Monday, June 29, 2009

ParAccel's Big Ad-Venture

I was just about to write a piece about the sad state of venture funding in the analytical database and BI space over the past years when BAM! Out of nowhere comes the announcement that ParAccel just scored $22M in a C-round investment. More importantly, as Merv Adrian points out, “ParAccel’s previous investors participated as well.”

This last bit of information is even more telling than their ability to raise new money in this zero-point-zero economy. Because if you look at past events surrounding Dataupia (and even Lucidera, in a way), it’s clear to me that there is a lot of “investor fatigue” in the BI industry at the moment. In my book, this is partly due to the fact that a lot, if not most, of these investors had no clue about the data management market or BI as a whole (but at the time, it sounded cool, and the guys next door were touting it so…) or how much it takes to actually build a full-fledged high-performance analytical engine from scratch (which is about 200,000 man-hours just on the engineering and maybe $20-60M if you’re lucky). So of course when the going gets tough, these guys get jittery and bail out. No surprise there.

My prediction is that, by year end, there’s going to be a lot of bodies left “on the carpet” as we say in French (I think it's an old boxing term). ParAccel’s new money, combined with their recent marketing coup involving a 30TB TPC-H benchmark, will surely help them survive these tough times provided they don’t squander the funds and from what I’ve seen so far, these guys tread lightly and wisely.

Not to say this makes the BI capital markets suddenly look better. The speculation “out there” (meaning in the “connected” unofficial circles) is that the average VC returns for the 2000-2009 decade (which won’t be reported before April 2010) will likely be close to zero or negative. The spectacular returns achieved in 1999 will drop out. Clearly VCs would not take kindly to this information being published and the NVCA has not made it public. Nevertheless if you follow VC performance sites like MoneyTree and the NVCA you can see the writing on the wall and it isn’t pretty. There are a lot of angel and VC investors looking for a way out nowadays at any cost. And to paraphrase Dr. Evil, when this happens, “people DIE!”

According to this article, venture capital is getting depleted. It’s hard to raise serious cash these days, imagine that! I’ll go one further and speculate that the venture capital system as we know it in the US may not be around another ten years. At least not in its present form. By then, the major source of funding will likely be big government (European-style) as risk will become more and more demonized and “regulated” (and you can’t regulate risk by definition, or it isn’t risk!). But what do I know? I’m not a VC.


  1. Amazing on Paraccel's funding indeed, particularly given Dataupia's news and the fact that the other existing data warehouse appliance companies are not breaking any sales records. Customers for these companies are hard to come by, and the costs of sales continue to increase. There must be more venture money on the sidelines than one would have thought, and not enough new ideas worthy of investment consideration.

    I don't think that there is investor fatigue around BI. In fact I would say that there is strong investor interest in everything analytical. Not as many deals are getting done because of general investor hesitation attributed to the economy, not because there is concern regarding BI and analytics. I continue to see and seek interesting companies that are developing analytics-centric solutions.

    The returns of the venture capital and private equity industries, by and large, have not met expectations over the past 8-10 years. This is causing LPs to think carefully about the firms with which they want to maintain relations and continue funding. The result of the current fundraising cycle will be fewer firms (particularly on the venture side) with smaller funds going forward. While it will still take a few years for the "unfunded" venture firms to close down, they will stop making investments. So, when investors feel comfortable investing in startups again (which will take a few more months) there will be fewer firms making early stage investments. The upside of this may be higher quality startups, but that assumes you believe in rational thinking

  2. Hi Evangelos. Thanks for chiming in with an expert opinion!