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Stochasto ASA. A brief presentation May 2004. Investment case Company description Market and industry trends Appendix: Antivirus and protection business.

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stochasto asa

Stochasto ASA

A brief presentation

May 2004

Investment case
  • Company description
  • Market and industry trends
  • Appendix: Antivirus and protection business

And, actually, the ultimate search engine, which would understand, you know, exactly what you wanted when you typed in a query, and it would give you the exact right thing back, in computer science we call that artificial intelligence.

Larry Page, co-founder of Google

stochasto overview

Investment case

Stochasto – overview
  • Stochasto owns technology in three application areas:
    • Intelligent search
    • Antivirus
    • Protection (Encryption)
  • Stochasto’s main product is an intelligent search engine developed in Russia that utilises a unique method (patent pending) of semantic analysis to analyse sentences, paragraphs and documents in the sources (e.g. Internet pages, documents, video/voice archives) to generate answers based on natural-language queries
  • Stochasto’s technologies are based on years of research in stochastic analysis and artificial intelligence
  • Stochona, Stochasto’s R&D partner in Moscow, which is obliged to provide R&D services exclusive to Stochasto, has a staff of 30 employees developing the technologies and their applications
  • The search engine and virus control are commercially available products in Russia

Investment case

  • Enterprise search
    • Market is $1bn in 2003 (FAST)
    • Avg. growth is 21% to 2007 (Ovum)
  • OEM sales
    • Search integrated with ECM and other applications
    • ECM market increasing from $1.5 bn in 2003 to $3.4 bn in 2006 (Giga Research)
  • Internet search
    • Market increasing from $2-3 bn in 2003 to $6-8 bn in 2007 (











Other DB

the company

Investment case

Enterprise Search

Direct licensing

Service and maintenance charges

OEM Search

Licensing through application providers

Typically ECM and other text intensive

Share of licensing revenue

The Company

Q2 ‘04

Q1 ‘05

Q3 ‘05

Q1 ‘06

Q3 ‘06








Search Engine







Internet Search

  • Licensing to Internet Search providers
  • Income as share of advertisement revenue

Revenue Models

  • Text-intensive segments like:
  • Publishing
  • Law Firms
  • News incl. TV and radio

ECM (Enterprise Content Management), portals, and other applications conatining large amounts of unstructured data

  • Internet-wide search services like:
  • Google
  • Yahoo!
  • Ask Jeeves


financing rounds

Investment case

Financing rounds
  • July ’03: RaisedNOK 3.5 mill (USD 0.5 mill) through a convertible loan at NOK 20 per share
    • now converted
  • Nov ’03: RaisedNOK 5 mill (USD 0.7 mill) in share issue at NOK 40 per share
  • April ’04: Raised NOK 9 mill (USD 1.3 mill) in share issue at NOK 55 per share
    • NOK 55 per share values the Company at a market capitalisation of NOK 70 million after financing
Investment case
  • Company description
  • Market and industry trends
  • Appendix: Antivirus and protection business
stochasto business overview

Stochasto – company description

Stochasto business overview
  • Stochasto owns proprietary technology in three application areas
    • Search
    • Antivirus
    • Protection (encryption)
  • The technologies are based on years of research in stochastic analysis and artificial intelligence
  • Stochasto’s research and development facility in Moscow has a staff of 30 employees developing the technologies and their applications
  • The search engine and virus control are commercially available products in Russia
the stochasto search technology

Stochasto – company description

The Stochasto search technology
  • Unique, patent pending method of semantic analysis
    • Based on years of research and development
  • Analyzes sentences, paragraphs and documents in the sources
    • Internet pages, documents, video/voice archives, etc
  • Builds index containing semantic, morphologic and syntactic information
    • Larger index: 2-3 times the size of the filtered source text
    • Provides lookup by relevance
  • Analyzes the users’ natural-language queries
    • Builds structure of semantic, morphologic and syntactic information for lookup in the index
  • Provides relevant, meaningful answers immediately!
    • As opposed to thousands of hits from keyword lookup
    • Without prior categorization or tagging
present search engine product

Stochasto – company description

Present search engine product
  • The present product is ready in Russian language
    • Ready for demonstration
    • English language database started
    • Several enhancements under development
  • Available in several versions
    • Personal (PC) – for locally stored documents and other texts
    • CD-ROM – for creation of CDs with intelligent search functionality
    • Corporate – for sources on the corporate network
    • Site – for intranets and Web sources
    • Global – for use with an Internet crawler
  • Developed in C++
    • Microsoft Visual Studio development environment
    • Microsoft SQL Server infrastructure or proprietary database
    • Can be adapted to other architectures
the best of two worlds

Stochasto – company description

Indexed Keyword Search

Simple keyword or key phrase queries

Immediate results from index lookup in high volumes of data

Advanced Non-Index Searches

More complex search criteria

Natural language, pattern matching, semantic techniques

Immediate results in low volumes

Delayed results by monitoring high volumes

The best of two worlds

The Stochasto Search

  • Complex search criteria
    • Natural language queries
    • Advanced keyword and phrase searches
  • Immediate results from high volumes via the unique semantic index
    • Index built by full sentence analysis of source text
  • Fast and relevant results from one search engine on high volumes

Stochasto – company description

  • Internet Search
  • Enterprise Search
  • Translations
    • Semantic matching yields more accurate results
    • Speed of index allows real-time translations (e.g., by phone)
  • SMS-based search
    • Short questions and short, relevant results can be exchanged with the mobile phone
  • Video and audio search
    • Combined with voice recognition it allows for searching TV, film and radio archives
  • Online learning
    • The Stochasto search technology can, for example, indicate to what extent answers to quizzes are correct
    • Student questions can be answered appropriately
technical characteristics

