Rights Exchange Inc. in Buffalo has received a $5 million booster shot of venture capital to help launch its Internet commerce business.
The company, formerly called Softbank Net Solutions, is using the capital to build a system for Internet sales of digital products -- such as software or music -- without fear of unauthorized copying.
"If you believe that content like images, music and software is going to be sold in digital form over the Internet, than this company has great promise," said Fred Wilson, general partner of Flatiron Partners in New York, a venture capital firm with a stake in Rights Exchange.
The venture capital investment comes in addition to earlier funding. The company, spun off from Softbank Services Group in 1996, announced in February it had attracted $9.5 million from a group of venture capital firms.
Other investors in the company include Adams Capital Management, a technology investor in Sewickley, Pa; Chase Capital Partners, an investment affiliate of Chase Manhattan Corp. in New York; Constellation Ventures, a media and communications-oriented investment company related to Bear Stearns Asset Management Inc.; Softbank Technology Ventures, the venture capital arm of Softbank Holdings Inc.; Venrock Associates, a Palo Alto, Calif., venture fund, and XDL Capital Corp., a Canadian Internet venture specialist.
"It's a real vote of confidence that they (investors) see us delivering on our plan," marketing vice president Cindy Sweetser said. Pilot programs leading up to commercial launch are demonstrating that the company's technology works.
The investors exercised warrants for preferred shares in Rights Exchange that were distributed as part of the earlier round of
financing, she said.
With about 70 employees split between its Buffalo headquarters and a research site in Raleigh, N.C., Rights Exchange is expected to launch the commercial use of its digital transaction service sometime this fall.
While business partner InterTrust Inc. provides the encryption technology to protect digital products, Rights Exchange acts as the go-between for buyers and sellers.
From its base on Delaware Avenue -- formerly the transaction processing center for Goldome savings bank -- Rights Exchange collects money from users of digital products and provides the digital "key" that allows them to use the product.
It will probably take three to four years for the volume of transactions to grow to the point that Rights Exchange becomes profitable, Wilson said. However, substantial license fees from companies such as music and software distributors will help fund operations, he said.
The faltering stock market makes an initial public offering of Rights Exchange stock unlikely anytime soon, Wilson said, but private backers remain eager to invest in the company.