Twitter desktop application TweetDeck raised several million dollars this past July and now according to SEC filings the company has just received an additional $1.5 million towards a debt raise of $1.8 million dollars.

The new funding comes after $300K round of seed funds that came in January from New York tech investor Betaworks. Betaworks is also responsible for part of the funding in this new round of cash.

Also contributing to the new round of funding is PRO Founders Capital, Danny Rimer, Index Ventures, Ron Conway and Tag Ventures. [via PaidContent]

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Boston-based General Catalyst lead a new round of capital-infusion for Boxee, a company that saw $4m roll in in December from some of the same partners.

In a statement on their blog, Boxee announced the second round of funding:

We are happy to announce that Boxee closed a $6M round of financing led by Boston-based General Catalyst with participation by prior investors Spark Capital and Union Square Ventures. Neil Sequeira from General Catalyst will join our board.

We closed our Series A late last year, but given the momentum and opportunities we’ve seen over the past few months, we thought it made sense to bring in a new partner and additional funds.

General Catalyst brings more than just money to the table. We wanted a partner to help us as we strengthen our relationships with big media and cable companies. As we learned (the hard way), it is a complicated world.. Neil and General Catalyst as a firm have years of experience, deep understanding, and extensive network in these industries, and we are looking forward to working together with them.

Boxee also let us in on what they plan to do with the funding. Boxee wants to focus on shoring up the service, which won’t be in beta until this fall, as well as adding more content . They also indicated a push to entice developers, and enhance and monetize Boxee’s App Store, which they say “needs some love.”

Another focus of the new funding is broadening Boxee’s reach beyond those intrepid folks who will connect a computer to a TV. It may seem like no big deal, but we all have those co-workers who can’t connect their own mice, so making Boxee more “accessible for a mainstream consumer” could be make or break for the fledgling service.

Boxee CEO Avner Ronen spoke to CNet about hopes that Hulu will play nice, soon, too:

“I think that the best thing that we could do in order to become partners with Hulu is, on one end, work with other media companies so they see that Boxee is overall a friendly company to content owners,” CEO Avner Ronen told CNET News. “And the second is that we need to grow our footprint, we need to grow our user base, we need to get on more digital devices, and I think if we do those things it will open the opportunity up for us to partner with Hulu.”

“Our belief is that, eventually, content owners need to follow the users,” Ronen said.

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The biggest hit in the web 2.0 space is going to be for unfunded startups who need money, and existing startups who need more money to survive.

The money is going to run out.

Not entirely, it never does. But the buoyant days of venture capital funding for all, typical of the second great web boom are about to end.

The cash crisis

Fundamental to the still developing economic situation today is a crisis in cash, ignoring the problems that have led to this point. Banks have either completely stopped lending, or have stopped lending to other banks, restricting the flow of debt based finance (banks lend money from other banks for lending purposed). Barack Obama described it in the last Presidential Debate well:

Right now, the credit markets are frozen up and what that means, as a practical matter, is that small businesses and some large businesses just can’t get loans. If they can’t get a loan, that means that they can’t make payroll. If they can’t make payroll, then they may end up having to shut their doors and lay people off.

Debt based finance isn’t a typical situation in most startups, although it’s not unheard of. But that contraction in finance does have flow on affects. The money coming into venture capital funds has to come from somewhere, and typically that’s been a combination of direct investment, banks and funds. Each take a hit:

• Direct investment presumes availability of funds from direct investors. While some of that includes the VC’s themselves, it also includes “sophisticated” investors who have surplus cash and are looking for high returns. These investors will have exposure to the broader market (in multiple ways) so may simply end up with less cash at hand to invest, or become more risk adverse, choosing to hold onto their cash or invest it in safer investments
• Funds: funds management arms are taking a huge hit at the moment, from reduced share prices, to debt restrictions (debt can often be a financing vehicle in investment arms). One example: pension funds are said to have dropped 20%, or 1 trillion dollars in the US in the last 12 months. There is now less money under management, and what is left will be looking for safe havens, not high risk investments. There will still be money for VC’s here, but there will be a reduction.
• Banks: finance can and is regularly used as an instrument by VC’s, and some banks are direct investors themselves (Lehman Brothers was a big investor for example). If banks are struggling to fund their own liabilities, the risk component becomes more conservative.

The common factor is that we don’t know how much this is going to hurt venture capital in the web industry, we just know that it will. The scenarios range from a small impact: many venture capital firms are already sitting on funds, and may have enough to ride out the worst of it until things pick up; to serious impact: VC’s cannot raise new rounds at all, or in such volume that the funding market for web based companies completely dries up. If I was to bet, I’d say it’s likely going to be some where in the middle of the two.

Profit or die

The contraction in venture capital for existing companies will present one simple outcome: the days of not having a business plan and not making a profit will soon be over, and the longer the economic crisis continues, the more so this will be. Some companies will have cash reserves and will be able to ride out the crisis at least for the short term, but those on the edge now are in big trouble. The only way to survive an economic downturn is profitability, because profit pays the wages, and gives any business a future.

Better startups?

The scarcity in venture capital will fundamentally change what gets funded, if anyone gets funding at all. Nat Torkington at O’Reilly thinks that lack of funding will be a good thing for innovation:

this recession will be good for innovation because recessions generally are. During boom times, companies direct development and occupy great talent with at best evolutionary improvements over the state of the art. Companies are great chasers of new things, but aren’t great at making new things. A recession means technologists cease to be paid vast amounts to duplicate the work of others. The Great Tech Bust of Ought Two gave us 37Signals, Flickr, and del.icio.us and there’s a strong argument to be made that many companies spent the next six years chasing what they created.

Certainly he has a point: in a funding scarce environment, it will be startups who stand out from the crowd who get funded, and most definitely being different and innovative will be an important factor.

Conclusion (or simply the end perhaps?)

I’m a little torn on this. I hate to think that venture capital will be harder to come by when for anyone outside the United States (and particularly the Valley) it already is. There will be companies that die along the way that may have made it with another round, and good people will suffer.

And yet, the excess was always going to come to an end eventually. The second web boom wasn’t as overboard as the first one: we’ve not seen the ridiculous rounds and valuations that led to the first crash. And yet the problem isn’t one of too much cash for companies this time, it was one of too many companies getting cash without either a proven business model, or as is the case with Twitter and some others, any business model at all. That many startups will fail is not the fault of the economic crisis, even if it may bring forward their deaths, it is a failure of startups to focus on business fundamentals, such as making money. Those with solid businesses, making a profit or close there to it, will ride this out, and what’s left standing may in the long term be beneficial to us all.

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The new funds will go towards financing the next stage of the company’s expansion strategy and the launch of ReThink Rewards, its American brand.

I Love Rewards develops innovative web-based reward solutions for small and medium-sized businesses and Fortune 1000 companies.

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Trulia is expected to use this additional fund to further its development of new products and services for homebuyers, agents, brokers and advertisers and to expand their advertising services for the recently launched Trulia Advertising Network and Trulia Pro, its self-service offering.

Trulia.com has so far raised a total of $33 million in venture capital.

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