Bold start-up, Powerset, about to raise $10M to take on Google

Updated

We’ve been hearing about a new Palo Alto start-up called Powerset, which says its search technology is better than Google’s.

The start-up, led by artificial intelligence and natural language expert, Barney Pell, has been pitching its business idea aggressively to Silicon Valley venture firms. The company says its idea is so promising it merits an extremely high valuation from the get-go, according to several sources.

We’ve heard Powerset is on the verge of raising $10 million, and has been asking to be valued at $20 million before the investment (Update: See the subsequent funding story here).

In other words, if it gets the $10 million, the company is valued after the deal at $30 million ($20M + $10M). That gives venture capitalists a third of the company ownership in return for their investment.

That would be a big coup for a company that hasn’t launched yet, and some would call the venture firm(s) making the investment crazy. As much as some people want to deny it, search has largely been solved by Google and others, at least for the average person. Yes, there are many incremental improvements that should be made, but is there anything new that Google’s thousand-odd engineers (or Yahoo’s for that matter) can’t figure out and copy within a few months?

Still, without seeing it, we’ll reserve judgment; it’s great to see people swing for the fences. Pell, a former NASA and SRI engineer, recently served as an entrepreneur in residence at Silicon Valley firm Mayfield, and left to form Powerset. The question arises, if it is so good, why hasn’t Mayfield invested?

The company has pitched to several firms, including to Bay and Foundation Capital. Charles Moldow, a partner at Foundation, has apparently been looking seriously at the company. Moldow has not yet responded to email and phone calls requesting comment. We heard Bay dropped talks months ago, feeling the valuation was way too high.

Earlier, Powerset raised less than $2 million from investors led by CommerceNet, and including prominent Silicon Valley angel Reid Hoffman (who went to school with Barney). This was a convertible note round, which is common these days. The money converts into shares when a first venture round (Series A) is completed.

Powerset has reportedly been hiring like crazy, poaching from Yahoo in particular — on the promise that it is about to raise the round.

Check out Barney’s statement on LinkedIn: “I’m overloaded at present and won’t be looking to meet for a lunch or network socially with new people until mid-September.” It is now October, so we’re waiting.

Beside Barney (pictured left; see his blog), who is chief executive, other key players are Steve Newcomb, who is chief operating officer, and an expert in natural language and voice search, most recently a vice president of voice search company Promptu’s mobile division (see our mention of Promptu here); and Gian Lorenzo Thione, product architect.

They are sharing offices with CommerceNet at 169 University.

Update: The founders have agreed to meet with VentureBeat, and so we should have some more about their plans soon. Stay tuned.

Update: See our resulting update story here.

Update: See search expert Danny Sullivan’s scathing critique of Powerset.