It’s been a busy week around here for the big tech companies. At Xconomy, we don’t usually report on things like product releases from Microsoft or sales figures from Amazon—our main focus is on new ideas, models, and companies—but readers need to understand where the big players are heading so they can see the gaps and opportunities for new businesses. So, for each of these pieces of mainstream tech news, I’ll tell you why savvy innovators and business leaders should care.

—Google (NASDAQ: GOOG) demonstrated its Web-based Chrome operating system for the first time in public yesterday. It won’t be available for another year, but the tech community is scrambling to understand all the implications. (Google’s Seattle engineers have contributed technology to the Chrome Web browser, helping to boost security—one potential advantage of a cloud-based operating system).

Sure, a fully cloud-based OS is a direct threat to Microsoft’s business model and the ecosystem of companies that support Windows. But more than that, it could reshape the landscape of online advertising by providing a new platform for launching ads on mobile devices, video channels (YouTube), and Internet TV. Perhaps the only thing that can slow down Google’s dominance on the Web is the federal government. In other words, this could get ugly.

—Microsoft (NASDAQ: MSFT) has teamed up with LinkedIn to provide info about your business contacts within Outlook e-mail. It’s all part of Microsoft’s Outlook Social Connector, an add-in that feeds you data from your social networks. Integrating e-mail with social networks and search is a fast-growing area, with startups like Gist in Seattle (backed by Paul Allen and Foundry Group) helping lead the way. Gist’s CEO T.A. McCann told TechFlash that he’s known about Microsoft’s effort for a while and doesn’t see it as a direct challenge. Gist’s offering is more advanced, he said, and it includes features like integrating with Salesforce.com and the iPhone. But startups and investors beware: if you’re in this crowded space, you better have a product that cuts through the noise and has a way to attract customers fast.

—RealNetworks (NASDAQ: RNWK) is in discussions with Viacom’s MTV Networks to sell off at least some of its stake in the Rhapsody music service, as first reported by PaidContent. In a regulatory filing, prompted by a tender offer to issue new stock, Real said it is in talks to reorganize the management structure and/or corporate governance of the division, which might mean giving up its majority ownership stake (51 percent) in Rhapsody. Back in September, digital-media guru Bill Baxter (now at Seattle-based Cozi) wrote in Xconomy about Rhapsody’s fierce competition with Pandora, iTunes, and piracy. Message to startups: the world of digital music services is probably not where you want to be.

—Amazon (NASDAQ: AMZN) has been busy ramping up operations ahead of the holiday shopping season. Its billion-dollar acquisition of Zappos is helping it expand into shoes and apparel, and its Kindle sales look poised to take off, especially now that Barnes & Noble’s competing e-book reader, the Nook, has sold out until January. Amazon has really become the business and technology model to follow in online retail and product search. While there is still room for e-commerce startups to compete in various niches, they would be wise to study how Amazon built its brand and customer relationships before branching out to the wider world of retail.

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I sat in on a good venture capital panel yesterday at Mobile Northwest 2009 in Seattle. No huge arguments or chair throwing to speak of (we’ll see what we can stir up at the next few Xconomy Forums). But some solid and useful observations from Geoff Entress of Voyager Capital, and also a prominent Seattle-based angel investor; Adrian Smith of Ignition Partners in Bellevue, WA, an expert in telecom and wireless; and Puneet Tandon of Bellevue-based T-Mobile USA, who is looking to sign partnerships with top entrepreneurs in digital media and social networking. (You can also see some comments from mobile VC Tom Huseby’s keynote here.)

The panel was moderated by Tricia Duryee, the Seattle-based correspondent for mocoNews, a website that covers wireless telecommunications. Here are my quick “top three” takeaways from the discussion of the local mobile industry:

1. The panic may be over, but caution rules. Entress says he’s added nine companies to his portfolio this year, out of a total of 32 he’s involved in (and six mobile firms, including TravellingWave, Swype, Dashwire, and Treemo). “We’re definitely not out of the woods yet,” he said. “But 2010 might be a good year for selling companies.”

