(Published in Investor's Business Daily.)
By Judith Harkham Semas
Is it Internet mania?
Well, in a way. In another show of the Net's money magnetism, start-up Desktop.com Inc. recently announced it had completed first-round financing, netting...$29 million.
Hold it. Was that first round?
Sort of. But not all first rounds are the same, cautions Mitchell Kapor, one of the venture-capital investors as a partner in Accel Partners and a well-known start-up adviser since his days as founder of Lotus Development Corp.
Even though the Net is crazy, savvy investors like Accel, Kohlberg Kravis Roberts & Co. and Sequoia Capital won't put quite so much dough into a first round - a funding way station where even $1 million or $2 million, not long ago, was large.
The real first round for Desktop.com, says Kapor, was the millions of dollars invested by its founders. And the founders had the cash because they had also founded - and in 1997 sold for more than $90 million in stock to leading Web portal Yahoo Inc. - one of the first free e-mail companies, Four11/RocketMail.
"So, compared to other start-ups, Desktop.com was further along in terms of having a working model of what they're doing and having hired people. Our funding wasn't really the first round; it was the first [venture] round."
Who is as important as what
In the Internet age, $29 million for a second round, while still quite high, isn't unique.
Why did Desktop get so much money?
First, there are the people. A tenet of the venture-capital world is that VCs invest less in any idea than in the people who will execute it.
Thanks to their work at Four11, Desktop.com founders Katie Burke, who's all of 29, and Larry Drebes, 32, are known commodities. Larry's wife Karen Drebes, 35, the third co-founder, had been manager of the electronic medical records project at the Palo Alto (Calif.) Medical Foundation.
Then there's the business.
As of Monday, Desktop.com began offering people a "friendly interface" to the Internet. It lets users create and access their own customized Web desktop - and it can look just like their own PC desktop.
The service hopes the customized desktop will become the first page that comes up when users log onto the Net.
The concept is complete with icons. Do you visit the Amazon.com Web site often? Create an icon that will sit right on your customized Internet desktop. Instead of typing in the Amazon Web address or clicking your bookmark, just click the icon. Navigating to favorite sites is as easy as clicking icons.
Desktop.com executives think the service will get most attention from people who use many different PCs and devices to access the Web. Bookmarks, for example, don't travel from machine to machine.
With Desktop.com, that problem is solved. Once you set up your customized desktop, all the stuff you need is always there for you, no matter when you're logging onto the Web - or from where.
Branding, as always, is key
"We want to be your Internet home," Burke said. "the one service you log onto, from which you access and use all other services on the Web."
But for the idea to click with the marketplace, Desktop.com will have to earn the name recognition of an Amazon.com or Yahoo.
The service is free. It makes its money from selling ad space on its site.
Name recognition boosts the need for money early in Internet start-ups. Kapor says marketing costs are extremely high.
"When you're trying to reach a broad consumer marketplace, it is, at best, expensive to establish a new brand," he said, "and getting more so all the time." The Web already is packed with sites seeking to draw users' eyeballs and wallets.
There's one factor helping the Desktop.coms of the new world get such loads of dough. "We're not having to educate people about the Internet anymore," Burke said.
That's not to say all projects are funded. "Certain areas especially in business-to-consumer e-commerce - such as pets and furniture --are getting too crowded," Kapor said.
But, he says, plenty of business-to-business opportunities still exist.
"The Internet's re-creation of the way people do business is comparable to what happened when electricity was introduced into factories in the early 20th century," Kapor said. "So, selectively, there are still great opportunities for investment."
