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Azuki Systems Inc. has raised another $3 million in equity financing from its venture capital backers – dollars that company chairman and founder Cheng Wu says will go toward an expansion of its marketing strategy aimed at wireless service providers. If that works, it will make the Acton company’s software a key component of the infrastructure meeting the fast-growing demand for streaming video on mobile phones and tablets.
“Apple is making a lot of money and everyone else is saying, What about me?” said Azuki investor Jo Tango, founder of the Waltham venture capital firm Kepha Partners. Azuki aims to allow everyone from carriers to content publishers set up subscription and ad-based revenue streams, like Apple Inc. (Nasdaq: AAPL) gets from its iPhone app store.
Until this year, three-year-old Azuki – formerly known as PeerMeta – worked exclusively with video content publishers, providing a software layer designed to regulate video, ads and subscriptions on a variety of mobile devices. Its 2009 customer wins included CBS, Fox Mobile, Sony and Time Warner. In 2010, the company began an as-yet unannounced pilot program with Comcast Corp. (Nasdaq: CMCSA), providing a software component of the Philadelphia-based cable provider’s TV Everywhere service, which debuted in a trial launch last December.
The software behind Azuki’s products for content publishers and cable TV companies is basically the same, Wu said: it distributes video to various devices, along with controls allowing ad and subscription revenue. The next step for Azuki will be to install the same level of control in wireless network equipment.
He declined to say which companies Azuki is targeting as business partners. “We are talking to a number of network equipment vendors,” he said. “You can guess who.”
Azuki’s network strategy may be coming a little early for consumer demand, which is growing, but perhaps not yet significant enough to require infrastructure upgrades, said International Data Corp. (IDC) analyst Ramon Llamas, who tracks the company. That may change with mobile tablets, like Apple’s iPad, and a new generation of larger-screen smartphones, like the Motorola Droid X or HTC’s Evo and HD2. However, models like TV Everywhere have not yet translated into a lot of video watching on mobile devices, he said. “We’re waiting to see more people do that. As far as the inflection point, have we hit that? No.”
Azuki’s investors are betting otherwise. The company’s latest $3 million tranche brings its total venture financing to $12 million – all part of an expanded Series A round begun last May, with two venture firms participating: Kepha, and Sigma Partners of Boston. Wu said the latest tranche came as a planned installment after Azuki increased top-line revenue by 40 percent in each of the first two quarters of 2010. He declined to discuss revenue or profitability but said the company currently has 48 employees.
Tango, who sits on Azuki’s board, said the company is moving cautiously. “The damage that an investor can do is step on the gas if the market isn’t right,” he said, which is why Azuki and its investors have meted out investment in tranches, targeting intermediate milestones.
Further investment in the company is likely, Tango said, as he expects Azuki’s quarterly growth rate to remain consistent or accelerate as the market for mobile video continues to grow. “If a public company is looking for a vector to enter into to make a lot of money, this is their spot.”
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