Last week saw the AIM IPO of video search engine Blinkx, which raised £25m on a market cap of roughly £180m. A great milestone for European tech IPOs? A prime example of a successful UK technology company reaching the public markets? I'm afraid not.
I hate to play the curmudgeon here, but Blinkx really reminds me of everything that is wrong with AIM, and of the inescapable whiff of bubble around some Internet subsegments today.
Blinkx uses technology licenced from former parent company Autonomy to index video content to make it searchable. Unlike Google's image search and other meta-tag-based search engines (like Pixsy), Blinkx will find video that contains audio matching your search terms. It's a nifty approach and an obvious improvement on the way we search video today.
But Blinkx is a start-up with no revenues. It does not own its own technology. It's only achievement to date is having spent $14m of Autonomy shareholders' money indexing 7 million hours of video from 130 content partners. To learn all this you'd have to do some digging -- look in the investor section of Blinkx's website and you won't find any financial information on the business at all.
Let's be specific. Autonomy's demerger filing shows that its "consumer unit" (= Blinkx) had $3.8m revenues in 2006, all of which was "generated by Autonomy salespeople who are not transferring to the Blinkx business". The proposed revenue model of the demerged company is primarily advertising-based, but "no significant [advertising] revenues have been earned to date." The document is full of promises of potential future revenue streams as one might see in any (perfectly valid) start-up business plan.
As a consumer I'm delighted to benefit from the service. But as a fund manager I should surely be shot for buying this stock. Here's my take: Autonomy has managed to unload its loss-making consumer division ($5.1m in costs in 2006) to cash in on the Internet video hype. Autonomy founder Dr Mike Lynch has clearly figured out that not only does he have the rocket-science cachet to attract investors, but he also has the understanding of public markets to pull it off, for the second time. Perhaps this chart of Autonomy's own post-IPO performance jogs some memories?
It's unclear from the filings where the funds raised actually went, but we do learn that Lynch personally retains an equity stake now worth, oh, about £20m.
The most material losers in this sorry affair will be the investors in the new stock. The less tangible but more important loser will be the European tech IPO market as a whole. As I wrote previously, floating companies that are not ready burns investors and harms the reputation of the market. In the absence of a pan-European growth market, AIM is the best alternative we have. But in order to become a liquid, reliable exit route it needs to raise its quality bar significantly. Blinkx is a set-back to that effort.