2. It’s not all about the iPhone. Entress and Smith pointed out that Apple has only 17 percent of the smartphone market, so there’s plenty of opportunity on other platforms, like the BlackBerry and devices that use Windows Mobile. “Apple has a huge amount of mindshare,” Smith said, “but the critical thing is the development environment around [mobile applications].” Tandon agreed, saying, “Barriers to doing business with us [carriers] perhaps have been lowered.” Entress stressed the importance, especially for startups, of trying to avoid “getting locked into any one carrier, handset, or operating system.”

3. Watch advertising, input technologies, and connected devices. Tandon pointed out that by sometime next year, there are projected to be 3.3 billion Web-connected devices, and 70 percent of them will be connected via wireless operators. That means carriers will be willing to pay to know “who are the social influencers in your subscriber base,” he said. Smith and Entress said Google’s $750 million acquisition of AdMob signifies that mobile advertising is here to stay—but that the deal was the “first one out” (like YouTube for video), so don’t look for anything near that sort of valuation again. Entress added that he’s working with a number of startups selling new ways of inputting text on mobile devices (using speech recognition, touch-screen methods, and so forth). For all our fancy gadgets, it seems we still struggle to communicate.

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The second half of 2009 provided a good measure of optimism, easing some of the pain investors felt toward the end of 2008 and in early 2009. The stock market has been volatile but up significantly overall. There are signs of increased lending activity. Mergers and acquisitions have picked up. And there’s a pulse in the IPO market.

Yet despite indications of recovery, we shouldn’t be lulled into thinking we’re over the crisis. The labor, housing, and consumer markets are still struggling. And there’s still plenty of fear and uncertainty as we emerge from the longest downturn since the Great Depression.

Keeping that cautionary note in mind, what do the recent positive strands of hope in the IPO, M&A, and credit markets tell us?

To begin with, a potential increase in IPO listings isn’t necessarily a signal that capital markets have returned to normal. Why? Because the companies coming to market are the best of the best, the ones who have survived the past 24 months of havoc and have continued to build on sound business fundamentals.

And that’s the point—we’re not out of the woods yet; every company that wants to go public isn’t going to succeed. After the initial IPO backlog is worked down, the next wave of public offerings, if any, will continue to present a challenge and will come from specific sectors that investors see as the leaders in potentially expanding markets—for example, health care services and technology, financial services, and software and software services. Other, more traditional companies that can provide a compelling investor advantage and return will also be in the IPO mix.

Job growth in the health services and education sectors and annualized spending growth in the equipment and software sectors—ranging from 10 percent to more than 30 percent from Q3 2008 to Q1 2009, and evidenced by recent quarterly earnings growth by industry leaders—give some hint of recovery as well as an indicator of where the money may flow in the near future. Still, even though many institutional money managers need to invest and are waiting for the right opportunities—including IPOs—don’t expect to see a boom.

In fact, it may end up that growth will be fueled more by the credit markets than …Next Page »

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“People say if you fail in Seattle, you’re screwed,” said Marcelo Calbucci. “If you fail in the Bay Area, you just have a badge of honor.”

We were at the TechStars reunion event in Seattle last week, listening to early-stage investors Brad Feld, Andy Sack, Steve Hall, Greg Gottesman, Shawn Broderick, and Chris Sheehan speak about entrepreneurship and the tech startup scene in their respective cities. Calbucci, the founder of Seattle 2.0 and Sampa (which folded in August), was asking the panelists about how the tolerance of failure, whether real or perceived, affects a region’s culture of innovation.

It’s a deep question, and it continues the discussion of startup cultures in different cities that I highlighted last week. It’s also part of a debate on failure that has been going on since long before I wrote about it in Xconomy last January. There seem to be two camps. Most entrepreneurs I’ve talked to feel there is a stigma associated with having a failed startup in Seattle. Most venture capitalists, not so much. But it’s a much broader issue than just Seattle. My colleague Bruce talked with a Web 2.0 startup founder in San Diego last week who said his first failure, earlier this year, “was truly a painful experience, and I’m still not over it.” And meanwhile, Brad Feld, the co-founder of TechStars and Foundry Group in Boulder, CO, had some provocative things to say about the failure aspect of Boston’s culture.

