The Data Compression News Blog

DevX.com has an article called Top 10 Reasons for Startup Failure (behind registration wall, sorry.)

If Euclid Discoveries either fails to find an exit strategy, or delivers a negative return on investment, which of the top 10 do you think are going to be the important ones that ruined the party?

1. Some Projects Never Get Started In The First Place
2. Founders Are Terrible Leaders
3. Cumbersome, Complex Product that Never Comes Out of Development
4. Poor Sense of Proof of Concept
5. Founders Look for Funding but Get None
6. Project Takes Too Long, Key Founders Move On
7. Business Model Can’t Support Founding Team
8. Founders Get Funding But Can’t Get the Product Right
9. Product Can’t Find Market
10. Founders Get Funding, Company Doesn’t Take Off, Founders Stall and Create Illusions

Personally I will vote for number 7 and 8 - do read the article for the full description.

Or maybe you think Euclid Discoveries will fail for a reason not on the top 10?

One of the last vestiges of hope for ED has been that their object-based technology could be used in mobile handsets to enable video-conferencing. After all, that’s what they demoed to the Boston Globe back in 2006.

Today at their developer conference, Apple unveiled a new app called FaceTime that does teleconferencing on a mobile handset. And guess what? It uses standard Apple hardware and standard video codecs.

Sorry, Euclid, one more train has pulled away from the station without you getting on board.

If EuclidVision has any legs in the marketplace, how has it so consistently missed every opportunity to make an impact? Is it really possible that standing pat for ten years in a rapidly changing technical field is a strategy?

To an outsider, it’s quite puzzling. Without additional information, one would have to think that the company still has nothing that interests any buyers.

Readers of this space are already well aware that Euclid Discoveries has updated their web site with a great deal of information about their video coding technology. Now the rest of the world is going to hear about too, as the PR machinery has been kicked into first gear.

This press release is just a pointer to the new information on the web site, which includes:

• the complete patent portfolio
• video examples of EuclidVision in action
• the company’s Disposition Report of P2 – a specific implementation of the technology

I think the press release also contains a very nice, concise, description of what Euclid claims to be bringing to the party:

EuclidVision™ … extends the block-based compression paradigm to take advantage of features and objects in the video. These features and objects provide a foothold for engaging more advanced modeling, bridging the macroblocks of conventional compression to feature modeling and object modeling techniques.

What we really need next is some independent testing on the details of this advanced object modeling. Specific questions remaining to be answered include:

• Is the modeling compatible with existing H.264 players? Or will users of ED technology require new codecs to view media compressed with eFlex?
• If we compress representative video scenes with AVC High Profile and eFlex such that subjective video quality is identical, what are the bandwidth gains?
• What is the cost to the encoder of feature modeling?
• What is the cost to the decoder of feature modeling?
• How much feature modeling can be done automatically?

Since Euclid’s publicly stated exit strategy is a sale of either the entire company or its key technologies, these questions will obviously have to be answered. Any buyer will need these in order to be able to tell their stockholders that they have performed due diligence.

At this point there is no public information on when these points will be fleshed out. I would guess that the first people to get some hint about the answers will be those with bulging checkbooks. We hoi polloi will have to wait for whatever scraps come out of the process.

My 2006 article titled My Very Bad Euclid Discoveries Experience struck a nerve when it was published, and like a shuffling zombie, it just won’t die. After receiving 635 comments, I’m blocking any more discussion on the article.

I’m not doing this to stifle dissent or anything like that - it’s just that the web page plus comments are so long that it is becoming impractical to read. Every try to scroll down to the bottom of that page on an iPhone? Not so fun. So new comments can come in on this page, for at least a few years.

Unfortunately for Euclid Investors, 2010 still looks pretty much like 2006. The company still says it is in the process of selling their IP, there are no public demos or information, and the vast majority of LLC owners seem to be completely in the dark and frustrated.

The people who care about this have split into two camps. The first, which includes me, sees Euclid as a non-viable entity, for one of several possible reasons. Reasons include the market window for their technology having closed years ago, or perhaps more likely the technical team promised something that they couldn’t deliver. And there are people who think it was just a sham from day one.

In any case, the people in the first camp believe the company is hanging on mostly so management can continue drawing salaries and living a nice lifestyle, perhaps overlapping with the startup of their next venture, Corista. The idea is that they will continue burning cash as long as it lasts, even if nothing of real value is being done with the shareholders money.

The people in the second camp believe in the eventual success of the Euclid team, or at least believe the team deserves some more time to deliver. They have reasonable explanations for the things that bother the first camp, such as the company’s invisible public profile, its failure to demo an IP, its failure to sell out in 2006, and so on.

So which camp are you in? And since you are posting anonymously, why not add one key piece of info: do you own shares directly in ED? Or do you own shares in an LLC that was constructed for the purpose of buying units of ED? I’d like to know.

