VentureBeat

Adchemy, which uses “predictive algorithms” to help companies place online ads more efficiently, said it has raised $19 million in a third round of funding.

Adchemy is a relatively quiet Silicon Valley company that has been studying what makes ads more effective. It has built a library of data that shows how things like ad size, ad keyword structures, genre of web site, and the anchor text of a page all affect how well an advertisement performs. It has found, for example, that ads for universities don’t do very well on career sites, but do better on weather or astrology sites.

Moreover, the company tracks data not only on how many people click through on ads, but how many actually follow through and buy something. Finally, by tracking action over time, the company says it can tell what sort of leads are likely to be more lucrative than others. So the company can charge different prices per lead, depending on whether they are promising or not.

To begin with, the company has focused on two industries, career/education and financial services. CEO Murthy Nukala is keeping the ingredients of his secret sauce to himself, but said his approach is much more helpful to advertisers than that of competitors. For example, Quinstreet, one of the larger players in the online career/education advertising market, uses few of these measurable approaches, he said.

The Redwood City, Calif., company has ambitious plans for 2008, Nukala told VentureBeat, which will likely include the unveiling of new products and a doubling or tripling of its workforce.

Customers like Charter One and The Art Institute of Pittsburgh’s online division hire Adchemy to identify the most effective types of ads and the best locations for them. According to Adchemy, the company’s customers receive an average return of two to five times their investment.

Nukala founded the company 2004, and has now raised a total of $27 million.

Nukala likes to compare his scientific approach to Google’s focus on technology. “We’re the only company in the market that has what we call a high science approach,” Nukala said.

Comparing Adchemy to Google seems pretty grandiose, but Nukala didn’t pull it entirely from thin air: Stanford Prof. Rajeev Motwani, who co-authored the PageRank paper laying the foundation for Google’s search engine, is on Adchemy’s board, Nukala noted.

Leading the recent round of investment is the Mayfield Fund of Menlo Park, with additional investments from Hellman & Friedman and August Capital.

Adchemy has 70 employees, up from 50 in just a month, said Nukala. The company will be announcing more products later this year, but he said it’s too early to offer any details.