Spare me your Blinkx

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.

Comments

[REG CROWDER]

So far, the stock price for BLNX.L doesn't look too bad:

http://uk.finance.yahoo.com/q?s=BLNX.L

[Rhaz Zeisler]

Spare me your Blinkx

While I don't disagree with most of the financial analysis offered in this commentary, it does represent a very stayed position of investment logic. Advanced technologies and solutions (those designed to integrate a series of existing technologies to create a new solution) require funding to advance to the next level of value creation. May I site the international space program. The commentary doesn't consider the value of indexing as a path to monetization. Instead, one would conclude it is a common attribute of daily video search world-wide. I would beg to differ and those companies who have been indexing and storing video online may reap the same kinds of benefits that the billionaires of the 20th century did who bought up old libraries of content only to be laughed at initially. Content is king and those companies that have been focusing on indexing, storing, organinzing and accessing millions of videos through their advanced video search solutions have unharvested assets prime for value creation. Said differently- imagine accessing millions of videos all day, anywhere, by billions of people for just a penny a click! Imagine.

[Fred Destin]

Max
I think you may be a bit harsh on the reasons for the spinout as there is a real founding team behind this business.

However I could not agree more with you that all this AIM pizzaz is a long-term negative for our industry. I am going to make the assumption that Blinkx failed to raise money either at all or at least at an attractive valuation in the private market and ended up deciding to "pass the buck" to dumb retail or small institutionals lured by the prospect of the "next Autonomy" of the "google of video" at a silly price. Valuation as well as know is something you grow into over time.

AIM continues to be strangely tolerant of immature business going public and provides an capital raising platform that has market professionals like you and I scratching our heads.

Unsustainable is the word that comes to mind, and I do not see how this can be good for the credibility of the European venture industry.

[Shantanu]

Great post Max...

[Alex Barnnett]

I just left a comment on another site that linked to this post, but I'm leaving it here too. You are right to be skeptical of Blinkx. For a lot of reasons, they are really fuzzy and their track record for trying to fund the company in CA should say a lot.

Here is the comment again:

From what I can tell, Blinkx was founded by x-Autonomy guys, three years ago. They started out making a web-search toolbar, and then Google came out with one. So they looked around and decided to do video search.

They told everyone they had $10 million in angel funding. But it turns out that Autonomy had a 90% ownership share in the company for the licensing of the technology that runs the Blinkx video search.

So Autonomy calls the 90% back into Autonomy, and they go back to the UK (where most of the company is anyway.. only their CEO and biz dev guy were in San Francisco) and are wrapped up with the rest of Autonomy's consumer plays (all small) and spun out on the AIM penny stock market. All to raise money for Autonomy, because it appears, the technology and angel funding came from them.

If you were a VC in SF, would you every fund that deal?

How would you price something with 10m in angel funding? And 90% ownership by a UK search company?

The other thing that is interesting is, after this happened, I know a lot of Sand Hill Road VC's and no less than 5 of them have said things to me about Blinkx that it was fuzzy technology that didn't impress them, that the people weren't really in SF, they were UK and that there was no way it was worth say, $100m as a post money funding thing, so that they could buy 40% of the company as they typically do when the do a series A, and then put in say, 30 million. To make the numbers work, the whole thing was a disaster. Basically, they all saw right through Blinkx and were a little disgusted.

There is no way a California VC would ever touch that deal in terms of the numbers.

And then you have to look at the search.

It's just a reverse chron result set, and most of the video disappears after 7-10 days because of the deals Blinkx has with video publishers.

They don't really have 12 m hours of video search able right now. It's more like 3.5 million videos at any given moment.

VC's in SF just run from things like this.

But Blinkx is a great hype machine. They put out a weekly press release, no matter what is going on, and keep the hype coming.

Going public on AIM, they appear to have snowed a lot of people into thinking they have something interesting.

In fact, my opinion is that they did the AIM thing to pay Autonomy back because they really don't have much to show other than hype.

AB

[Phil]

Good post Alex....I totally agree with you.

Blinkx does seem to have a decent search product but their management team is horrible. I've tried to do business with them in the past and they are a bunch of pricks especially Suranga and Matt.

I don't know what Michael Lynch (the CEO of autonomy) was thinking when he put these 30-year-old kids at the helm.

I also heard that 10% of their workforce actually left the company within the first few months of employment because they couldn't deal with such unprofessional & poor leadership. One guy only lasted two days before you decided to leave! That's got to tell you something about the direction this company is heading. Their stock is completely overvalued as well.

It's also funny that their website is straight out of the 80's yet they try to position themselves as a Web 2.0 company. Get lost Blinkx....good people make up good companies and you don't fall into that category.

[tech guru]

well, right now is the biggest video search engine in the world...

best technology too...

rumours are out that it will be bought by one of the big 3...

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