Elemental Talks About Its $7.5M Series B, and Cashing In on the New Economics of Online Video

The online video market just got a little hotter. Last month, my colleague Luke broke the news that Elemental Technologies, a parallel-processing video software startup in Portland, OR, had raised a new financing round. Today the company is talking for the first time about the deal and where it stands in an increasingly competitive—and lucrative—market.

Here are the details. Elemental has closed $7.5 million in Series B funding, led by new investor Steamboat Ventures, based in the Los Angeles area. Existing investors Voyager Capital and General Catalyst also participated in the new round. Steamboat, which is an affiliate of The Walt Disney Company, is also an investor in fellow Voyager portfolio companies Ground Truth and Photobucket (formerly Ontela), in the Northwest. Elemental now has raised a total of $14.6 million in venture funding since its founding in 2006.

The big goal behind Elemental is to enable people to watch high-quality video anywhere, anytime. As part of this goal, the firm makes software that takes advantage of massively parallel-processing graphics chips, and helps media companies, cable networks, and broadcasters stream live video reliably and efficiently to different types of devices over different networks. More generally, the Portland startup aims to let anyone who handles online video do so smoothly and at low cost, and it has enlisted some high-profile partners including Adobe and Nvidia.

Elemental says the new money will be used to expand its business both in the U.S. and abroad. The company currently has 30 employees and has continued to build out its executive team. Its software is currently being tested by a few dozen customers, says co-founder and CEO Sam Blackman. “To support these evaluations, we need to up our customer service and sales support,” he says. “We see a clear path to profitability in 2011.”

Stepping back from the deal minutiae, today’s funding news seems to indicate that the opportunity that Elemental is going after is as promising as ever. (Significant Series B rounds with new investors are hard to come by these days.) The company was cash-flow positive in 2008, Blackman says, and it invested heavily in sales, support and R&D in 2009 and 2010. This strategy should “pay very significant dividends in 2011,” Blackman says.

I asked Blackman a bit about the bigger picture—the future of how consumers and distributors will handle video online. As people want to consume more video over different types of networks, he says, “what will happen to the economics of video?” Similar kinds of transformations that have been happening in the worlds of online news, media, and music “will happen to video as well,” Blackman says.

Indeed, as Hulu and Netflix continue to compete with Comcast, Verizon, and other cable companies—and as consumers demand more video on iPads, laptops, phones, and other devices—Elemental could be in just the right place to take advantage of the need for new kinds of processing infrastructure at the right price.

“It’s a really interesting time to be in the video space,” Blackman says.

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