Interesting Article on Factual (With Nod to Infochimps)
Factual is very ambitious and we share their desire to “liberate the world’s data”. That being said, they are building an open-source database and we are building a frictionless data marketplace. These are two different things, and don’t preclude us from working together towards our shared desire. If we are successful in disrupting the $100 billion data services market, maybe the first sentence below will some day contain names like Jacob Perkins, Joe Kelly, Dhruv Bansal, Flip Kromer, Hollyann Wood, Jesse Crouch, Kurt Bollacker, Michelle Greer, Dennis Yang, Chris Howe, Adam Seever, or heck, maybe even Nick Ducoff.
THE SERIES A TEAM: Factual Founder Builds (Data)Base Of Support
Gil Elbaz is a wealthy man. Gil Elbaz made a lot of money from Applied Semantics, but that didn’t keep him from devoting himself to a longheld dream - building an open-source database that would corral the world’s information and make it structured and accessible. Investors eagerly jumped aboard with a $25 million Series A.
He sold his first start-up, Applied Semantics Inc., to Google Inc. for $102 million in cash and stock in 2003—before the search giant went public. After that profitable exit and several years at Google, he wasn’t worried about money, or about establishing himself in tech circles. What he worried about was having unfinished business.
So, in 2007 he founded Factual Inc. to solve a problem that had been bothering him - finding a better way to liberate the world’s data.
What Elbaz envisioned was an open-source project that would serve as a data platform for web and mobile application developers. The idea was to structure information—pulled from a variety of sources, both public and private—into discrete data sets so software programs would be able to dig for information and people wouldn’t have to.
Much of the information, like points of interest and local business listings, was already available, but it wasn’t properly organized and it was tough to manipulate.
A trained engineer used to building large projects in small increments, Elbaz reached out to angels shortly after launching his company in 2009 to lay the groundwork for raising a Series A round.
“VCs tend not to like getting a call at the last minute that you’re raising money,” said Elbaz. “You want to have been part of their internal conversations for months if not a year.”
Elbaz acknowledges he didn’t actually need cash from VCs, however. He had invested $4 million of his own fortune to found the company in 2007 and admits he could bankroll the entire venture today if he chose to. What he did need was their connections, their advice and their endorsements to show his new venture was a real business, not just a rich man’s hobby.
Setting The Stage With Seed
Although Elbaz had casual conversations with Index Ventures’ Danny Rimer and other investors as early as 2008, his first formal pitch meeting was in 2009 with Marc Andreessen and Ben Horowitz, successful entrepreneurs who now run their own venture firm, Andreessen Horowitz.
Elbaz said he was nervous meeting the pair—he hadn’t pitched a VC in nine years. He had long admired Andreessen, the co-founder of Netscape, for his ability to reinvent himself, and he was a fan of Horowitz’s blog.
“I thought, ‘Why does it have to be my hero in the first [meeting]? Why couldn’t I have practiced on someone else first?’” Elbaz said.
Horowitz, an early employee at Netscape and the co-founder with Andreessen of Opsware Inc., was far from convinced he wanted to work with Elbaz.
“The thing that worried me the most was how much money Gil had made,” Horowitz said. “The problem with really rich people is they’re not hungry. Much of building a company is no fun. It’s disciplined, hard work, confrontations with employees…If you don’t have the financial component driving you, you might want to skip steps and you won’t do what it takes to beat the entrepreneur who is hungry.”
As Elbaz detailed data segmentation and delved deeper and deeper into engineering intricacies, Horowitz said he struggled to keep up.
“A lot of the meeting was just us trying to understand what he was saying,” said Horowitz. “It was clear he’d really thought through to an incredible amount of detail how the whole thing would work.”
Factual makes data sets available to developers and publishers, like Booyah Inc., Newsweek Inc. and Facebook Inc., who need accurate, complete and current information, but are not in the business of collecting that information.
For example, Newsweek used Factual’s data sets as a basis for a special report on the country’s best high schools, which required crunching all sorts of educational and demographic data.
The company seeks to structure and verify data in an endless number of verticals around the world and make it available to mobile and web app developers. As an open-source project, it will also benefit from end-source users adding to and refining the data—creating a sort of Wikipedia dynamic.
