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Socialtext scores $3.1 million: A break with the past?

socialtext.gifRoss Mayfield practices what he preaches -- even if the office work-style he preaches is pretty darned radical.

He runs a Silicon Valley company called Socialtext that has developed wiki-based social software, which allows employees at big companies to collaborate using a single Web page.

He co-founded the company in late 2002 with a group of three others, but did so before meeting two of them in person. How did he do it? By collaborating with two of them online -- email, blog, and yes, an early form of the wiki. One lived in Austin, Texas, another in Ann Arbor, Michigan -- so it was a virtual company from day one.

Now Socialtext has just raised (scroll down) $3.1 million in its first round of venture capital. Venture firm Draper Fisher Jurvetson led the round, and the Omidyar Network, an existing seed investor, participated. DFJ's Draper takes a board seat. And word is, a large enterprise software company is also considering an investment.

This represents a break, because Mayfield now has money to lease office space in Palo Alto, giving the 10-person company a physical presence for the first time. Until now, Mayfield had bootstrapped the company: Each founder had chipped in about $1,000, and seed investors helped out with $600,000. That was it. They'd scrapped together things like servers and bandwidth almost for free. It's also a break because while Mayfield talks of careful building for the long-term, Draper's firm likes to grow quickly. Not that these two things are incompatible: It's just that all of a sudden, Mayfield will be "hiring a person a week," or so he tells us...continued...

This is still a low-cost company: According to Mayfield, it charges customers about $40 per person per month for using its software, but can discount to as low as $10 -- compared to a starting price of about $65 or so for a company like Salesforce.com. Mayfield tells us he has more than a hundred customers, two in the Fortune 500. He talks about Dresdner Kleinwort Wasserstein a lot. We've tinkered with the software, and it seems to work well. We should add, though, that we have no idea how many companies will really be ready to pay for this as a separate product -- when they've got other stuff (email, and so on) that work well enough. But here's one interesting factoid: Andy Stack, co-founder at Stata Labs, managed that company's acquisition by Yahoo using Socialtext's product. "It saved on the exhorbitant costs of both legal teams going through all these documents," he told us. "It eliminated re-sending, and re-looking for them. Yahooâs legal bill wasnât as high. Our legal bill wasnât high." Time will tell. Mayfield, though, is ambitious: "We're going after the 500 million business users of email," he told us.

Mayfield had presented a challenge a while back, on his blog, in which he promised free Socialtext accounts to the first person who blogged the details of his round. We immediately went to work, sending emails to some of his other seed investors, Mark Pincus and Reid Hoffmann. We got a few details, but not all. We finally got to meet with Mayfield at his favorite hangout, Coupa Cafe, in Palo Alto (remember, he has had no office until now -- Coupa was it, until we told him that competitor Joe Kraus of JotSpot had also visited; see here for relevance, our earlier piece that created quite a tempest, with folks like Doc Searls chiming in to say we'd stooped too low by calling it a wiki "war"). Anyway, we finally obtained the last piece of Mayfield's puzzle: The funding round closed on April 15, tax filing day.

Correction: Mayfield co-founded the company in December 2002, not early 2002, as we wrongly stated in the Merc item today.

: Updated above with quote from Stack, and edited wording on product pricing.

: Mayfield weighs in with more about the fund-raising process.



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