Sure, Cuill (or is it Cuil?) tripped out of the gates after a much hyped launch, that much we know. But with all due respect to the otherwise on-the-ball Matt Marshall and Venture Beat, he’s missing the point on Cuil’s admittedly absurd $200M valuation in the last venture round. We’re not doubting the fact that the valuation was absurd and in hindsight, way over-valued. What we’re saying is that this is typical behavior of VCs who - let’s face it - could not identify a valuable business from a puffed press release if their lives depended on it.
Cuil isn’t worth 200 rupees, let alone 200 million rupees or dollars, but that is not the point. The point is:
Venture capitalists don’t invest for safe plays (the proverbial single, double or even triple), they invest for grand slams, let alone home runs.
In search - a market where Google commands 70% market share and which translates into a $20B revenue stream in 2008 and more importantly, a $137B market cap - it could be argued that a mere 1% market share is worth a cool billion dollars.
At this rate, considering that Cuil’s search is pretty lame and a member of their team just left (a father of Web search, no less), I’d guesstimate that Cuill won’t be in the Hall of Fame of VC investments any time soon… but that says more about the willingness to back potentially huge payoffs over probably positive payoffs.
A bit of disclosure: I should mention that it’s ironic that back in 2005, my developers and I built a search engine which was about as much of a polar opposite to Cuill as possible. While they pushed the fact that they had a massive index, we emphasized our small, restricted index.
As we idealistically outlined in our Ten Tenets: the size of the index is quite irrelevant. Quoting an analyst on the topic:
“It really doesn’t matter how big the database is,” said Jupiter Research analyst Gary Stein. “It only matters if you can find what you’re looking for.” In surveys asking consumers what they view as most important about search engines, “size never gets clicked,” said Stein.
Judge for yourself which one returns better results:
- Barcelona on MetaMojo vs. Cuill
- Prostate cancer on MetaMojo vs. Cuill.
Both seem fine… but considering that Cuil has over $30M in funding, you have to ask: is this the best way to invest and deploy capital? Judging from the flop of a launch, I’d say no.
We built MetaMojo on less than $100,000… the focus was not to be the size of index (something that Cuill kept harping on, along with the fact that they could index the Web at a cost of 1/10th of what it cost Google… to which I kept thinking: who cares? - but I digress).
What we were going to focus on in Phase 2 of development included customization, personalization and socialization, but the simple truth of the matter was that no VC thought that we had anything to parlay to even make it to 1% market share in search, where Google, MSFT, Yahoo, IAC’s Ask and AOL command 99% market share, so unable to raise VC for it, I shifted Mojo Supreme’s focus from vertical and social search to video content… which in hindsight was a very good decision, seeing how we command considerable leverage in this space now and have become a leader with relative minimal investment (relative to companies in our space that have raised $10-30M of VC dollars and who are searching for a successful revenue model, but I digress once again).
The point I am making, frankly, is that VCs need to get on the cluetrain not for investing in wrong markets and wronger companies… but investing in a bunch of alumns from AltaVista and Google and hoping that they can re-invent the wheel is not counter-intuitive, it’s plain dumb. These people are highly accomplished and probably have a better understanding of search technology in their pinky toe than I do in my entire being. However, “people like that” already have enough laurels to rest on and usually large enough bank accounts to rely on, so they won’t outhustle startups that tend to - if not reinvent the wheel - then at least shift the battlefront to a corner where they can compete and win.
Back in 1999, Ross Levinsohn (the former CEO of FOX Interactive who wisely told Rupert Murdoch to outbid Sumner Redstone for MySpace) was in AltaVista, and when Google came up, the guys in the room said: “does the world need another search engine”. That was before Overture, Applied Semantics, Sprinks came along to weld the future business of search, which Google parlayed to create a perfect storm which left all would-be contestants in the dust.
In other words, it will take a lot more than “cuilness” to even make a dent in search, let alone earn 1% market share.
A side note, Venture Beat’s Marshall points out that:
Turns out, Madrone manages investments for the heirs of Wal-Mart founder Sam Walton. Madrone’s Greg Penner (pictured left), who is on the board of Cuil, is married to Carrie Walton, Walton’s granddaughter. He’s also on Wal-Mart’s board. Penner notably is also a board member of Baidu, a Chinese search engine which is doing quite well in China.
Nice… maybe that explains why old man Walton didn’t give all of his fortune to one heir and wisely chose to diversify across his lineage…
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