Elemental gets $13M to sell arms in the online video fight

Sam Blackman, CEO of Elemental

Elemental Technologies has raised $13 million to expand internationally, but the really cool story behind this company is that it is selling its GPU-transcoding servers to everyone from ESPN.com and HBO Go to Comcast (s cmcsa). This makes Elemental the arms dealer in the war between the pay TV providers, the content folks and streaming companies such as Netflix (s nflx). To put it in every venture capitalist’s favorite terms: If this is the gold rush, then Elemental is the company selling the tools.

Perhaps this is why Norwest Venture Partners led the $13-million-funding and joined existing investors General Catalyst, Voyager Capital and Steamboat Ventures in the round. Elemental sells servers packed with the graphics processors sold by Nvidia (s nvda). The specialty gear is able to convert videos to any format quickly and without wasting a of power. The secret is the use of the common GPU chips that PC gamers use. Because the chips are sold to a wide-consumer audience they are cheap. And because they are designed to perform thousands of small tasks in parallel they are especially suited for the act of converting a video file from one fit for TV viewing to a smaller one designed to fit on an iPhone (s aapl).

Sam Blackman, CEO of Elemental, explains that the company has 70 employees and is not yet profitable. He was cagey about revenue, saying the five-and-half-year-old company reported sales in the “eight-digits” this year after having sales in the seven digits during 2009 and 2010. When asked how long it would take to get to nine digits he said, “not this year.” Still the company has signed a lot of customers and sees a rosy future ahead of it, especially given the uncertain nature of television in a broadband era.

Blackman says that he believes that many providers are stuck waiting for the regulatory environment to offer a definitive answer to the question of who can control access to the end consumer. For example, says Blackman, if Comcast is allowed to keep its cap other players are likely to avoid trying a Netflix-type model. Blackman doesn’t mind since he’s selling to all comers trying to deliver video to a wide variety of devices, which may be one reason investors are willing to back Elemental, despite a lot of competition. Envivo (which just went public in April), RGBNetworks and others are all offering some form of real-time transcoding to the market.

But Elemental has scored an impressive roster of clients so far, and with this latest round has raised $29.6 million to fund the business. The company also announced that Kevin O’Hara has joined the company as chairman of the board. O’Hara is the current CEO of Integra Telecom and a founder of Level 3 Communications (s lvlt). For those wanting an early look at Elemental, check out this video I did back in 2009 after the company launched.