Smoothing Out Jittery Internet Video, Elemental Technologies Looks to Reinvent How You Watch

If you’re like most people, you’re viewing a lot more videos on your computer or mobile device these days. But say you want to watch CNN’s live coverage of the U.S. presidential inauguration next week on your BlackBerry, iPhone, or laptop. You might not be able to—or you might get a jittery, unclear picture—because of mismatches in Internet video formats. Wouldn’t it be better if you could just watch any video on any device, across any network? That’s the idea behind Elemental Technologies, a Portland, OR-based startup backed by top investors in New England and the Northwest.

Back in July, I wrote a piece about Elemental’s $7.1 million Series A funding round, co-led by Seattle’s Voyager Capital and Cambridge, MA-based General Catalyst Partners. But the story of Elemental deserves a closer look, and although it’s still early, the company makes for a compelling case study. The tale involves a key strategy shift, cutting-edge technology, and a formative meeting with an investor on a sunny Portland day (hard to imagine now).

The story begins with Sam Blackman, Elemental’s co-founder and CEO (and a Portland native). After graduating from Brown University and the University of California, Berkeley, in electrical engineering, Blackman went to work for Pixelworks (NASDAQ: PXLW), a semiconductor technology company and Portland institution, in 2000. There, he helped build a display processor for new media, while the company grew to $174 million in revenue. The basic strategy was to take chip technologies used in projectors and apply them to monitors and digital TVs. But after a few years, low-cost manufacturing overseas was making it hard to compete in the mass market.

So Blackman looked to start something new. In 2006, he co-founded Elemental, together with chief technology officer Jesse Rosenzweig and Pixelworks co-founder Mike West, who was Elemental’s first CEO. They got a $200,000 seed investment from Pixelworks to get started. Their initial idea was to build a digital-media company around a specialized chip—one that could do video processing and conversion many times faster than existing methods, and do it reliably.

After a few months of studying the market, however, Blackman and Rosenzweig decided to make a radical switch. A specialized chip would be too expensive and didn’t make financial sense, they thought. Instead, they would harness the power of the graphics processing units (GPUs) already found in many computers and mobile devices, and couple that with specialized software to handle video encoding and transcoding—the methods by which streams of video data are processed into a form your computer can read and play back. Fortunately, the talent pool around Portland was rich with software developers from the struggling chip industry looking for new homes. “All these semiconductor companies had really strong software engineers,” says Blackman.

Elemental’s software approach to video consumption is “pretty revolutionary,” says Erik Benson, a managing director of Voyager Capital and a member of Elemental’s board. “Sam was visionary enough to see that there’s already hardware out there in GPUs for gaming, so let’s apply that to video and image processing…It’s a big idea.”

In 2007, the company amicably parted ways with West, and Blackman became the new chief executive. By mid-year, he was looking to raise more funds. In September 2007, Elemental presented to the Alliance of Angels, and ended up scoring an investment from the Seattle organization, as well as from the Oregon Angel Fund and Bend Venture Conference—a total of a little more than $1 million.

A key advisor the team met in Seattle was Geoff Entress, then a venture partner with Madrona Venture Group. Entress invested as an angel, and Blackman says he has been instrumental in the company’s progress. For example, Entress has routinely helped the team go through documents and made sure they understood all the terms, and what the industry standard was in terms of things like dilution, liquidation, and how the board is chosen. “Someone that lives and breathes startups and financings is key,” Blackman says.

By early 2008, Elemental’s technology was pretty far along. Here’s the innovation, as Blackman explains it. Videos sent over the Internet have to be compressed to save bandwidth. The compression schemes break all images into blocks of pixels. To reconstruct the video on your end, a conventional processor in your computer deals with one block at a time. What the Elemental software does is “farm off an entire image worth of blocks to the GPU at once”—because of its parallel-processing capabilities—while using the conventional processor to do simpler tasks. The result? Five to 10 times the video-processing speed at no additional cost. (Other ways to do it involve customized hardware, which is expensive.)

With this technology in hand, Elemental started going after the professional video-editing market—makers of Blu-ray movies, for instance—and consumers who want to convert videos so they’ll run on iPods, laptops, and other devices. But to go after larger markets, like big media companies and distribution networks, Elemental needed some more help.

For that, Blackman hooked up with Voyager Capital through Frank Gill, a prominent investor, board member, and former Intel veteran. Blackman and Voyager’s Benson hit it off right away, and a deal was in the works. They also agreed that an outside VC firm with a lot more experience in digital video would be a great complement to the team.

Enter General Catalyst, which agreed to meet with Elemental last spring. Managing director Neil Sequeira recalls sipping a drink at a Portland hotel down by the river. The sun was out, and there were boats on the water. “The CTO [Rosenzweig] and Sam came and sat down. I immediately got the sense that these were unbelievably young and talented people,” Sequeira says. “They had an answer to every question. But they’re not cocky, they’re good, thoughtful people. I wanted to do business with them right away.”

Sequeira, who sits on the boards of five video companies, emphasized how hard a problem Elemental has solved—which is why nobody has done it before. “It’s very difficult to replicate,” he says. “You need geniuses to deliver this software.” While Blackman might downplay that description, he agrees that “No one believed it—they didn’t think we could do it as fast.”

Since the funding round last July, Elemental has beaten all its revenue targets, says Benson—which is really saying something, in today’s climate. Blackman puts his company’s revenues in the “low millions.” He says Elemental was on the verge of profitability in 2008, and expects to be profitable in 2009.

To score a big win, Elemental will need to continue building strategic partnerships with media companies and distributors that pump out huge volumes of video. It faces competition from big companies like Tewksbury, MA-based Avid (NASDAQ: AVID), Sunnyvale, CA-based Harmonic (NASDAQ: HLIT), and San Jose, CA-based Cisco (NASDAQ: CSCO)—which is probably a good sign—as well as a handful of startups such as Dallas-TX-based RipCode, which solves similar video problems with a chip-based product. Sequeira says online consumption of videos has grown by a factor of 10 in each of the past three years. With that sort of demand curve, Elemental and its backers stand to make a lot of money if indeed they are successful in allowing us to watch clear, fast video on any device, and on any network.

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and Editor of Xconomy Boston. E-mail him at gthuang [at] Follow @gthuang

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