Smoothing Out Jittery Internet Video, Elemental Technologies Looks to Reinvent How You Watch

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from the Oregon Angel Fund and Bend Venture Conference—a total of a little more than $1 million.

A key advisor the team met in Seattle was Geoff Entress, then a venture partner with Madrona Venture Group. Entress invested as an angel, and Blackman says he has been instrumental in the company’s progress. For example, Entress has routinely helped the team go through documents and made sure they understood all the terms, and what the industry standard was in terms of things like dilution, liquidation, and how the board is chosen. “Someone that lives and breathes startups and financings is key,” Blackman says.

By early 2008, Elemental’s technology was pretty far along. Here’s the innovation, as Blackman explains it. Videos sent over the Internet have to be compressed to save bandwidth. The compression schemes break all images into blocks of pixels. To reconstruct the video on your end, a conventional processor in your computer deals with one block at a time. What the Elemental software does is “farm off an entire image worth of blocks to the GPU at once”—because of its parallel-processing capabilities—while using the conventional processor to do simpler tasks. The result? Five to 10 times the video-processing speed at no additional cost. (Other ways to do it involve customized hardware, which is expensive.)

With this technology in hand, Elemental started going after the professional video-editing market—makers of Blu-ray movies, for instance—and consumers who want to convert videos so they’ll run on iPods, laptops, and other devices. But to go after larger markets, like big media companies and distribution networks, Elemental needed some more help.

For that, Blackman hooked up with Voyager Capital through Frank Gill, a prominent investor, board member, and former Intel veteran. Blackman and Voyager’s Benson hit it off right away, and a deal was in the works. They also agreed that an outside VC firm with a lot more experience in digital video would be a great complement to the team.

Enter General Catalyst, which agreed to meet with Elemental last spring. Managing director Neil Sequeira recalls sipping a drink at a Portland hotel down by the river. The sun was out, and there were boats on the water. “The CTO [Rosenzweig] and Sam came and sat down. I immediately got the sense that these were unbelievably young and talented people,” Sequeira says. “They had an answer to every question. But they’re not cocky, they’re good, thoughtful people. I wanted to do business with them right away.”

Sequeira, who sits on the boards of five video companies, emphasized how hard a problem Elemental has solved—which is why nobody has done it before. “It’s very difficult to replicate,” he says. “You need geniuses to deliver this software.” While Blackman might downplay that description, he agrees that “No one believed it—they didn’t think we could do it as fast.”

Since the funding round last July, Elemental has beaten all its revenue targets, says Benson—which is really saying something, in today’s climate. Blackman puts his company’s revenues in the “low millions.” He says Elemental was on the verge of profitability in 2008, and expects to be profitable in 2009.

To score a big win, Elemental will need to continue building strategic partnerships with media companies and distributors that pump out huge volumes of video. It faces competition from big companies like Tewksbury, MA-based Avid (NASDAQ: AVID), Sunnyvale, CA-based Harmonic (NASDAQ: HLIT), and San Jose, CA-based Cisco (NASDAQ: CSCO)—which is probably a good sign—as well as a handful of startups such as Dallas-TX-based RipCode, which solves similar video problems with a chip-based product. Sequeira says online consumption of videos has grown by a factor of 10 in each of the past three years. With that sort of demand curve, Elemental and its backers stand to make a lot of money if indeed they are successful in allowing us to watch clear, fast video on any device, and on any network.

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