Stochasto – company description

Technical characteristics
  • Based on a comprehensive language database
    • Full vocabulary including all forms and tenses
    • Grammar and structure information
    • Semantic network
  • The search index contains all words from the source, their morphological and syntactic characteristics and semantic information
  • Considers all words in the user’s request, including morphological variations (lexemes)
  • Several levels of sophistication
    • Direct answer according to semantic matching
    • Semantic match but excluding verbs
    • Keyword search
    • All three with or without the use of synonyms and derived phrases
  • Classifies results according to the degree of the semantic, syntactic and morphological closeness to the query

Stochasto – company description



  • Riulf Rustad, Chairman
  • Ivar Formo
  • Fredrik Klaveness
  • Alexander Shishov


  • Jan Husby, CEO
  • Shamil Urazdeldiev, PhD, General Manager, R&D Operation
  • Vladimir Nasypny, PhD, Inventor, Scientific Director
  • Andrej Ogarok, PhD, Technical Director
Investment case
  • Company description
  • Market and industry trends
  • Appendix: Antivirus and protection business
market for search engines

Market and industry trends

Market for search engines

“Ask anyone in Silicon Valley what the hottest application on the Internet is today and you can bet their answer will be search. The dealmaking has been nothing short of torrid. Only a year ago there were at least half a dozen major players. Now there are just three: Yahoo, Googleand Microsoft....

They're all fighting to dominate the huge and ballooning market, already worth $2 billion and expected to generate between $6 billion and $8 billion in revenues by 2007.” An Open Source Search Engine by John Battelle, September 11, 2003

Source: comScore Networks

global internet usage

Market and industry trends

Global internet usage

The use of search engines for Web lookup is growing, and there remains a large market to capture

billions of textual documents indexed

Market and industry trends

Billions of textual documents indexed

KEY: GG=Google, ATW=AllTheWeb, INK=Inktomi, TMA=Teoma, AV=AltaVista


search engines jockeying for position

Market and industry trends

Search engines jockeying for position
  • Yahoo buys Kelkoo for $575m (March 04)
  • MSN has made search engine key priority for 2004
  • Yahoo buys Overture for $1.6bn in cash and stock (July 03)
  • Google buys Applied Semantics (April 03)
  • LookSmart buys Grub (March 03)
  • Overture buys Fast for $100m (Feb 03)
  • Overture buys Alta Vista for $140m (Feb 03)
  • Yahoo buys Inktomi for $235m (Dec 02)
  • Overture sues Google for patent infringement (April 02)
  • Responsibility Statements
  • Investment case
  • Stochasto – company description
  • Market and industry trends
  • Transaction Details
  • Appendix
    • Stochasto Anti-virus and protection business
the stochasto antivirus technology

Appendix: Antivirus and protection business

The Stochasto antivirus technology
  • The Stocona Antivirus product detects viruses and Trojans by analyzing the target code
    • It checks calls to potentially dangerous functions in their context of program execution, i.e., the sequences of statements or instructions in which such function calls occur
    • Each such sequence, including loops and recursion, is matched against a knowledge base of malicious behavior
    • Malicious code, for example macros in Microsoft Word documents, are deactivated, leaving benign macros functional
  • Tested by PC Magazine in Russia
    • See
    • The commented missing functionality (file formats, application support) has been added in later versions
  • The product has been developed over the last three years
    • Based our own patent pending technology, which in turn is based on scientific advances in stochastic analysis and artificial intelligence
key characteristics

Appendix: Antivirus and protection business

Identifies viruses by lexical and syntactic analysis of the target code

Requires no virus signature updates or other prior knowledge of particular viruses

Detects viruses and Trojans without executing the target code

Avoids false positives by considering each potentially malicious function call in its context of program execution

By utilizing stochastic indices and a set of basic heuristics, detection is linear in time with respect to the size of the target code and requires little in terms of resources on the host computer

Stochasto’s own tests, those of PC Magazine in Russia, and the feedback from sales in Russia show very positive results with respect to virus detection as well as avoidance of false positives.

Key characteristics
technical characteristics24

Appendix: Antivirus and protection business

Technical characteristics
  • Multiple file formats and points of detection
    • Catches script viruses about to be executed by Internet Explorer, Netscape Communicator, Outlook Express and Microsoft Outlook by monitoring components
    • Scans Microsoft Office documents before opening using the IOfficeAntivirus COM interface
    • Checks files in folders by schedule or user request
  • Present version works on interpreted code
    • Visual Basic, VBScript and JScript
    • Machine code (exe, dll) analysis to be included
      • Part of the development plan
      • Development can be accelerated
  • Standard development tools
    • Written in C++
    • Microsoft Visual Studio development environment 
    • Borland C++ Builder (interface components)
the virus control market

Appendix: Antivirus and protection business

The virus control market
  • Substantial market growth
    • “IDC predicts a compound annual growth rate of 19 per cent over the next five years for the SCM market as a whole, growing from the current level of US$2.7 billion in 2002 to US$6.4 billion in 2007. Furthermore, IDC research indicates spending on the security segments of IT budgets will increase in 2003 and 2004”
    • IDC report: Worldwide Secure Content Management Forecast Update and Competitive Vendor Shares, 2002-2007
  • Main players are doing deals to enhance current offering and gain market share
    • Symantec recently bought an anti-virus patent for USD 62.5 mill.
      • The patent covers in-transit scanning for malicious code based on virus signatures
    • Microsoft recently acquired a Romanian anti-virus software company