But first, Andy Sack of Seattle’s Founder’s Co-op gave his perspective on having failed at his last startup, Judy’s Book, after having had three successes prior to that. “As much as you teach entrepreneurship, as much as there’s supply of capital out there, really when push comes to shove, entrepreneurship comes from within,” he said. “I couldn’t take a job at any of the big companies. We’ve been through the tech boom of the ‘90s. We’re just coming off of a major hiccup. I’d say right now, early-stage investors in Seattle have retreated some; venture capital has retreated some, they’re focused primarily on their portfolio. That said, you [Calbucci] failed and went out and started your own thing. I failed and went out and started my own thing. Because we didn’t know any better. The entrepreneurs that don’t know any better, they just go do it again.”

Greg Gottesman of Seattle-based Madrona Venture Group is one of those VCs who says he doesn’t see failure as a black mark. “My sense in this community is, to people who matter most, I don’t think failure is a huge negative,” he said. “There are certain types of failures, like failure of integrity—that’s hard to recover from. But failure of a startup, just speaking with all my partners, that’s not a negative. We talk about that as a learning experience. It’s just another piece of the puzzle.”

So how does Seattle’s tolerance of failure differ from, say, Boston’s or Silicon Valley’s? Feld, who has been investing nationally for 15 years, said, “I actually believe that the shtick of ‘failure as a badge of honor’ is really great shtick. I’ve failed a lot. It’s hard to fail. Failure impacts a person in …Next Page »

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Search is hot again. Just when you thought Google had it all figured out, the Internet landscape has changed. Microsoft’s Bing has debuted to a generally positive reception, and signaled that the search war is far from over. The rise of Twitter and social media has spawned intense competition in the emerging field of “real-time search.” Advances in semantic understanding of the Web have led to new opportunities in Internet search for startups and big companies alike. Indeed, the world of online information discovery is being transformed dramatically—and much of the action is happening here in Seattle.

So I’m pleased to announce that Xconomy’s next Seattle event, on November 30, will tackle some of the most compelling questions in this exciting field. What are the most disruptive new technologies, interfaces, and business models in Web search? How is the proliferation of social media and smart mobile devices influencing companies’ strategies in information discovery? How should entrepreneurs and investors discern the real problems—and the most promising opportunities—in this industry? What lies beyond the current state of the art in search, and how will the field evolve in the next five to 10 years?

For one evening, we are bringing together some of the world’s experts in search and information discovery—and some of the deepest thinkers in computing, software, and entrepreneurship. This group includes Brian Bershad, Google’s Seattle site director; Harry Shum, Microsoft’s corporate vice president of search product development (Bing); Oren Etzioni, professor of computer science at the University of Washington, the founder of Farecast, and a venture partner at Madrona Venture Group; and Steve Hall, managing director of Vulcan Capital, who has put seed capital to work in a number of intriguing search-related startups, including Evri and Gist.

The moderator of the discussion will be Ed Lazowska, the Bill & Melinda Gates Chair in Computer Science & Engineering at the UW. We will also be adding to the program in the coming weeks with short presentations (“bursts”) from startups working in the search and information discovery space.

This star-studded event will take place on the campus of the University of Washington in Seattle. We’re still finalizing the exact room location, but will keep you updated. I’ll be the emcee, and will be passing around the microphone to elicit a bunch of good questions from the audience, for what we intend to be a highly interactive conversation. We’re looking forward to having a great crowd on Nov. 30.

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Woe is me, said the VC. With the exit markets all but closed, fundraising in a logjam, and portfolio companies struggling to stay afloat, it is a tough time to be a venture capitalist. Yet the good ones will survive, and thrive. As will the companies they are building.

