By Charles Beeler, EDV General Partner and Patty Burke, EDV Tech Partner

As early-stage investors, El Dorado Ventures often invests in companies that are just at the beginning of the product development cycle. It's an exciting time to help build a company, but it means that a lot is riding on how the company develops its product or service and whether it's ultimately a hit in the marketplace.

One of the most common misconceptions among entrepreneurs is thinking that because they have a well-conceived idea and a clear picture of the target customer, they have enough data to develop a product or service that customers will actually buy. Not to dampen their enthusiasm, but we've seen enough companies go through their growth cycles to know that's often not the case.

In fact, our assumption is that many of the companies we fund don't know exactly what product or service the customers will ultimately pay for. And beyond the core product or service, entrepreneurs often play a guessing game to define 'whole product' requirements, asking questions such as: What technology or service partners do customers need? What are the integration requirements? What about the UI and reporting? What we like to see is entrepreneurs who have a clear idea of the product or service they think the market will embrace, as well as a plan to thoroughly test that hypothesis and refine the whole product attributes before bringing it to market.

We call this type of rigorous product planning listening to the 'Voice of the Customer.'

We have several companies in our portfolio using a 'Voice of the Customer' approach to fine tune their product plans. OurStory, an online storytelling site to help people capture memories, invited a small group of people to use OurStory and identify plusses and minuses months before a beta launch of the service in May. Coghead, which hasn't yet launched its web-based application development software, is in the process of talking to potential customers about what they'd like in the final product. ClickShift, which optimizes online marketing campaigns, has been operating quietly for months, working closely with early customers to refine its service.

One of our established companies, Compellent, is a model student when it comes to Voice of the Customer product planning. Compellent, which delivers modular enterprise-level storage solutions, engaged with resellers and customers more than a year in advance of shipping its first product. The company convened an ongoing group called the Compellent Customer Council (C3), consisting of 12 resellers and their respective customers (35 total members).

During product planning, the C3 provided input using a five-step process:

• Step One: Compellent presented an 'empty rack' and asked customers to brainstorm about storage problems and possible design approaches
• Step Two: Compellent presented its product concept and distribution strategy for vetting and critique by the group
• Step Three: Compellent began product testing with the group, creating a large 'alpha' test with follow-up input via surveys, email and phone
• Step Four: Compellent hosted a festive pre-launch event to preview the product and offer hands-on product demos
• Step Five: The C3 joined Compellent for a launch event at the Minnesota Museum of Natural History, where council members touted the product to prospects and press, spoke about their successful five-month use of the product and were recognized on stage for their commitment to the C3 process.

What We're Looking For

El Dorado Ventures seeks to invest in a select number of companies pursuing opportunities in the following broad categories:

• Internet services
  (community-based models, advertising infrastructure)
• Mobile services
  (search, video, gaming)
• Communications
  (VOIP, IPTV, wireless)
• Semiconductors
  (solid state lighting, multimedia)
• Software
  (SaaS, digital media)

ClickShift Emerges from Stealth with $6 Million in Financing
ClickShift, an online advertising optimization company, announced that it has raised $6 million in Series A financing from El Dorado Ventures and U.S. Venture Partners. The company was founded in 2005 and had been operating in stealth mode. San Bruno-based ClickShift enables marketers to continually grow profits from online advertising by automatically optimizing performance to the desired business goal. ClickShift's system monitors, measures and tunes online advertising investments across multiple channels, dynamically adjusting allocation and spend to profitably scale a company's traffic acquisition efforts. EDV General Partner Scott Irwin serves on the ClickShift board. (www.clickshift.com)

EDV Provides $3.2 Million in First-Round Financing to Coghead
Coghead raised $3.2 million in first-round financing from El Dorado Ventures. Redwood City-based Coghead provides users with a simple, powerful new way to build web-based business applications that can be used by anyone, anytime, and anywhere. Former El Dorado EIR Paul McNamara serves as CEO. EDV General Partner Charles Beeler serves on the Coghead board. (Sign up for the Coghead Beta at www.coghead.com)

DVDPlay Raises $20 Million, Names New CEO
DVDPlay, the leading U.S. manufacturer and operator of DVD rental kiosks, raised $20 million in new equity financing from El Dorado Ventures, Emergence Capital Partners, Palo Alto Venture Partners and Vanguard Ventures. Los Gatos-based DVDPlay also named Charles (Chuck) Berger chairman, president and CEO. He brings nearly 30 years of executive experience to DVDPlay, including prior stints as CEO of Nuance, Vicinity, AdForce and Radius. DVDPlay's kiosks are located in heavily trafficked locations such as grocery stores and apartment complexes and offer consumers a broad selection of new release DVDs. EDV General Partner Shanda Bahles joined the board of DVDPlay. (Look for a DVDPlay kiosk at your local Safeway. www.dvdplay.com)

EDV Co-Leads $9 Million Investment in Luxury Link
Luxury Link, the leading online luxury travel resource, completed a $9 million round of financing co-led by El Dorado Ventures and San Francisco Equity Partners. The new financing will be used for growth initiatives in customer acquisition, brand awareness, and expansion of consumer access to the more than 1,000 upscale hotels and resorts, cruises, tours and villas in over 60 countries currently available through the company's web site. Los Angeles-based Luxury Link partners with leading luxury properties and travel service providers around the world to create unique vacation packages, which are auctioned to consumers at attractive rates. The company completed more than 32,000 online auctions in 2005. EDV General Partner Charles Beeler joined the Luxury Link board. (Sign up for a free membership at www.luxurylink.com)

EDV Co-Leads $8.5 Million Investment in BridgeLux
BridgeLux, a leading supplier of energy saving, power-LED chips to the high-volume solid state lighting market, raised $8.5 million in venture capital financing from DCM, El Dorado Ventures and Harris & Harris Group. The funding will be used for continued capital investments as well as intensified research and development at the company's new headquarters and R&D facility in Sunnyvale. Customers use BridgeLux power-LED chips to replace traditional bulb technologies in mobile appliances, signage, automotive, and various general lighting applications. EDV General Partner Scott Irwin serves on the BridgeLux board. (www.bridgelux.com)

El Dorado Ventures (EDV) is a leading entrepreneur-focused, early-stage venture capital firm with a 20-year history of success. Entrepreneurs see EDV as a trusted investment partner that shares their vision and helps them succeed by providing ongoing strategic guidance and access to a wealth of industry contacts. With $750 million in capital under management, the firm invests across the information technology spectrum, from semiconductors and systems to communications, software and services, targeting both consumers and the enterprise. El Dorado's early-stage investments have included Cyras Systems, EarthLink, Efficient Networks, Novellus and NuSpeed Internet Systems. Numerous EDV portfolio companies have gone public or been acquired by major technology companies including Ciena, Cisco Systems, nVidia, Siemens, Texas Instruments and Yahoo. For more information, please visit: www.eldorado.com.

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