A number of venerable American venture capital firms - namely Boston-based Highland Capital and Redpoint Ventures - have joined original investors Sequoia Capital China, CDH, Matrix Partners and IDG Ventures in an additional round for Chinese search engine Qihoo. According to VentureBeat.com:
Qihoo is pioneering a new kind of search, focused on unstructured, user-generated content of the type found on blogs and Chinese online bulletin boards, which is more dynamic, and something Google’s Blog Search has been patchy at, he said. He said Qihoo’s architecture is its secret sauce, but that it takes the best of Digg, Google and Technorati and rolls them up into one. He said Qihoo is not trying to duplicate Google’s main engine search, but that the Chinese users are interested in lighter subjects, such as lifestyle and entertainment — a strength of Qihoo, he said. (Politics is avoided for obvious reasons).
Qihoo is being billed as a Web 2.0 search engine, maybe someone should send them the New York Times’ article on Web 2.0 being dead. If the New York Times so decrees, then it must be true.
Anyway, the description sound great, but blogs - while on the ascendancy - are hard to properly monetize due to the low pageview to unique ratio. And message boards and bulletin boards’ are at the bottom of the content barrel in terms from an advertiser’s perspective.
Then again, maybe that’s why it’s better to back a search engine of these, and not the publishers thereof.
Who knows, these are some very smart and knowledgeable VCs, but Highland is also the same VC who backed TheMan.com in late 1999-2000 to the tune of $17M. No, not financed at a valuation of $17M, rather, they invested $17M. Only the good lord knows what the valuation was at. TheMan.com shut down in November 2000.
Disclosure #1: I was a partner, VP and columnist at TheMan.com’s competitor, who with 1/34th of the fuding eventually got sold for $13.5 million in 2005. This is somewhat important to note because it shows that as the market leader, in a healthy dot com environment (2005), a company that executed what TheMan.com could not execute sold for less than what TheMan.com obtained in financing. I guess some people have not learned their lesson.
This round led by Highland raises Qihoo’s investment to $45 million, which according to VentureBeat - and anyone with a shred of common sense - is a lot of money for a Chinese entity.
Disclosure #2: my company has invested, developed and is commercializing a search engine that I guess could be described as the anti-Qihoo, called MetaMojo.com. Our domain specific search engine does not index and crawl the netherworlds of the world wide web, but rather, best of breed sites per given category. My observation is not driven by any jealousy or envy, au contraire seeing a Chinese-based company indexing bulletin boards get $45M in financing to take in Yahoo!, Google and Baidu in China is a good thing for me.
Disclosure #3: And while I would prefer not making the following disclosure, I’ve learned enough about Michael Arrington-haters to throw out the following: I had spoken to Highland - through a family contact - back in May when our company was in its infancy (we’re now toddlers, I guess), and despite saying the opposite, they seemed lukewarm to what we were doing. It should be noted that I am more interested in bootstrapping and building a profitable business than securing VC for a money-losing venture, but call me an idealist.
I guess indeed, some people don’t learn from history (again, TheMan.com vs… anyone?). Of course, this deal and opportunity has nothing to do with TheMan.com: different market, different country, different everything… but the giddiness to write a check of $17M to an ill-fated and horribly executed business plan makes us question if joining a who’s who list if backers is wise, when you consider that Qihoo (and its founder) is being aggressively sued by Yahoo! China.
Pride notwithstanding, the point of the story is: no, we’re not in a bubble, the Web’s online ad spending crossed $4 billion for Q3 2006, that is meaningful, the Asian ad market is set to be worth some $110 billion, and when CPA players taking on Google and natural language search engines are raising money at lofty valuations, I guess this news is par for the course.
Hey, if China does not suffocate in a billow of smoke, it just might become the 21st century answer to the United States of America…
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