to merit a call from Insight Venture Partners in New York.

“They scared the hell out of me,” said McDerment. “I wasn’t ready for what they had to offer. It was about running sales and enterprise teams. We barely have a sales team today.”

FreshBooks, which now has 110 employees, is part of a rare breed of technology companies that has achieved success without the help of venture capitalists, the lifeblood of startups for the past half century. While the company doesn’t disclose financials, FreshBooks has paying users in 120 countries and its product has been used by more than 5 million people since its inception, McDerment said. The software is free for independent consultants and freelancers that have fewer than four clients. Paid packages start at $19.95 a month.

McDerment, 36, isn’t opposed to taking outside investment money. He raised about $100,000 from family and friends in the early days to go along with $30,000 of his own money to kickstart the business. He then brought in some angel investors that also act as advisers, though he won’t say how much they’ve contributed. McDerment said he’s just never gotten comfortable with taking capital from an institution that views his company as part of a portfolio.

He’s right to be concerned. Venture capital is known as risk capital, because investors are gambling on unproven technologies that often fail. Therefore, they make many bets and double down on the breakout hits, often ignoring or winding down the others. Yet, McDerment says the risk goes both ways. For him, the peril is that an investor comes in with interests that are unaligned with his own and those of his company.

For example, FreshBooks spends boatloads of money on customer support because that’s what keeps users coming back and encourages them to spread the word. An investor could see that as an unnecessary cost that could be outsourced or automated, McDerment said.

He also doesn’t want to sell the company or be forced to take it public before he’s ready, even if an investor needs the money back to shore up its own returns.

“I don’t want to deal with your problem,” McDerment said. “I’ve got enough of them on my own.”

McDerment has long since left his parents’ house, and earlier this year moved the company into an office near the University of Toronto. He still gets multiple calls a week from venture capitalists, including one the day before our interview offering to put in $25 million. He takes the calls and engages with investors, because there may be a time when FreshBooks wants or needs the money to scale faster or just add to its balance sheet.

At this point, he’s beyond the traditional venture phase and more in the category of growth investors. Still, if he chooses to take in money, McDerment wants to set the terms. He won’t allow investors to come in with so-called liquidation preferences that allow them to get paid out first in the case of a sale. He also won’t let in anyone who can’t commit to a 10-year investment, a time horizon that doesn’t fly with most venture capitalists.

“I don’t want to hear anything about you needing your funds back until year No. 9,” McDerment said. “At which point I will call you and ask you if you still want it back in the next year.”

Original post is No VC: FreshBooks CEO Sees Risk Capital as Too Risky by Tech Deals.

The money hasn’t stopped flowing. Over the past decade, venture firms poured between $20 billion and $32 billion a year into startups, spawning successes such as Facebook, LinkedIn and Workday.

But those stories are the exceptions. More often than not, venture investments return little if anything to the financiers, with the businesses they back getting tucked into bigger companies or withering altogether.

However, there’s a third class of startups that’s even less frequently discussed. They’re the ones that go it alone or with just the support of friends, family and a few angel investors. Sometimes the venture firms just miss them, and other times the startups shut them out.

When these entrepreneurs succeed, they do so as underdogs. Not only do they lack a financial cushion, they also forego the connections, branding, marketing prowess, publicity and overall stamp of approval that accompany the big bucks from a major venture capital firm. But by going this route, these entrepreneurs keep their ownership, grab control of their own destiny and, perhaps most importantly, gain a real appreciation of money.

Ed Zschau teaches that to students in his high-tech entrepreneurship class  at Princeton University, and he’s observed it in the handful of startups he’s backed as an angel.

“Companies that don’t have much money when they start out develop good habits,” said Zschau, who previously worked as a venture capitalist and served four years as a U.S. congressman for California. “They’re able to do a lot more with less.”

Starting next week, Bloomberg.com’s Tech Deals blog will profile five startups that have succeeded without venture capital. Success does not mean becoming a multibillion-dollar public company, but rather having reached a point where the business is thriving or the brand is at least big enough to make VCs deeply regret missing out.

Look for a series of posts that we’re calling, “No VC.”

Original post is No VC: How 5 Startups Skirted Tech’s Financiers by Tech Deals.