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Online advertising technology developer NebuAd Inc. raised $20.5 million in a second round of venture capital led by Sierra Ventures and including first-round backer Menlo Ventures, both of Menlo Park, Calif., in an ambitious bid to team up with Internet service providers to offer advertisers customized consumer targeting. Redwood City, Calif.-based NebuAd hopes to put sophisticated new technology for scrutinizing high volumes of Internet traffic to work at the ISP level to provide advertisers targeted commercial messages using behavioral networks that so far have been less successful operating on individual Internet sites. The company will use the new money to add significant technological capabilities to partners' networks, build systems for matching advertising to traffic and build out an advertising network to link media buyers and ISPs. NebuAd CEO Robert Dykes said so-called behavioral networks that analyze Web surfers' activity to target specific advertising content have been hampered by technological shortcomings and attitudes of Web sites and consumers, but that a more broadly applied system focusing on ISPs can overcome obstacles. "Multiple technologies are now coming together where you can do deep packet inspection that wasn't available two years ago," Dykes said. "And while most commercial Web sites don't want to give behavioral networks access, with this model the ISPs are partners with us and share income, providing additional revenue without investment on their part." The company was formed in early 2006 to develop hardware and software technology for analyzing traffic in real time and building systems to optimize matching user cookies with ad-targeting criteria. NebuAd raised $11 million in a series of tranches from Menlo Ventures from May 2006 through October 2006. Dykes said the company will launch its initial product rollout this fall with smaller ISPs, and he said the company has not yet named any partners. NebuAd will use a significant amount of its capital to provide proprietary network appliances for use by ISPs on site to analyze traffic using the kind of deep packet analysis technology that has been developed for security applications. That technology will allow the company to match traffic with advertising messages without specifically identifying particular consumers or maintaining any long term record of use by specific identification. Tim Guleri, a managing director with Sierra Ventures, said he was attracted to the investment based on the company's shared revenue model with ISP partners, and the technology to create what could be a large new market. "The basic goal here was to fund a really, really big idea, which we believe is the future of behavioral online ad targeting," Guleri said. "NebuAd is really taking an interesting approach which allows ISPs to participate for the first time in the upside which comes from all the online spending that is going on." Dykes said NebuAd did not use an outside financial adviser in putting the deal together and had legal work from Fred Greguras of Fenwick & West LLP in Mountain View, Calif. Investors were represented by Peter Cohen of Orrick, Herrington & Sutcliffe LLP in Menlo Park.  Deal Video
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