Behind My Analysis that Allowed Me to Conclude that Google AdSense Was Junk

By James Altucher

I made the worst decision in venture capital history in late 2000. I was a partner at a venture firm called 212 Ventures. What? You never heard of it? We had $100 million from Investcorp, $5 million from CS First Boston, $5 milion from First Union (which became Wachovia) and $5 million from UBS. I had a few partners but I won’t soil their names with this story. Because what follows was completely my fault.

It was either late 2000 or early 2001 when one of the associates (and my future business partner) Dan Kelly approached me with an opportunity. Dan and a guy named Jason Liebman had both been junior bankers at CS First Boston together and maybe shared a cubicle. Dan went off to work for a hotshot venture capital firm (my firm) and Jason went off to an obscure dot-com company in the middle of the Internet Bust. The company was called Oingo.

Dan came into my office where I was playing the classic 80s arcade game “Defender”. I spent a good 2-3 hours a day playing “Defender” and probably reached a high score of about 120,000. “A friend of mine is VP of Biz Dev at this search engine company,” he said. “We can probably get 20% of the company for $1 million. He sounds desperate.”

“Wait? What?” I had a lot of mutants after me on Defender and its pretty hard to defend humanity, manage $115 million, and listen to a pitch about a company called Oingo at the same time.

“They make some kind of software for search engines. They help search engines find pages with synonyms on what you search, I think.”

I stopped playing. “Search engines? Aren’t they all dead? What’s the stock price on Excite these days? You know what it is? Zero!” Excite was in the process of going bankrupt. Lycos (see my story on my experience with Lycos) was quickly disappearing. Yahoo’s stock was in the gutter. And now this was a random search engine software company that was probably going to go bankrupt. “No thanks.” I was very quick with my decisions back then.

Dan went back and made something up. “The opportunity is too small for us,” he told Liebman.

That’s because we had a lot of money invested in huge opportunities like this one.

Well, Oingo somehow managed to raise some money and stay afloat. They changed their name in 2001 to Applied Semantics. In 2003, a little search engine company called Google bought them. Within Google they changed their name once again from Applied Semantics to AdSense.

Read the rest here.