Powerset, the hyped search engine company, sees shakeup

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Powerset, the “natural language” search engine company saying it wants to take on Google, has seen a shake up in its management.

The San Francisco company received substantial hype when it emerged last year saying it had found a way to understand the phrases you type into your search queries. However, it has been slow to deliver on the technology, instead dribbling it out in small doses in a “labs” portion of its site.

Steve Newcomb (left), the chief operating officer and one of the founding troika, has left the company. Barney Pell, who was chief executive, is stepping aside and becoming chief technology officer. The company is looking for a chief executive, Pell told VentureBeat in a phone conversation.

The move comes after differences between Newcomb and Pell over the direction of the company, as well as a slip in the company’s delivery date of its product. Initially, it had planned to release its search engine to the public this year. Now, it plans to do that by the second quarter of next year, though it come even later. “This is really hard, what we’re doing,” Pell said, of the company’s ambitious goals. He said one cause of the delay was the time it took for Powerset to license key natural language technology from PARC. Powerset finally got access to PARC’s source code in January this year. The company is now on track, he said.

Pell has published the changes on his blog.

Powerset has also been trying raise money from venture capitalists at a very high valuation, and the shakeup suggests it wasn’t getting very far in its efforts.

This is instructive for founders and entrepreneurs who try to raise money early at stratospheric levels: Powerset last year raised $12.5 million last year from Foundation Capital, the Founders Fund and long list of individuals, giving it a post-money valuation of $42.5 million. Now, in order to raise money again, the company needs to seek a higher valuation, so that Foundation Capital and the other investors feel they are getting their money’s worth. However, that’s hard to do unless you’ve shown you can perform on your plan. We’ve mentioned Powerset’s various product releases, but none show that it is close to prime time — a year after the investment by Foundation et. al.

It isn’t clear to what extent the investor team pushed for the changes. Pell said there was a “fair amount of tension” in the style with which he and Newcomb wanted to run the company. “We were stressing each other out. It was a challenging marriage. That’s very common in start-ups. We were trying to work things out.” That’s when the board recommended to Pell that he bring in some consultants to help on organization, Pell said. Pell indicated he was ready to step aside in order to to position the company for progress. The recommendation was that Newcomb should leave. Newcomb did not respond to a request for comment made several days ago by VentureBeat. Pell said Newcomb has interest in politics, and that a mere “founders” role wasn’t enough to keep him at the company. Pell said other changes were made in the company’s management, to make sure key employees felt increased ownership and responsibility.

It should be noted that this company has continued to show creativity in developing its product. We once called the company a funny farm, but tempered that by observing the company’s resourcefulness. The quixotic nature of its team — embodied by the enthusiastic, relentlessly upbeat Pell — is doing quite a bit in its labs to create interest (see our coverage). It has opened a search box inside its Powerlabs, and offered several use cases such as Powermouse (see coverage). While the shakeup is a blow to the company, it still has substantial technology under its hood, and will not doubt continue to engage the search community. Natural language is a huge challenge, and Powerset is more focused on this problem than any other company.

The company is still not crawling and indexing the entire Web for its search engine. It is still focused mainly on an index Wikipedia, a site that has clear structure and relationships between objects and their definitions. This gives Powerset a nice testing ground for its product. But the wider web is much more complex, and Powerset has yet to tackle it. In part, Powerset has been hampered by limited resources, Pell said. While he said he wants the engine to be ready by second quarter, it might be later than that, he said, possibly even 2009.