Animoto raises $25M to invest in mobile video creation

Cloud-based video creation startup Animoto is ready to invest heavily in its growing business with a new round of funding it’s announcing Wednesday. The company has raised $25 million, led by Spectrum Equity Investors with participation from existing investors Madrona Venture Group and (s AMZN)

Animoto runs a freemium service that lets users create short video slideshows from collections of pictures and videos that they have on their computers or mobile phones. If they want more features, such as custom templates or longer videos, users have the option to pay a small one-time fee for individual slideshow creation or a subscription for an unlimited number of slideshows.

So far, that model has been working pretty well: Animoto has more than 3 million users, who together have created about 15 million videos. But it sees an opportunity to grow faster and to attract more users, particularly through the development of mobile apps and by striking partnerships with third-party photo- and video-hosting sites. Thanks to the Animoto API, Kodak (s EK)  Gallery, American Greetings’ (s AM) Webshots and are now also offering the web-based video creation service to their customers.

But the key to Animoto’s future might be in mobile, according to CEO Brad Jefferson. Mobile users are increasingly using their smartphones to shoot pictures and videos, and Animoto wants to make it easy for them to create and share slideshows with friends. At the same time, Animoto recognizes that it needs to invest heavily not just to keep pace with the competition but to beat it.

“It’s very easy for companies around mobile and photos to fall behind,” Jefferson said. “We want to be the [mobile] leader and accelerate development through this period of innovation.”

Right now Animoto has just an iPhone app, but it Jefferson said it’s evaluating other mobile app platforms. With that in mind, and with a view to also invest in its core product, Animoto is aggressively adding to its headcount. It has 60 employees now, compared to about 34 employees at the start of the year, with plans expand that to 90 employees by the end of 2011.

This round of financing is the first since 2009, when Animoto raised $4.4 million. In addition to the funding, Animoto has announced that Spectrum Equity Investors Managing Director Ben Sphero will join the company’s board of directors.