New $40 million venture fund targets convergence start-ups

WELLESLEY, MASS. - For Battery Ventures, Convergence is more than just a network industry buzzword - it's the name of a new $40 million venture capital fund earmarked for start-ups that want to put corporate voice, data and video traffic onto the same network.

The Convergence Fund has drawn big-name corporate investors to share not only their cash, but their demands for the products needed to make convergence real.

Service providers Ameritech, Bell Atlantic and Williams Communications are contributors, as are Nortel Networks, Novell and Corning. Among those on the fund's board is top MediaOne shareholder Amos Hostetter, who will help lead AT&T's initiative to put voice, video and Internet access services on its cable TV networks.

The fund is expected to back makers of products such as ATM-based longdistance switches, billing software and hardware for putting more traffic on fiber-optic nets. Todd Dagres, a partner at Battery, says the company wants to fund firms that can integrate packet and circuit technologies.

The first two firms that have been funded are in the online commerce market.

One, petstore.com, will sell pet products on the 'Net. Dagres admits this will not be the typical Convergence Fund investment.

The other, which Dagres would not name, is developing software for setting up online brokerages that would trade in any number of commodities.

Once start-ups financed by the fund have products, Dagres expects the established companies contributing to the fund to become test sites, as well as buyers, for the new offerings.

The companies backing the fund represent about $10 billion per year in purchasing power, he says.

Coupling up

Finding potential customers can be a lot harder for start-ups than coming up with money and ideas, Dagres adds.

Battery will manage the flow of information between the start-ups and the investors so the new companies don't risk losing the intellectual property that makes them valuable, Dagres says.

But when the start-ups need help from the outside, fund members can come to their aid.

"There comes a time in any company's life when it needs to hook up with partners. We think we have a good way for them to find partners," Dagres says.