New York—Monitor110, a search based research firm based in Silicon Alley, has shut down after five years of development.  The firm had begun a new investment round in May but was unable to secure funding and ceased operations earlier this month.

Background

Monitor110 was founded by serial entrepreneur Jeff Stewart in 2003 to provide investors with insights mined from the internet.  Jeff’s original insight was excellent and has spawned a new category of research firms focused on what we call search-based research, including firms like Connotate, FirstRain, Collective Intellect, among others. 

Unfortunately Jeff and his partners were not able to convert the vision into an ongoing enterprise, despite generous funding.  The company raised $20 million, including $11 million in 2006.  In 2005, it brought in Roger Ehrenberg, who had run Deutsche Bank’s internal hedge funds, to help manage the company and raise capital.  In January of this year, Monitor110 announced the appointment of Brennan Carley, the co-founder of Radianz, as CEO.  Co-incident with the appointment of Brennan as CEO, founder Jeff Stewart relinquished the Chairman role to Roger Ehrenberg, who was previously President.

As the firm began running out of capital, it laid off one third of its staff and was looking for an acquisition.  On July 15^th, it shut its doors and posted the following note on its website:

Clients, employees, and investors:
I regret to inform you that, effective July 15, Monitor110 has decided to cease operations and shut down the business.
Monitor110 successfully built a service that allows investors to monitor internet sources for information and insight that is relevant to their portfolio and investment thesis.
The company launched a web based service (“Portal”) in March of this year, and a research report service (“Alphadesk”) in April, and signed up over 100 trial clients at over 60 firms including hedge funds, traditional asset managers, and investment banks.
The feedback from those clients has been positive, and since March the company launched 3 releases, each incorporating ideas and requests from our trial users.
We began to raise our next round of funding in May, during one of the most challenging quarters in recent history for VC investments, and despite the progress we have made operationally, we have been unable to secure funding.
As a result, the company has decided to cease operations.
Thank you to our customers for their support, and to our staff for their hard work and contributions in a very difficult market.
Regards,
W. Brennan Carley, CEO

What Happened?

As CEO Carley noted, timing was bad.  The firm launched its products in one of the worst market environments in recent history.  Given the environment, it is impressive that the firm was able to sign up trials at 60 firms but this was apparently too little too late for investors that had already ploughed $20 million into the venture.

Roger Ehrenberg has written a thoughtful postmortem (http://www.informationarbitrage.com/index.html ) on the experience which he generalizes into seven deadly sins for entrepreneurs.  One of his regrets was not launching a product sooner, and refining it with customer feedback.  Monitor110 had received favorable press from the Financial Times early on, which perversely prompted the urge to perfect the product, continuously deferring launch.  Meanwhile new competitors kept entering the space and gaining market share at Monitor110’s expense.

Another issue was product design.  Roger Ehrenberg apparently wanted to make the product more content rich and develop a capability to customize the research output for clients (both good ideas), but internal strife prevented implementation until the beginning of this year.   I am on an advisory board for a competitor to Monitor110, FirstRain, which began aggressively marketing to investors in 2006, nearly three years after Jeff Stewart’s original vision.  FirstRain combined technology with an overlay of outsourced editorial screening to address the technological shortcomings that Monitor110 struggled with. 

The bigger problem is that during the five years of Monitor110’s development, the search-based research space became quite crowded.  Connotate, a quantitative oriented web scraping specialist, received a minority investment from Goldman’s Hudson Street in February 2007.  As part of the arrangement, Goldman began marketing Connotate to its clients.  By our count there were a dozen firms in this niche (now eleven).

Research is a tough market.  There are way too many research providers, and until recently Wall Street research was perceived to be “free” (even though it clearly wasn’t.)   Worse, Monitor110 started out thinking of itself as a technology firm, not fully realizing the treacherous market it had gotten itself into.  There’s a big difference between being a tech firm and a research firm. Investors care more about content and results, and less about how elegantly and efficiently it is produced.   Not all of its competitors have figured this out, but they are in the game and may do so over time.  A few of them have it down. 

We’re sorry to see Monitor110 leave the scene.  It had the idea right.  We wish its principals success in their new ventures (which will not likely be research oriented!)