That’s the message I got from chatting with a few prominent Seattle investors yesterday, after the release of the third-quarter venture stats from the entity that I’ll call MoneyTree / PricewaterhouseCoopers / National Venture Capital Association / Thomson Reuters. Indeed, there were enough interesting investments made in Northwest companies to give local VCs some encouragement (see top 10 list of deals below). In fact, some $242 million was invested in 30 Northwest companies during the third quarter, according to the report. That’s the most dollars invested in a quarter since the third quarter of last year ($280 million in 44 companies).

“For four quarters we’ve had growth. Things are up off the bottom,” said Andy Dale of Buerk Dale Victor. “We’re still a top-five market.” Dale also maintained, as he pointed out last quarter, that 10 or more of the 15 members of the Evergreen Venture Capital Association are actively making investments.

Thomas Hodge of Frazier Technology and Healthcare Ventures is similarly hopeful. Frazier co-led the region’s biggest financing deal of the year, Seattle-based Calypso Medical’s $50 million round announced last month. “As the economy improves, and we’re seeing it already, VCs will put more money to work. We feel that in our gut,” Hodge said. “First-time financings for us aren’t as busy as a year ago, but they’re consistent with national figures.” He added that in the healthcare space, later financing rounds are getting bigger, because it takes even more money to get to profitability now, and there’s “a longer holding period because of volatility in the markets.”

Scott Jacobson of Madrona Venture Group pointed out that in the IT sector, consumer software could be making a comeback—he points to recent investments in companies like …Next Page »

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Laugh, and the world laughs with you. Weep, and you weep alone (as the old saying goes). Or maybe not. Maybe no one weeps alone anymore, what with Twitter, Facebook, and the like.

This week’s release of a “sentiment analysis” product from Seattle-based Appature made me think about what’s really going on at the intersection of social media and semantic understanding of the Web. Appature is an up-and-coming, already profitable startup that has made its name in helping companies in the healthcare industry better understand their customers, so as to deliver more effective marketing campaigns. It has made inroads with big customers, like Johnson & Johnson and Microsoft Health Solutions Group.

Appature’s latest offering “allows marketers to close the loop between the pulse on the broad Web and their non-Web business in an immediately actionable way,” says Kabir Shahani, Appature’s co-founder and CEO. “It’s the linkage between the broader Web and the other information you already have about a customer or prospect, with immediate action built on top of this, that is the key here.” In other words, it’s not just about market awareness, it’s about directly driving revenues—by monitoring and understanding positive and negative feelings about brands, products, and other industry topics, gleaned from blogs, Twitter, Facebook, other social sites, and Web documents.

It’s a fast-moving trend, and there are now enough Seattle companies working on this kind of technology to put the Northwest squarely on the “Web sentiment” map. (I haven’t talked to companies in Portland, OR, yet, though Jive Software comes to mind.) Here’s how it all works, in a nutshell. If you’re a marketer, you can buy software to help monitor and summarize what customers are saying about your brand on the Web. If you’re a big company, or an individual with a reputation to protect, you can even do things like change the visibility of search results that pop up on your name. And if you’re a regular old consumer, you can keep track of things like what percentage of people (and who) are saying positive or negative things about the iPhone, Microsoft, or Kanye West.

That kind of software is exactly what Seattle-based Evri rolled out in August. Evri’s calling card is that it scours the Web every minute of every day, trying to understand the semantic meaning of sentences on Web pages and documents. What’s more, its software makes connections between all the entities (names, places, products) it encounters on the Web. The broader goal is to give people a better way to browse and discover information.

“One thing we do which is really different is we actually say who or what is expressing the positive or negative sentiment, as opposed to simply remaining ambiguous,” said Deep Dhillon, Evri’s chief technology officer. “One of the reasons we can offer these more involved capabilities is due to the depth of our technology stack—because we know, for every sentence, who the subject, verb, object, etc. are.”

