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VENTURE FUNDING

Xobni scores $7 million from Cisco; Where's Microsoft?

By John Cook on January 5, 2009 at 1:51 PM PST

Comments (8) | Permalink

Startups | Venture capital | Web 2.0 | Microsoft

San Francisco-based Xobni, the email startup co-founded by ex-Expedia employee Adam Smith, has pulled in $7 million in venture financing from Cisco Systems, Khosla Ventures, First Round Capital, Baseline Ventures and Atomico.

Maker of an Outlook plug-in which helps people organize email, Xobni was dubbed the "next generation of social networking" by Bill Gates in a keynote talk last February. So the question is: Why is Cisco leading the round rather than Microsoft?

According to TechCrunch, Microsoft made an unsuccessful run at Xobni last year for about $20 million, a deal that collapsed because -- as Erick Schonfeld reported -- Xobni's leadership grew increasingly uncomfortable "about its eventual fate inside the Microsoft machine."

Meanwhile, GigaOm reports today that Cisco's investment in Xobni is part of a "continuing tussle against Microsoft over the concept of collaboration."

Xobni's service -- which competes with the Paul Allen-backed startup Gist -- has been downloaded more than 1.5 million times and is now being used by Fortune 500 companies.

It doesn't appear as if there is any bad blood between Xobni and Microsoft, since Xobni co-founder Matt Brezina told Inman today that they have been working closely with Microsoft developers and product managers. The company also is a member of Microsoft's Accelerator program.

"They've been good to us," Brezina tells Inman.

Tony Wright said:

on January 5, 2009 at 4:34 PM

"According to TechCrunch, Microsoft made an unsuccessful run at Xobni last year for about $20 million, a deal that collapsed because -- as Erick Schonfeld reported -- Xobni's leadership grew increasingly uncomfortable "about its eventual fate inside the Microsoft machine.""

I don't know more than you do, but I *DO* know that a $20m exit is a big whopping failure for a company like Xobni, which had taken about $5m before the B round. Pretend then $5m A-round was on a $15m post-money valuation and then do the math on how much of a return $20m would represent for investors and founders... It's a bad deal unless they were swirling the drain (the were-- and are-- not!).

When you take $5m, you have to be shooting for a bigger endgame than a $20m deal or you shouldn't be playing.

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Thug said:

on January 5, 2009 at 5:53 PM

The issue Xobni is having is enterprise adoption. They have not figured out how to sell directly into the enterprise or segment their sales model. When this happens, monetization in the enterprise markets is tough - which means they would be a lower valuation. I agree with Tony - in that bad economy or a good economy on $5 Million, you are barely making anything by selling the company for $20 Million. You better be thinking north of $35 million - I think they will continue to raise money from existing investors but they will have to show monetization in the upper mid market.

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Bobo said:

on January 5, 2009 at 6:32 PM

Hahahaha. These guys are dead.

Their product is a worthless (really!) Outlook add-on and now with $12 mil. in investor money they have to exit for even more.

And that Microsoft "acquisition"? Does anyone really think Xobni backed out because their leadership was "uncomfortable"? If it got far enough to see a term sheet, then their investors knew what it would look like and were probably fine with it. My guess is MICROSOFT got cold feet when they realized there wasn't much here and they could just build what little there was.

Look for these guys to fold in 12 months and chalk it up to the bad economy.

Gist has a far better chance at making something of themselves since they are focused on a vertical that is willing to pay and are offering features that actually make sense.

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T.A. McCann said:

on January 5, 2009 at 10:11 PM

John,

Thanks for the post and inclusion of Gist. The Xobni investment just underscores the need for solutions that improve our use of email. Xobni is a good start at better search across Outlook, and the fact that so many people have tried the product despite the known and well publicized performance issues is encouraging to all of us who are building solutions.

We at Gist do believe there is much more to be offered when you unlock the value of the inbox and combine it with web content like news about your contacts and do smart things like auto-discover and aggregate more content like Twitter feeds. Next generation communication solutions will need to continue smart data discovery, federation and provide automated ways to prioritize what’s most important. It is both about organizing what I already have (my inbox) and bringing me new data that helps me build stronger relationships. We are doing both.

It’s great to see Xobni getting so much attention, but I have to agree with Bobo, that we are focused on scenarios where business user really find value and are willing to pay for a solution that helps them be more productive and successful.

T.A. McCann (founder and CEO of Gist)

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John Cook said:

on January 5, 2009 at 11:25 PM

Thanks for the great comments.

I've been meaning to give Gist a try, but just haven't had time to dig into it.

Lord knows I could use some help dealing with the massive amounts of inbound emails, Twitter messages, etc. every day.

If I am a test case, there certainly is a market for services that help people become more productive with their email.

John Cook

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Ton - "Not" said:

on January 6, 2009 at 9:44 AM

I can't believe that a company, which makes an office add-in, would be purchased for anything. With 10 million, I could hire a team of devs to not only replicate that, but make an add-on for every Office product.

What a joke.

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Matt Scoble said:

on January 6, 2009 at 12:55 PM

As someone noted who posted a comment on the TechCrunch site yesterday, MSFT is already showing beta stuff that looks as if it will really undercut what Xobni is trying to do. If MSFT sets its sights on this, Xobni will have larger problems on top of enterprise adoption. Maybe the $20M offer, if true, doesn't look so bad in hindsight.

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darren said:

on January 6, 2009 at 2:34 PM

Microsoft bought Lookout (rumored price $10MM) which was a great product for Searching your inbox. Strike that, it was a fantastic product for searching your in box. Either it was killed, folded into Live Search or re-released by MS as a crippled joke. I have Xobni installed but would prefer Lookout's basic search, vs the bells and whistles of Xobni.

To the Gist astroturfers, i would offer my experience with other products where more information like blog posts, twitter messages etc were more of an annoyance and had the opposite relationship building effect (I deleted those with the most frequent updates).

Jury is out on if Xobni makes it but I would give them a pretty good shot at this point.

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