Techcrunch reported earlier today that Bittorrent Inc. essentially had to renegotiate its latest round of funding under pressure of lead investor DAG Ventures. Techcrunch published a letter of BiTorrent CEO Eric Klinker to shareholders, which in part reads:

"Last spring the Company was focusing its business efforts on content delivery services (DNA), embedded software (SDK) and our direct to consumer portal (the Store). Over the course of the summer it became clear that some of the Company’s businesses were not gaining sufficient traction, and that the Company would significantly miss its projections. (...)

Given the changes in our Company’s business model and projections that occurred in close proximity to the Series C financing, DAG claimed that the Series C financing should be substantially renegotiated."

What really baffles me about this is that the failure of the Bittorent download store was pretty clear to anyone following the company for quite some time. In fact, then-president Ashwin Navin told me a whole twelve months ago that Bittorrent wasn't competing with Vuze anymore and that the store was at that point merely a demonstration platform for the company's CDN services.

So why did DAG Ventures put 17 million into this project nine months later, only to pull back out after Bittorrent closed its store? There are two possible explanations:

1. Serious communication problems between DAG Ventures and Bittorrent leading to the investors not understanding the company's direction and getting cold feet once it finally became clear.

2. Serious monetization issues with something other than the store, namely the so called DNA CDN services.

I'm not really sure what would be better for Bittorrent at this point. Either one should be a reason for concern, and a possible combination of both could mean that the company could be in far deeper trouble than we have thought.

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