PrivacyWall is taking an unusual approach to its SAFE raise. It has an uncapped valuation — essentially not declaring a value for the company — but has offered investors in this round a discount rate of 20%. While the discount rate is appealing, the lack of a cap makes it difficult to project investors’ potential return. There’s a reason this is an uncommon practice.

Users who have never paid to “Google” something might be surprised at how profitable search engines can be. The US search engine market was valued at $82.9 billion in 2021 and is growing annually at a rate of 6.6%. Google is the clear market winner, holding 92.47% of the market share as of mid-2021 and taking in the majority of its revenue through advertising. It can be a bit tough to compete. Google parent company Alphabet is the world’s fifth-biggest company.

Google is far from the only available option, however. There are many competitors like Bing, DuckDuckGo, and even social media sites like Twitter. Many of these alternatives arguably offer better user experiences and often provide user privacy protections. In sum, the market is massive, but the majority of the market share belongs to household names like Google. The growth rate is slow, though steady and predictable. PrivacyWall has the potential to gain a significant market niche, but it will need to overcome major incumbents to do so.

PrivacyWall CEO and founder Jonathan Wu holds an MS in management science from Stanford University. He has worked in venture capital for most of his career but started as a software engineer for Yodlee, a personal finance tool. He worked with Insight Venture Partners, investing across industries and invested in several startups that would go on to exit. He later co-founded Social Game Media, an advertising company for online brands. In 2021, he was named an Emerging Leader by the US Small Business Administration.

CTO Christopher Wu is also a serial entrepreneur. He chose to jump into the startup game rather than finish a degree at USC. He first launched TechCrunch competitor Digital Alchemy and later co-founded Social Game Media with Jonathan Wu. 

Both Jonathan Wu and Christopher Wu have impressive resumes, though they are currently PrivacyWall’s only team members. Given the product’s user base of 250,000 and its potential to expand, now seems an ideal time to flesh out the team and add some engineers. Recruiting marketing, sales, and legal team members will also be crucial in the near future. The raise page indicates that doing so with funds from this raise is a priority. While Christopher Wu and Jonathan Wu have ideal experience to launch this product, having only a single founder and a slim team are not ideal for growing and scaling PrivacyWall.

Clearly, PrivacyWall’s standout feature is offering privacy and data control to its users, but it is far from the only search engine to do so. Alternatives like Startpage, Swisscows (formerly known as Hulbee), and DuckDuckGo all offer comparable experiences to Google that protect user data. DuckDuckGo is among the most successful privacy-oriented search engines. 

While PrivacyWall’s offering is not unique, its CEO has been awarded 12 patents, and he uses some of those technologies to enhance the search engine. PrivacyWall’s long-term success will be determined by marketing strategy and user experience, including how good its search results are compared to other offerings. Merely protecting users’ data is a positive, but it’s not unique enough to set this search engine apart.

Performance is PrivacyWall’s strongest metric for a reason — profit. The business has been taking in increased and substantial revenue year-over-year. Revenue comes through paid search results and went up from $2.43 million in 2019 to $2.68 million in 2020. Though the almost tripled cost of goods sold cuts into the net income, PrivacyWall still saw nearly $1 million in profit last year. At this time, only 9% of startups in the KingsCrowd database are profitable. 

Vital to the business’s long-term success is the 470x year-over-year growth of daily active users. To date, PrivacyWall boasts 250,000 daily users.  PrivacyWall has yet to raise any outside capital..Given its revenue, such measures haven’t been necessary. Expenses have been high, however, with nearly $1.5 million dollars in cost of goods sold last year.

Overall, PrivacyWall has seen strong financial and customer traction. The company has already achieved profitability and services 250,000 daily users. These metrics point to a long-term trend that is encouraging for investors.

Overall, the risk associated with an investment in PrivacyWall is high. Despite its prominent pro-consumer marketing, PrivacyWall runs the same regulatory risks as other companies in the tech space. Pressure is building on governments to monitor businesses for privacy violations, and as PrivacyWall expands, it could see increased scrutiny. As it claims to protect users’ data, it has a higher standard to prove. Unlike big tech companies, PrivacyWall doesn’t have the shield of legal and lobbying experts to divert such troubles. Any violations could cause massive damage to the startup’s reputation. Mere compliance can come with expenses as well.

The small size of the team is cause for some concern, as the smaller the team, the greater the pressure on individual members. At least this risk should be soon mitigated, as funds from the raise will be put toward hiring. Finally, PrivacyWall’s business model presents potential issues. As it gets revenue from paid search results, it depends on long-term sales cycles. Some such contracts can last a year, contributing to the time risk associated with growing the startup.

An absence of some crucial information makes PrivacyWall a tricky investment prospect. While CEOJonathan Wu and CTO Christopher Wu have demonstrated a history of success in startups backed by venture capital, they are just two people. No other team members or potential team members are supplied at this time, making the startup’s trajectory uncertain. Without proven product engineers to further develop the search engine’s user experience, it will struggle to compete with other options like DuckDuckGo. These concerns might be mitigated in the future by new hires. Another important concern is the lack of a valuation cap for this raise. Investors rely on valuations to gauge potential returns. This is a massive drawback.

Finally, there is the product itself. While the search engine has proven profitable and the user base is growing, PrivacyWall faces a number of strong competitors. PrivateView, which conceals users’ IP addresses, is a neat trick, but it won’t make up for superior user experiences and search results. A good start in the market is no guarantee of continued success if users are drawn to other strong options. It’s easy to switch between search engines, which could be concerning for long term user retention.

PrivacyWall boasts impressive early traction and performance. More than $2.6 million in annual revenue after four years is excellent, especially in a market dominated by one of the world’s biggest companies. The business is already profitable. If trends continue, it may expand its revenue through other paid advertising than search results. In the long term, PrivacyWall has a decent shot of becoming fairly successful. Space in this market is highly desirable as well, and competitors might seek to acquire PrivacyWall to make use of its patents and users. Finally, both founders bring plenty of entrepreneurial experience to the table.

PrivacyWall is a search engine technology startup that prioritizes user privacy. Its search engine keeps users’ data out of third parties’ hands, and its PrivateView prevents websites from viewing user IP addresses. PrivacyWall also offers a desktop firewall and an Android app with its search engine built-in. The search engine boasts 250,000 daily users, and revenue from paid search results brought in $2.6 million in revenue last year.

The team appears to have only two members for a base of hundreds of thousands of users. In addition, PrivacyWall has decided not to set a valuation cap for this raise. The software is also far from the only offering that protects users’ privacy, and as it grows, it is likely to face increased scrutiny from government overseers. If its reputation is damaged, PrivacyWall may struggle to hold onto existing users in the face of comparable privacy-protecting alternatives, and maintaining its services is expensive.

Despite these concerns, existing and increasing revenue is a huge point in this startup’s favor. The CEO has a history of working in venture capital and leading successful investments. He holds patents that bolster the product’s defensibility. PrivacyWall’s user base is growing at a rapid rate, and the company has already become profitable. The startup is ideally positioned to build on existing success into the future. For these reasons, PrivacyWall has been rated a Neutral Deal at this time.

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com.

Analysis written by Benjamin Potts.