BitTorrent raises $20 million

The peer-to-peer company will use the funding primarily for technology development as it launches distribution services for other Web sites.

BitTorrent said Friday that it raised $20 million in a second round of venture capital to help commercialize a popular open-source project for delivering media content, to encompass mass market content distribution services for large media customers.

The San Francisco-based company added Accel Partners of Palo Alto, Calif., as lead investor in the round, joining DCM-Doll Capital Management of Menlo Park, Calif., which backed the company's $8.75 million first round of September 2005. That round allowed BitTorrent to build a branded content aggregation site using open-source software originally developed by founder and Chief Executive Bram Cohen.

BitTorrent spent two years beginning in 2001 developing a peer-to-peer application that reduces the strain on Web sites that distribute massive digital documents such as movies, video games, music and software. It supported itself through donations as it saw a massive body of commercial users grow around its technology. The company incorporated in December 2004 to create a business plan to allow founders to grab a piece of the pie in commercial use of the software, while continuing to provide it .

Ashwin Navin, BitTorrent's chief operating officer who first convinced Cohen to build a commercial business based on the P2P software, said the company's original funding allowed it to build a profitable content aggregation site, but that the company began several months ago to consider expanding into the distribution services business.

BitTorrent's consumer site distributes content from more than 20 film studios and television networks, including Twentieth Century Fox, MTV Networks, Paramount Pictures and Warner Bros. Entertainment. But Navin said the company recognized that to launch distribution services for other Web sites would involve substantially more capital, which the company will use primarily for technology development.

"An entrepreneur is always guarded about surrendering equity," Navin said. "But we have always been opportunistic about what we can add to the business, and beyond being an entertainment destination we saw a big opportunity for providing a delivery system, so for the last six or eight months we have been honing that."

BitTorrent did not use an outside financial adviser in raising the new funding, and Navin said the round came at an increase in valuation over the first round, after receiving competitive term sheets. BitTorrent called on the legal services of David Hayes, Michael Patrick and Barry Kramer of Fenwick & West in San Francisco, while Wilson Sonsini Goodrich & Rosati of Palo Alto represented investors.

Cohen said the new funding would allow the company to launch general commercial availability of its new products in the first quarter of 2007. He said the new services would allow media companies to use a proprietary enhanced version of the original peer-to-peer software to delivery content with transparency for consumers.

The new services will scale up at a level not possible using the original open-source product, he said, adding the company's patented proprietary upgrades would not be made available to open source users.

Ping Li, general partner with Accel Partners, said he was attracted to investing in a company that he believed has revolutionized the way digital media content is distributed on the Internet, through its open-source and branded services. He said the firm believes strongly in the future of peer-assisted content delivery and that BitTorrent is the leader in the sector.

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