The company provides data sets on everything from CEO compensation and bottled beers to school rankings, sports teams and local business listings in 14 countries.
Another company, SimpleGEO Inc., offers a database for developers, but focuses on geo-located data for mobile apps. SimpleGeo is backed by First Round Capital, Foundry Group, Lowercase Capital and Redpoint Ventures. InfoChimps Inc., backed by DFJ Mercury, also operates a data marketplace.
Drawn to Elbaz’s big vision, Horowitz liked the idea and invested $100,000 in February 2010. Rimer, who had introduced the pair, contributed $100,000 of his personal funds, because Elbaz didn’t want firm investment yet. A long list of angel investors also came aboard for a round that hit $2 million.
Rimer said he invested because the first conversation he’d had with Elbaz nearly a year earlier was still resonating with him.
“I was blown away by what I was hearing,” said Rimer, noting Elbaz had explained very clearly something Index had been discussing internally as an investment theme. “I usually take 30 minutes with entrepreneurs. I spent 90 minutes with him.
“We invest in fairly disruptive plays,” Rimer said. “This was trying to spearhead a new era in automation.”
Refining the Business Plan
With seed funding in hand, it was time for Elbaz to refine the technology, as well as the business plan. Factual offers reduced prices, and even free access, to users who contribute back to the knowledge repository with more information. Although Factual’s pricing model is still being developed, the company aims to keep the data free for small users, charging only the high-traffic ones.
By fall 2010, the 30-person company had secured key partnerships and paying customers, with top players including Facebook Inc., which uses Factual’s local geo-location data for its Facebook Places service.
Said Rimer: “By the time Gil wanted to do a Series A, we wanted to participate as much as we could.”
Elbaz began a targeted road show in September, talking to a half-dozen potential investors he’d been in contact with for the past year.
One group Elbaz wanted to work with, but hadn’t, was Ron Conway’s SV Angel fund.
Managing Member David Lee, who met with Elbaz over coffee in 2009, was intrigued but initially passed on the angel round because he felt the company had advanced beyond the seed stage that was his fund’s focus.
Lee said the decision haunted him all year.
“Every time the name Factual came up I shook my head and said, ‘We were idiots.’ I was pretty remorseful,” said Lee, noting that companies with a proven founder at an early stage were “exactly” the types of companies SV Angel was supposed to back.
A chance meeting between Elbaz and Conway at the Web 2.0 conference in November sparked a conversation between the two men and provided the catalyst for Lee to email Elbaz.
“I reached out to him and said, ‘I don’t even need to know your progress I want to invest on whatever terms,’” said Lee, who was pleased to learn Factual was in the process of raising a Series A. “It was like asking a boyfriend or girlfriend to take you back. He was very gracious about it.”
Elbaz said picking the right investors was tough. He said he had “emotional attachments” to early investors and had to constantly remind himself to explore all his options for growing the company.
He evaluated multiple investment offers - several unsolicited - and had conversations with firms including Battery Ventures, Charles River and General Catalyst. Ultimately Elbaz went with who he knew, and liked, best.
In December, Andreessen Horowitz and Index Ventures co-led the $25 million round, with participation from Michael Ovitz, the SV Angel fund and GRP Partners.
Elbaz was initially looking to raise about $12 million, but agreed to increase it at the suggestion of Horowitz and Rimer. Both men wanted Elbaz to build big and fast, attacking multiple items on the to-do list simultaneously and proceeding with global rollouts now rather than staging them.
Said Horowitz: “He’s in a race for critical mass. Every customer he signs, the more data he generates.”
Now, with fund-raising taken care of - Elbaz said he expects the funds will last another three or four years - Factual is hiring staff to double its current 30-person team in Century City, Calif. and Shanghai.
“It’s a long road ahead,” said Elbaz. “What’s fun for me is anticipating an emerging category. We represent a new category that people are just now beginning to understand.”
Lizette Chapman
|02 February 2011
[BLOG POST LEAD-IN REVISED ON FEBRUARY 4, 2011]
