Valhalla Partners
News from Valhalla March 2008 - Volume 2

From the Partnership

Our focus in this issue is on the theme of video over the Internet Protocol, usually called "IPTV."

With three new investments in different parts of the IPTV ecosystem, we are big believers in the possibilities for this space. Our newest partner, Kiran Hebbar, and Valhalla co-founder, Art Marks, share their thoughts below on what we see for the future of this new medium.

As it happens, our three investments are local companies in the Washington, DC area, which is not an accident, given our strong regional legacy in networking, telecommunications, and media. We continue to believe that a major source of our strength lies in local companies in strong emerging sectors.

Also, in this issue, we draw your attention to five tips for managing through recession from our Administrative General Partner, Harry D'Andrea. Harry's advice is not just to weather the recession, but to turn it to your advantage.

Partners' Viewpoint:
Art Marks and Kiran Hebbar on the IPTV opportunity


A solid understanding of the forces shaping digital media online combined with a rich local ecosystem led us to our first three investments in what many call the "IPTV" space. In different ways, Avail Media, KZO Innovations, and TidalTV reflect our conviction at Valhalla that huge new successful businesses will be built delivering video content over data networks.

Video delivered over IP will not just be like TV on a computer monitor, it will offer a richer experience that has yet to be defined. IPTV will become a new form of media experience!


We believe that the term "IPTV" is really a placeholder for a dual change in the markets: delivery of video over IP networks, which will reshape the economics of the business; and a shift in all content industries to video content, which will provide a broad new category of consumer products and services, and a broad new platform for entertainment, marketing and sales. It's early in the process, and we anticipate many changes in products and business models as this new medium matures. However, underlying enablers such as broadband penetration, educated consumers, and ubiquitous browser-based technologies such as Flash make this space well-poised to take off rapidly.


The challenge for content providers is to invent a new business model which satisfies customers and produces a profit from this new channel of distribution. We are betting that willing content providers will get involved in IPTV who believe delivering their content via the Internet will enhance their business and want to insure they will not be outmaneuvered like the print and music businesses have been.


In terms of specific investments, Avail Media is helping telcos, cable companies, and specialized markets such as universities, hospitals, and fiber-to-the-home providers to deliver television programming over their broadband networks to subscription customers. The majority of these providers do not have the resources to build their own service offerings along the lines of Verizon's FiOS or AT&T's U-verse and will see value in a partnership with Avail. Over the longer run, Avail's ability to add new services on the emerging platform will permit it to add enduring value to service providers and subscribers alike.

KZO Innovations delivers a video platform technology for "over-the-top" applications (video delivered directly over the Internet). The KZO player is a flexible browser-based platform supporting streaming video, live feeds, two-way conferencing, and synchronization with PowerPoint and other media. The company has early traction in corporate training and online learning applications.


TidalTV is an early startup by veterans and deep innovators with whom I worked closely at the online advertising pioneer The company aims to build a business in advertising-sponsored premium video over the Internet, which is about all we're willing to say at this time!

Valhalla CEOs: Ramu Potarazu

Position: CEO of Avail Media, a provider of IPTV capability to telcos, cable operators, and others.

How did you get to where you are today?

I was running [Intelsat] a fairly large company, a satellite firm with over $5 billion of assets, and my responsibility and interest lay in developing new lines of business so that we were more than just a provider of transponder services. But during that time we sold the company to private equity, and they were mostly focused on just selling transponder bandwidth, and that was of less interest to me.

When [Avail co-founder] Jon and I left Intelsat, we shared a fascination with what was happening in the IPTV space.

What excited you about the IPTV opportunity?

What brought it onto my radar screen was hearing about competition to cable, compression, the emergence of high-definition TV. I heard this from the satellite guys about how this was going to affect our industry, the transponder bandwidth was going to be used less and less because of IPTV. They were looking at it as a kind of threat to the satellite business. But my thought was, "Why not partner with them and create a new business opportunity out of this new service?"

When we left Intelsat, the major programmers - NBC, Fox, ESPN, Discovery - were just starting to consider taking their real-time programming and converting it to the IPTV format. They had heard about this conversion for four or five years, and they were getting very nervous because of the letters "IP," so they were very reluctant to get involved at first, but we were able to prove to them that we could deliver their content in an IP format without having to put it on the public Internet.

In the longer run, of course, the industry is struggling with set-top boxes, computers, and the convergence between what you see on TV and on your computer. By becoming a trusted partner of the providers of content, we're going to be in a great position to help them as they become more comfortable with that convergence and begin to work with it.

The consumer will be able to watch the programming they want to watch, when they want to watch it, and how they want to watch it. And this is what fascinates me: being at the heart of this big, big change.

What was the most surprising difference between your previous environment and Avail?

This is my first startup, and there's bad news and good news. The bad news is that the simple things, like paper, printers, infrastructure, lawyers, finance guys - things you take for granted - can be a pain when you've got to build it yourself. It's a lot of sweat and blood. The good news is that you can maneuver very quickly, make deals happen, take advantage of market conditions. You can be agile.

Turning Recession into Positive Advantage: Five Tips for Startups

by Harry D'Andrea, Administrative General Partner, Valhalla

re•ces•sion \ri-'sesh-en\ n 1 : a period of reduced economic activity 2 : a decline in a country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year 3 : a term that strikes fear into the hearts of all CFOs.

"A period of reduced economic activity" is obviously bad for business, but recessions are a fact of business life. The National Bureau of Economic Research (NBER) reports that since 1854 the U.S economy has experienced thirty-two cycles of expansion and contraction, with, on average, seventeen months of contraction and thirty-eight months of expansion. The good news is that the length of recessions in the period since the end of World War II has been decreasing, lasting an average of just ten months.

