The Deal
Tuesday, October 21, 
4:39 am

by Paul Bonanos
[Posted on September 27, 2007 - 11:41 AM]

Having already won the backing of several prominent Silicon Valley angel investors, application infrastructure management service Mashery Inc. has closed its first institutional round of funding from a syndicate led by Formative Ventures.

Although chief executive Oren Michels would not disclose the size of the round, he said it amounted to less than $5 million. The prior round was worth less than $1 million but was structured as a Series A rather than a convertible seed round upon the request of lead investor First Round Capital. Josh Kopelman, the firm's managing partner, is Mashery's chairman.

Mashery has created a distribution platform for application programming interfaces, commonly known as APIs, which are portions of code that are opened up to outside developers. By sharing code, many site publishers have allowed outsiders to create new functionalities or services, termed "mashups," built on top of the original code from one or more sites.

In addition to First Round's initial investment, San Francisco-based Mashery took seed capital from a variety of angel investors. Michels said that about 80% of the original 20 angel investors took their pro rata shares in the Series B round, including Ron Conway, Esther Dyson, Jeff Clavier, Rajeev Motwani, Dave McClure, and Scott Kurnit.

First Round partner Rob Hayes introduced Mashery to Clint Chao, a founding general partner at Menlo Park, Calif.-based Formative. Although the year-old startup was not planning to raise capital until early next year, Formative provided a term sheet that Michels said was on par with what it expected for the eventual Series B round.

Michels would not give the company's valuation but noted its increase since the Series A round. The deal gives Mashery ample cash "to take fundraising off the agenda for at least a year," he said.

Accelerator Group LLC, a London-based firm operated by former Skype employee Saul Klein, provided a minority portion of the Series B round. Klein is also a venture partner in the London office of Index Ventures.

Chao, a former marketing executive, noted that Formative prefers to invest in companies as their products are ready for market expansion. Mashery currently manages the distribution of 18 APIs, mostly for consumer-facing Web sites.

For an annual cost to publishers typically between $20,000 and $60,000, Mashery distributes an API, provides usage reports and offers related services. All 18 customers are revenue-generating, Michels said, and the company no longer considers itself in beta mode.

Although Web companies can publish their own APIs, Mashery offers a convenient infrastructure to outsource the process, according to Michels. "It's a classic buy versus build," he said. "We provide infrastructure they could build on their own, but we do a better job of it."

Mashery expects to build beyond its six full-time staffers, doubling that count by year's end, Michels said. Another round is possible in late 2008, although Chao stressed Mashery's capital efficiency and described the company as "properly funded right now."

Ted Wang in the Mountain View, Calif., headquarters of Fenwick & West LLP served as Formative's counsel, while Christopher J. Austin of Boston-based Ropes & Gray LLP was Mashery's attorney. 


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