Swinging for the Fences and Search
April 22, 2013
I have been reading—actually time traveling to an economics class in graduate school—David Stockman’s The Great Deformation. I follow the argument. No problem, but I am skeptical of blame from those who were involved in the events. I have been in quite a few crazy meetings, and I avoid discussing the subjects of most of those stories for two reasons: [a] In the midst of events, I had zero clue about the larger, political forces at work in which the meeting was a grain of sand in the larger dust storm and [b] I focus on search and retrieval, a subject definitely not part of the more interesting meetings in which I have participated over the last 40 years.
What impact does the “big bet” approach to investing have on search, content, and analytics vendors?
However, the “deformation” arguments triggered some thinking after I read “Google Investors Say Yes to Big Bets.” I have been looking at some of the reviews of the book. In the Kirkus Review a theme surfaced:
fiscal math hit the shoals,” leaving a legacy of permanent “massive deficit finance” and the legend that “deficits didn’t matter.”
What’s this have to do with search? Well, that is a good question. I took a moment and looked up the venture money which has flowed into a handful of search and content processing companies. Here’s the table in which I captured my result. The link points to the source (maybe a good source, maybe a lousy source).
| Company | Venture Funding | Year Founded |
| Attivio | $48.2 million | 2007 |
| BA Insight | $10.5 million | 2004 |
| Coveo | $34.7 million | 2004 |
| Digital Reasoning* | $5.2 million | 2000 |
| Palantir ** | $301 million | 2004 |
| Vivisimo | $4 million | 2008 |
* The Digital Reasoning number includes In-Q-Tel funding excludes friends, angels, and family funding
** I included Palantir because in one briefing the system was presented as having a robust search function available to analyst users.
If I total these numbers, I get $403.6 million. Tossing out the astounding $301 million for Palantir, the more “searchy” vendors’ funding in this sample total $102.6 million.
Several questions rose in my mind:
First, in today’s economy, how will these firms return to investors their money, interest, and a profit?
Second, the Palantir funding is an anomaly but it is similar to the Attivio and Coveo funding in that multiple injections of money have been needed. The question I have is, “When will these firms begin to generate substantial profits?” By substantial, I mean enough cash to pay back investors via an IPO, a sell out, or just old fashioned making sales and getting paid?
Third, are these investments indicative of the confidence investors have in particular firms’ business models? It seems that only Palantir’s funding and maybe Attivio’s funding look like a swinging for the fences play. The other investment levels suggest something along the lines of a bunt, maybe a walk?
I keep thinking about the financial challenges many search vendors face. I can name vendors in the US, France, and Germany which are under significant pressure to make sale or raise venture funding. In some cases, both tasks are in process as I write this.
If I think about the good old days of high flying venture funding in 1998 to 2001, producing a return of 5X, 10X, or an almost unimaginable 20X seem to be out of reach. Disagree? Just use the comments section of the blog. Please, do not send me messages directly about my views unless you have read the About information about the purpose of this free blog. If you are a failed webmaster, an azure chip consultant, or a home economics major, the chances of my turning a cartwheel for you are low.
Stephen E Arnold, April 22, 2013
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