Are we in a recession today, or about to enter one? It is difficult to say with certainty, since identification of negative economic growth usually occurs only after the fact. But economists for some of the largest Wall Street firms believe that a recession is imminent, if not already in process. And recent aggressive rate cuts by the Federal Reserve suggest that they, too, are concerned about an economic slowdown.

One thing that is certain is that the current situation concerns the country's CFOs. In a fourth-quarter survey, Financial Executives International reports that every CFO they questioned was as concerned/or more concerned about a recession than they were in the previous quarter.

At Valhalla Partners, we are working actively with the CFOs of the companies we invest in to go beyond "concern" or even "more concern." We urge our CFOs to make a plan to deal with this inevitable portion of the business cycle.

Here are five topics to consider in the coming months as you formulate your business' response to a recession. They are based on the one thing we can be sure of today: if we are in a recession it will end; the trick is ensure you are stronger coming out than you were going in.

1. Take a new look at your business and financial plan. Try to determine how a recession will impact your plan. Start by talking to your customers, or talk to your sales executives who talk to your customers. Since your business starts with your customers, it's a good place to begin your planning. Understanding your customers' response to the recession will take you a long way to understanding the impact a recession could have on your business. Flow those changes and others straight through to your cash line. Knowing the impact on your cash will help you to understand just how much cushion you have to weather the storm.

2. Re-focus your spending. When faced with a period of uncertainty, the urge is to adapt a "batten down the hatches" mentality. And a by-product of that mentality is spending cuts. But a recent McKinsey report on their study of some 1,000 companies over an 18 year period found the more successful companies re-focused rather than cut spending during economic downturns. Take the opportunity to dust off that efficiency or productivity effort that has languished. Use the perception of a recession as leverage to sell it through the rest of the organization. It's one way you can ensure you will be stronger coming out of the downturn.

3. Look for buying opportunities. That same McKinsey study found that the more successful companies pressed their advantage during a recession when it came to merger and acquisition activities. They pursued transactions that allowed them to shape their industry, even during demanding economic conditions.

4. Tailor your marketing message and efforts. Use the recession, or perception of one, to your marketing advantage. For example open source software and outsourcing companies might modify their marketing to focus on the cost saving aspects of their product and service offerings. And take the opportunity to tighten up your ROI story. In tight times customers will focus on the products and services that have the best potential returns.

5. Re-vamp your vendor program. Tough economic times present buying opportunities, so apply that logic to your vendor programs. Take the time to determine if markets have changed for the products that you buy. And then press that advantage in negotiating new terms with existing vendors, or introducing new vendors into your program who might offer aggressive pricing to gain new business.

Economic downturns represent a period of uncertainty. But with some planning and an understanding of the impact of the downturn on your company and the industry in which you operate, you can emerge a stronger company. One that is fully equipped to take full advantage of the inevitable expansion that follows any downturn. Now get working - you don't have much time.

Portfolio News


ServiceBench, Fairfax, VA
On January 15, 2008, ServiceBench Inc. was sold to N.E.W. Customer Service Companies, a long-time customer and industry partner.

Follow Ons:

GetWellNetwork, Bethesda, MD
Valhalla and existing investors led a $3.7 million extension to the Series B round investment in GetWellNetwork.

GetWellNetwork is the leader in "interactive patient care" systems for hospitals, providing bedside Internet access and "patient pathway" applications for improving the patient experience, generating additional revenue for hospitals, and, perhaps most importantly, improving the quality of care.

New Investments:

KZO Innovations, Chantilly, VA
Valhalla invested $0.5 million in a seed-stage investment in KZO Innovations, joining knowledgeable angel investors.

KZO Innovations has developed an interactive communications platform that delivers live and pre-recorded video, audio, PowerPoint, and text over IP in a user-friendly and intuitive set of applications.

TidalTV, Baltimore, MD
Valhalla and NEA jointly invested $4.0 million each in TidalTV. A well known group of angel investors provided the balance of a $15 million round.

TidalTV is an online video service that offers a selection of ad-supported premium TV and movie programming on the web. The team, led by Scott Ferber and Mollie Spilman, come from

VisualCV, Reston, VA
Valhalla led a $1.4 million early-stage round in VisualCV, along with strategic partner Heidrick and Struggles, the worldwide recruiting firm. VisualCV is developing a new approach to creating and sharing resumes over the Internet that takes advantage of Web 2.0 capabilities such as video and social networks.

Q & A

We want, as much as possible, to open up our newsletter to questions, opinions, and suggestions from our readers. The great magic of our newest medium for communication is its interactivity.

Please click here to submit feedback. We will undertake to respond to every submission, and to print those of general interest in this section. The partnership is happy to address topics such as hot technologies, exit strategies, or due diligence. We look forward to hearing from you.

The Valhalla Team

Investment Team:
Art Marks
General Partner
Gene Riechers
General Partner
Hooks Johnston
General Partner
Scott Frederick
General Partner
Charles Curran
General Partner
Kiran Hebbar
Saj Cherian

Finance Team:
Harry D'Andrea
General Partner
Danielle Brogan
Gregory McNiff
Financial Analyst

Research Team:
Dan Gordon
Director of Research
Leon Zilber
Research Analyst

Administrative Assistants:
Claudia Bartz
Executive Assistant,
Office Manager
Sara Endicott
Executive Assistant

We want, as much as possible, to open up our newsletter to questions, opinions, and suggestions from our readers. The great magic of our newest medium for communication is its interactivity.

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