Hope Springs Eternal: BitTorrent Raises Another $17 Million

Peer-to-peer content delivery system BitTorrent has raised a whopping $17 million more in a third round from its venture backers on Sand Hill Road, DCM and Accel Partners, according to a new regulatory filing. The money brings the 7-year-old’s total funding to $46.4 million.

DAG Ventures, a firm known for marking up the later-stage deals of influential firms like Kleiner Perkins and Accel, is also an investor in BitTorrent’s Series C. (DAG has teamed up with Kleiner on at least 51 rounds for 30 companies, according to Thomson Reuters data; it has teamed up with Accel on at least 30 rounds for 15 companies.)

I hope it’s not a case of good money chasing bad. Though BitTorrent today signed up two game developers that will use its technology to stream their massively multiplayer online games to customers (Aeria and IAHGames), the company is still struggling to shed its reputation as a way for people to illegally share music and video over the Web. Though it wants to be a legitimate technology through which media companies can stream videos over the Internet, its ideal business partners aren’t buying its reformation story yet. In fact, just last month, the company was forced to lay off a fifth of its 60-employee staff.

Part of BitTorrent’s problem, as VentureBeat points out in a separate story today, is that most people don’t want to download a P2P client on their desktop. It’s a general truth, but BitTorrent has had its own specific public relations problem, owing to its technology’s sometimes interference with Web browsers and other applications.

It’s also been hard for media companies to grow enthusiastic about the technology because P2P remains a dirty word/acronym, with a subset of P2P users often blamed for slowing down the Internet with their massive amounts of information swapping — much of it illegal. (Comcast has been using BitTorrent’s own technology to slow down heavy P2P users. It has also been capping the bandwidth of people who exceed 250 GB and will torch someone’s contract for one year if he or she is one of the service’s heaviest users more than once within a six-month timeframe.) Indeed, despite BitTorrent’s high hopes to land a big media deal after hiring seasoned CEO Doug Walker last October, it hasn’t signed anyone yet.

Not last, BitTorrent is facing incredibly stiff competition. Though it hopes to be ad supported at some point, it’s right now selling downloadable films, TV shows, games, music and software. In short, it’s going head-to-head with iTunes, and Amazon, two services that work exceedingly well. (It’s also about to face new competition from MySpace Music Service, details of which were first released yesterday.)

I haven’t heard yet from anyone at DCM, Accel, or BitTorrent about how its new capital will be invested, but I hope to soon. I’d also like to know what they think of the sale today of Napster to Best Buy for $121 million. For BitTorrent, a company that has now officially raised a bundle, it’s not an encouraging comp.