A whole lotta YadaYada?

Despite words to the contrary from former employees, YadaYada is flourishing, according to Raj Gupta, president and founder of the wireless Internet company.

Gupta, who has likened his company to a wireless version of America Online, said YadaYada is adding customers every day, improving operations, expanding into new markets and operating with plenty of money.

But ex-employees indicate the company missed growth targets and laid off all but eight workers in April because YadaYada's financing collapsed at the 11th hour. As the company seeks more financing, it has relocated its headquarters to the shabby neighborhood of 14th Street in New York, the sources said.

“We have not released how many customers we've added, but we're signing up customers every day,” Gupta said. “Our funding situation is fairly comfortable.”

Gupta said his company regularly hires and fires people every quarter as part of a review process but declined to comment how many people YadaYada has cut.

Gupta said the only office YadaYada has closed is in Munich, Germany, and the company now has two offices in New York. Other offices in Birmingham, Ala., and San Diego remain open, he said.

YadaYada launched its wireless Internet solution and wireless portal in October 2000, with $7 million in angel funding raised in July from notable investors such as former U.S. Congressman and HUD Secretary Jack Kemp, who was named to YadaYada's board of directors. Other angel investors included General Electric Chairman Jack Welch and DLJ Worldwide co-founder Dan Lufkin.

YadaYada raised an additional $14.1 million in September during its first round of venture capital funding from investors such as ABS Venture, Deutsche Bank AG London and BMO Nesbitt Burns' Haylard Capital Fund.

Today, the wireless Internet market offers a different story than just a year ago when well-known venture capital firms embraced almost any company associated with the wireless data market by funding them at eye-popping pre-revenue valuations. The venture capital markets and public markets have now given the wireless Internet sector the cold shoulder.

Gupta acknowledged the slowing economy has affected YadaYada, and consumers have been slower to adopt new technologies. “Market conditions have not been as good as they were,” he said. “We have been suffering in the last three months. People have just frozen.”

Analysts have wondered whether companies like YadaYada and its longer-lived competitor Omnisky can survive in the market. Well-known personal digital assistant manufacturers such as Compaq, Palm and Handspring, which have marketing muscle, are launching their own wireless Internet portals.

Competition also is coming at the end of this year from wireless carriers moving to packet-based networks with higher data speeds, said Larry Swasey, president of Allied Business Intelligence.

“With full network upgrades during 2002 expected, it will be harder and harder for these content carriers and resellers of cellular minutes to compete with just wireless data content and no voice, which is still the killer app for wireless,” Swasey said.”