If you are in the second camp, you have to be assuming that this is the year ED will finally put a bow on the thing and wrap it up. The meeting in February with the investment bankers hasn’t produced any public news, but surely something should be coming of it soon. What will you do if we ring in the new year of 2011 and things are still the same?

- Mark

Apparently part of the fraud case against Philip Whitley is based on proving he lied about patenting his technology. The prosecutors are going through the motions of showing that he had no New Zealand patent activity whatsoever, and just some dubious activity in the US that didn’t even result in a patent application.

Patent for software ‘didn’t exist’

Whitley tried to claim that a patent application was filed but the evidence was destroyed due to a mental breakdown he suffered

Patent evidence ‘burnt’ due to paranoia

I don’t know what bearing it has on the case, but the prosecution looks to be trying to smear Whitley a bit by showing that he was living it up on investor’s money, burning through $7,000/week in household expenses, plus lots of other lavish lifestyle items:

Whitley’s lavish life recounted

And the saddest news of all is the story of an investor who desperately tried to recreate Whitley’s so-called revolutionary software by reading Programming For Dummies:

Desperate investor ‘tried to recreate software’

A lot of people commenting on stories about Euclid Discoveries ask why people like me are so harsh and pessimistic about Euclid. After all, isn’t it possible that somebody could come up with a revolutionary technology?

People like Philip Whitley provide the answer to that question. For the past 30 years, the field of data compression has been marked by steady, incremental progress. Virtually every case where somebody has claimed a revolutionary new technique has resolved as either an outright fraud or a failure to deliver.

So when people like me hear incredible claims, we think of cases like Whitley’s, where investors lose millions of dollars based on promises from a guy who never delivered, and is accused of actively scamming the investors. We have seen this same thing happen dozens of times. (Literally.)

What we have never seen is somebody pop up out of the woodwork with a new technique that suddenly takes existing state-of-the-art and doubles performance, triples it, or even increases it by 460%.

Incredible claims require incredible evidence. Absent such evidence, the risk that people are being scammed is so high that raising alarms seems like the right thing to do.

Not everyone involved with Euclid knows that the same management team has been working on another startup, Corista. Corista is working on medical imaging, and rumor has it that they too will depend on some impressive compression breakthroughs in order to succeed.

It’s a pretty good deal for the Wingard family. By leveraging the funding techniques developed at Euclid by Richard Wingard, Liz Wingard can presumably draw another few hundred K per year at Corista, which makes for a nice total family income.

Corista is a story I don’t know much about, although I have heard it is using the same Angel/LLC funding techniques that have worked so well for ED. I only bring up their name because of this quote from a job posting on their web site:

Corista is the 2nd company to be developed by this management team. The first, Euclid Discoveries (www.eucliddiscoveries.com) has developed a video image compression technology that compresses video images and provides a substantial improvement over current state of the art. Euclid Discoveries is currently represented by a leading NYC Investment Bank in the acquisition process. The company was founded in 1999 and is privately funded.

They key sentence in there is that Euclid is ostensibly in the acquisition process.

The Investment Bank is of course Allen & Co., in the person of Nancy Peretsman. Nancy’s name is brought up a lot in an attempt to gain legitimacy, but Nancy’s actual involvement is speculative at this point. And of course, whether Allen & Co. is going to be able to sell ED is even more speculative.

- Mark

Euclid Discoveries has been raising money, fear, and loathing for so long now that they feel to me like a lifelong friend.

I was working my through some old emails last week and I came across an angry message from a Euclid supporter sent all the way back in 2003. Gray Smith is one of the Kentucky investors that have been mentioned here so often, and he took offense at some of my skepticism, firing off this email:

Mark -

Sorry, but you will soon be eating your “E words” regarding Euclid Discoveries. And, unfortunately, your reasoning on the subject is so far off-base that I’m forced to discount everything else you’ve ever said.

Regarding the business model and funding strategies, can you think of one example of a small tech enterprise that survived venture capitalism or hand-holding with the likes of, say, Microsoft? Can you say “Hotmail”?

Secondly, the principals of Euclid have sat on the MP3 standards committee for a number of years. Their product will hit the market compatible with every existing application, and will be the sole property of the principals and investors.

Do some homework. The PR firm handling their publicity (and their patent firm) are the premiere [sic] firm(s) in the niche. They don’t take on losers. And they’ve seen the demo.

Have a nice day.

Gray Smith

You’ll note that Gray is using several of the key strategies Euclid supporters have engaged in since the beginning:

• Attack the messenger instead of debating the facts: “your reasoning on the subject is so far off-base that I’m forced to discount everything else you’ve ever said.”
• Claim legitimacy by association - by virtue of hiring a PR firm, ED suddenly is imbued with some sort of goodness, because PR firms only accept payment from companies that are really going somewhere.
• Confuse business relationships with technical skill. Getting on the MP3 standards committee is not like getting into the Rock and Roll Hall of Fame. It is not an endorsement by your peers. It is an indication that you are capable of filling out an application form and sending it in with a check that doesn’t bounce.

