Semantic Web Startups In Search of Money (Part 1)

By SemanticWeb.com on August 25, 2009 9:50 AM

Jennifer Zaino
SemanticWeb.com Contributor

The entrepreneurial spirit is alive and well among the semantic web community. But how does that translate into getting venture capital funding for potential startups?

Semanticweb.com turned to some leaders who are building businesses based on providing services that leverage semantic technologies – and who themselves are veterans of their companies’ funding cycles – to get their take on what hopeful up-and-comers in the space need to know when it comes to the VC community.

In the first of this two-part series, they reflect on the overall climate and whether semantic-driven businesses have any advantage in gaining funding during these challenging times.

Surprise: The poor economy is taking its toll.
In the musical chairs world of venture capital funding, the music has momentarily stopped and it’s better if you’re already seated, says Nova Spivack, CEO and founder of Radar Networks, which developed Twine; its VC funders include Leapfrog Ventures and Vulcan Capital. Venture funding generally is in a downswing stage, and if you didn’t get funded during the upswing you’re going to find it harder than it once was to secure funding now.

And many of those startups that did get funding can’t necessarily expect it to continue, either. Further, the lucky ones will find that the amount of money they can raise and the terms under which they can raise it are likely to be much worse. But, Spivack says, “the economy helps if you really have a good idea. It weeds out the noise.”

Alex Iskold, CEO and founder of AdaptiveBlue – whose VC funders include Union Square Ventures and Biltmore Ventures – agrees that funding is generally off because of the economic downturn. But he also cautions that the abstractness of the Semantic Web ideas behind some entrepreneurs’ plans means their visions may take a long time to realize, and so add to the difficulty when it comes to fund-raising.

No one cares if it’s a semantic web startup.
In a healthier economy, the fact that there’s a better understanding of the Semantic Web by the market at large – driven by the fact that there are businesses out there proving that semantic technologies work and are past the R&D stage – would be a good thing for startups in terms of receptivity by the venture community, Spivack thinks. “That said, they don’t care if it’s semantic or not semantic,” he says. At the beginning of the hype cycle that might have attracted interest from VCs, but the question now is not if the service is driven by semantic technology, but whether anyone will use it. “There’s little interest now in land grab opportunities,” Spivack says.

Others agree. “Securing funding dollars was always hard. Some technologies have a short time window when they are hyped and hot and a certain number of fresh startups get funded because they label themselves with certain technology. Semantic web’s days of being the phrase to increase fundability are over,” says Andraz Tori, CTO and co-founder of Zemanta Ltd., which has had seed investments from T.A.G. and Eden Ventures – one of the first-of-its-kind deals in the Slovenian high-tech sector. Right now, he says, the torch is with cloud computing and real-time data.

“Nowadays semantic web is just a part of technology that a startup might be using. It’s only slightly different [from] saying LAMP or Rails startup,” Tori says.

In fact, notes Ranjit Padmanabhan, co-founder and vice president of products at MashLogic – which raised $500,000 in an angel round from Bessemer Venture Partners and others (including About.com founder Scott Kurnit and Wikia CEO Gil Penchina) – you might be better off playing down the term. (Padmanabhan is speaking primarily of lower-case semantic web companies – those that use algorithmic, heuristic, and tag-driven approaches to infer function and content from web pages, aka Implicit Web companies.)

“In the past couple of years the term semantic web has been overused and has lost some luster,” he says. “Most VCs are aware of this, so it’s better to de-emphasize the term from the cornerstone of your Mission Statement to a bullet point in your Features/Technology slide. As a result, VCs are more likely to focus (and rightly so) on the specific problem being solved and evaluate the business plan based on its merits.”

Here’s where VC money appears to be headed.
In keeping with the idea that VCs care less about the semantic web per se than what you can do with it, Tori says he sees these funders as being interested in visions that don’t need semantic web as a prerequisite, but have semantic web as a side product alongside of the main value preposition.

Businesses that address areas such as content discovery, vertical search, sentiment analysis, and real-time search, says Padmanabhan, are more likely to get interest from VCs.

“Applications that use semantic techniques to add value to popular services like social networking, real-time conversations, search, etc. will have a better chance of getting VC attention,” he says. “Evolutionary products are easier to comprehend and evaluate, since they are based on a familiar frame of reference. Obviously revolutionary ideas promise greater impact over time, but in practice it is more challenging to raise funding for such endeavors. In other words, it is better to pitch ideas that are solve current problems but have the scope and scale to evolve over time into truly innovative solutions.”

Iskold is skeptical that a big semantic idea is going to be funded in the consumer space now. “Likely, we will be seeing intelligent agents applications based on semantics get traction and funding over the coming years,” he says.

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