How long before P2P file-sharing service BitTorrent crashes and burns? The company raised $17 million in a third round over the summer, but according to TechCrunch, it has returned most of those funds to investors DAG Ventures, DCM and Accel Partners in exchange for a smaller, $7 million round. 

BitTorrent has been trying to develop a more advertiser-friendly online video service, but in a shareholder letter leaked to TechCrunch, the company said its products “were not gaining sufficient traction” and that it would “significantly miss its projections”—causing lead investor DAG Ventures to push for the funding renegotiation.

BitTorrent has raised about $40 million in funding since its inception in 2004, but said that this latest development “substantially reduces” its valuation to about $28 million. This news comes about a month after a massive exec shakeup in which both co-founder and president Ashwin Navin and CEO Douglas Walker departed, and about half the staff was fired.

• BitTorrent In Complete Disarray: President and CEO Leave; 18 Employees Laid Off
• BitTorrent Gets $17 Million More For P2P Distribution