Loomia (the startup I’ve been working with and running their marketing) announced a huge customer win yesterday with the announcement of Dow Jones as a customer.  Loomia is now serving recommendations to the WSJ.com providing recommendation under the header of “People who Read this, also read…”.  Here’s a link to the release.  Arrington over at TechCrunch did a great writeup as well as Chris over at MarketingRev. This was a big customer win because of the challenge it posted for Loomia (and really any of the company’s competitors like my friends over at Aggregate Knowledge).  Most recommendations technologies are based on mining troves of user data to find common patterns.  Meaningful patterns take time to emerge and that has posed a challenge with news articles because of the lifecycle of a news article is measured in hours while products and other content have timelines that measure months or years.  The key is that Loomia was able to adapt its technology to measure the usage patterns in the window of hours a big step forward in the space.

As someone who works in startups – I’m on the side of the entrepreneur.  I’ve also worked with vc’s and pe investors as well and know with the best of them that they are not always in it for the entrepreneur so I am sympathetic to Jason’s and Marc’s point of view that entrepreneurs need to look out for ol’ #1.  That being said – Jeremy and Josh are right – there is risk in taking too high a valuation just like there is risk in taking too much money.  And the risk as Josh rightly points out is if you take too high a valuation you do limit your exits?  Josh does a great job breaking down typcial exits and from my own experience I can anecdotally concur.  I’ve been involved in lots of buy-side m&a deals buying startups and valuations at that point matter and generally must be justified with semblance of financial reality.  Unrealistic, inflated valuation and no deal, no deal then no exit.

That’s important because as an entrepreneur you don’t get paid until there is an exit (or perhaps a partial exit in the case of a PE late stage deal when founders are often bought out or partially bought out to help limit dilution).  So why limit your exit options with a high valuation unless it’s too boost your ego by being able to tell all your entrepreneurial friends you’re company is worth X dollars?  Wayyyyy more startups never see an exit then see one so its important to keep your options open.  If you your at a $12 mil post series A valuation then you can sell at $25 to 50mil to a lot of companies and everyone – the vc’s, founders, and employees – walk away with cash.  And lots of private and public companies can afford a deal of that size.  The problem with a $50 mil, $100 mil or apparently $200+ mil in the case of Ning is that the companies who can afford a deal all have to worth a lot themselves – $500 mil or more.  There aren’t a lot of companies in that space.  Then you’re stuck hoping someone huge like Google, Yahoo or FIM buys you in case you’re an Internet media company.

I am currently working with Loomia, a startup in the personalization and recommendation space, and we compete with one of those companies that has what I would argue a silly valuation – aggregate knowledge (“ak”).  In a twist of past lives I know the founders – paul and chris – and a member of their sr. management team – kurt – so I am happy to engage in some good natured ribbing here.  AK raised a $20 million b round with a pre of $60 mil supposedly and a post $80 mil valuation!  Ay Carumba!  AK is now in the position where they have to hit a homerun to get an exit – not saying they won’t do it – just that their margin for error is tiny.

But what’s even more interesting is that Josh Koppelman was a seed investor in ak!  So it’s a good question – Josh what happened?  Did Paul, Chris and Kleiner Perkins ignore you’re advice which I am sure was the same as your blog post?  Inquiring minds want to know.

Startup observation of the week – should startups provide computers and software anymore?  Is it necessary – everyone who works in tech seems to own their own laptop and with free alternatives to practically all software today from productivity apps like office (zoho, open office, google) to even programming and graphics apps as well.  I know there have been plenty of posts about how its 10x to a 100x less capital intensive to start a tech or web-based startup today, but this is part of that story.

Food for thought.

Also some folks have wondered whether this means eBay’s looking to get into the recommendations space and given my involvement with Loomia I am curious to see myself.  Personally I don’t think an application based approach that relies on human voting is the right approach vs. Loomia’s automated system that relies on some very sophisticated analytical algorithms in order to recommend products or content.  But then again its not clear eBay plans to use Stumbleupon for user recommendations, but it will be great to see what happens. 

What is clear is that helping users find the products and content they are looking for whether through a lean forward approach like search or a lean back approach like Loomia’s recommendation service is something of growing interest for web publishers and retailers.

I had a few such experiences this past week at the Topix party around Web 2.0 Expo (BTW – thumps up to Topix – great venue and guest list). 

First I ran into Alison Macondary former GM of Wired News.  Well a few years ago the company I was almost acquired Lycos including Wired News.  It was fun to trade a few war stories about that deal which resulted in one Daum acquiring Lycos (ed. note – one of the major – huh? as in what are they thinking deals of the last couple of years).

Then I ran into Kurt Buechler currently SVP of Sales and BD for Aggregate Knowledge (as Loomia calls it – AK – they are a Loomia competitor).  Kurt once upon a time was the head of BD for Windows Media back when I was at Loudeye.   Kurt was a major partner of the company so I knew Kurt quite well as we were jointly trying to expand the digital music landscape.

Later Kurt “introduced” me to the CEO of AK – Paul Martino.  Paul and I immediately recognized each other and then realized we had done a deal together back when he was at InterTrust many moons ago while I was at Loudeye.  Needless to say Kurt, Paul and I wasted no time in trading all war stories.  Even as competitors now, it is nice to see old faces in new places.

Loomia’s not unique based even on my experience - almost every startup I have been at has been through something similar before becoming successful – for instance Loudeye changed its model from service provider to ASP.  And it’s still happening today – look at how Andy Sack and the Judy’s Book crew have had to change their model from local reviews to a deal search site. 

Loomia is playing in the larger web-optimization and analytics market which with Kefta’s sale to Acxiom is a pretty interesting market these days.  We’re really entering a pretty interesting era where technology is finally starting to deliver the much promised personalized online experience.