And yes, Gray, I can think of many small tech companies that have survived venture capitalism or hand-holding with the likes of, say, Microsoft? Can you say “YouTube?”

Gray is apparently still working at the same company in Louisville that he was back in 2003, so I sent him an email asking if he had an update on how soon I would be eating my words.

So far, no response.

- Mark

Way back in 2005, Bob Werner of Euclid Discoveries gave an interview to Roger Wood. Through the magic of mp3 storage, that interview is still available on the web. Here are some of the great quotes from this interview:

Bob: EuclidVision is an object-based video compression technology built with mathematics and computer vision, which will deliver orders of magnitude, 4-15 times the performance of the world standard MPEG-4. That’s a lot but essentially what that could evolve into is you could turn your iPod into a DVD player. [...]

Roger: This seems like the right product at the right moment.

[...]

Roger: Bob what stage is this product in? I know you’ve probably done research and development, are you past that stage?

Bob: We’re past that stage. We’re ready for commercial deployment. Our exit strategy to our investors has always been when we are ready for commercial deployment the company will be sold privately. [...] We’re at the commercial deployment stage now, and we are privately seeking purchasers.
[...]

Bob: We raised money in seven different rounds. In each round, we succeeded in coming up with the technology we needed to get to the next round. [...] We went through seven phases to get to this point. Its stressful, but well worth it. The angels seem to like it.
[...]

Bob says that he and Richard were unable to get funding from west coast investors (too skeptical), and he is proud to say that he was able to get the majority of his money from investors close to home in Kentucky and Tennessee, investors who had never been offered this kind of deal before.

Bob talks a lot about how his management of his angel investors is done by constant communication, and how this keeps them happy with the relationship.

Not much public news since 2005, and of course, this leads to all sorts of speculation and rumor. If the company was up for sale almost five years ago, what happened? And how much more money had to be raised in the last five years? How much have the investors from those previous rounds lost to dilution?

Maybe a lot of questions, but if the angels are happy, as Bob claims, no worries for Euclid Discoveries.

Philip James Whitley raised over $5 million dollars in funding for his company, NearZero, promising revolutionary data compression results. After stringing along investors for the better part of a decade, Whitley is facing his day in court before the Serious Fraud Office of New Zealand.

It’s a long story, both familiar and sad, of people cashing in their life savings to make a fortune on a revolutionary technology. A technology that Whitley still claims exists, but so far has been unable to produce. (In fact he claims he destroyed it intentionally.)

Sachin wrote about it here a couple of years ago. You can now get an update from the papers in New Zealand.

Testimony in the trial had Whitely proclaiming he was “richer than Bill Gates.” Turns out that now he is now bankrupt and facing possible jail time, but he had a good ride while it lasted. Failure to map an adequate exit strategy seems to have been his biggest weakness.

We know that the great recession of 2009 has caused slashes in staffing at companies large and small, and it appears that Euclid Discoveries (discussed in great detail here) has had to cut back as well.

Euclid has a list of key bios on their web site, and as of today, December 7, 2009, that includes just three people:

• Richard Y. Wingard, Co-Founder & Chief Executive Officer
• J. Robert Werner, Co-Founder & President
• Charles P. Pace, Chief Technologist

What’s strange is that this list of key bios used to be a lot longer. Using the beloved Internet Archive, we can take a look at the same list from just two years earlier, and wonder what happened to:

• Steve N. Hutchinson, Executive Strategist
• Anne Marsden, Chief Marketing Officer
• John Weiss, PhD, Chief Algorithmic Mathematician
• Igor Najfeld, PhD, Algorithmic Mathematician
• Amit K. Roy-Chowdhury, PhD, Chief Consulting Scientist
• Jeffrey V. Roberts, Director of Engineering
• Anne Watelet, Technical Process Manager
• Renato Pizzorni, Lead Software Engineer
• Darin DeForest, PhD (ABD), Lead Algorithmic Engineer
• Richard Gyger, Technical Lead
• Elizabeth Marmion, Director of Operations
• Bentley Pace, Knowledge Manager

I don’t know whether any of these people were cut loose, or whether ED just decided to clean up a rather long web page. And a check of LinkedIn shows that there are at least a few people who still list themselves as employed at ED:

• Bill Wilmoth, Information Technology Analyst
• Nigel Lee, Chief Algorithmic Engineer
• Anne Watelet, Technical Process Manager
• Jeffrey Roberts, Director of Engineering
• Bentley Pace, Knowledge Manager

I would be very surprised if all twelve of these people were full time employees at Euclid. Carrying that many big salaries would have created a pretty rapid burn rate, and I don’t think the company could have sustained it for this long.

The big question is whether what we are seeing now is the death rattle of a company cutting expenses to the bone, or whether there is just a lot of smoke and no real fire. Whichever it is, Euclid Discoveries is, as always, not saying.