Which raises the question of just how far along the semantic technology …Next Page »

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Now that the media craze around cloud computing seems to have died down just a bit, I thought it would be a good time to take a considered look at what one of the Northwest’s most prominent venture capital firms is working on in this space, which is having increasing influence in every area of software and information technology (IT).

Over the past couple of months, I’ve had a chance to talk with a number of VCs at Bellevue, WA-based Ignition Partners, and they’ve shared a great deal of knowledge and insight into how they think about cloud computing and virtualization. What follows is not a comprehensive look at the firm’s strategy, but rather a few thematic highlights that struck me as important to those interested in cloud-based technologies and business models. To an outside observer at least, what Ignition does in this area will go a long way towards determining its long-term success—and to some extent, it already has.

First, a couple of definitions. Cloud computing, as most see it, is about using remote servers run by vendors like Amazon or Google to store and process data over the Internet, instead of buying and maintaining your own local machines. In fact, Amazon’s chief technology officer, Werner Vogels, has a more industry-focused definition, one that Ignition Partners agrees with: cloud computing is “IT as a service,” delivered in a scalable way to multiple customers via the Web.

Virtualization is a related but different animal; it can be thought of as enabling cloud computing, among other things. Ignition defines virtualization as separating software from hardware—and applications from operating systems—so it lets you run multiple operating systems on a single server, for example, or multiple applications on your desktop, all with minimal setup and security hassles. Big companies like Microsoft, VMware, IBM, and Citrix compete heavily in this space.

But back to Ignition. The firm was founded in early 2000 by ex-Microsoft and McCaw Cellular executives, and now has more than $2 billion under management. It invests in both early-stage and growth-stage companies in the U.S. and China, focusing on consumer tech, communications and wireless, and business software and infrastructure. Ignition has received its fair share of criticism in the press, stemming from incidents like the closure of Sotto Wireless earlier this year, and last fall’s accounting scandal at Entellium—both companies it backed.

Yet Ignition is strong enough in cloud computing and virtualization that, given how central these issues have become to most aspects of IT, it seems like a key differentiator for the company. Especially at a time when most if not all venture firms are going back to basics and thinking about where their most valuable expertise lies. Indeed, Ignition’s biggest win to date was in virtualization: XenSource’s $500 million …Next Page »

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When Xconomy published its first analysis of the financial health of San Diego’s publicly traded biotech companies last November, half of the nation’s 248 unprofitable biotechs were running on fumes, with less than a year’s worth of cash in the bank. A lot of predictable, painful cuts have followed. Yet a majority of San Diego’s companies have still found ways to adjust, and most have maneuvered into stronger financial positions over the past six months.

That’s the surprising finding revealed by crunching publicly available data on cash balances, burn rates, and financial projections for 27 publicly traded life sciences companies that Xconomy watches in San Diego. Fifteen of those companies appeared to be financially stronger at the end of June than they were when they began the year, while 12 were in a weaker position, based on an analysis of the most recent quarterly reports filed with the Securities and Exchange Commission.

Of course, many of these companies improved their financial health did it by taking drastic actions that aren’t good for the life sciences community as a whole, such as cutting drug development programs, shedding employees, and terminating office leases. Just four of the 27 companies I analyzed are operating solidly in the black, and only eight of the 27 had more than $100 million in cash and investments in the bank at the end of June, giving them a sizable cushion to ride out the recession.

What follows is a rundown of the cash balances of all 27 companies, listed in alphabetical order. To purchase a much expanded version of this report, in PDF format, click the “Add to Cart” button below. The expanded version, available for $95,* includes an assessment of each company’s financial position at the end of June compared to six months earlier, the projected length of time it can survive on its existing cash reserves, and an analysis of the strategic moves it has made to stay afloat in the current environment. Click here to see a sample entry. *Price is subject to change without notice.

We intend to keep doing this analysis regularly to monitor the financial health of life sciences companies we follow in San Diego, Seattle, and Boston. All the cash figures listed below are current as of June 30. If you spot anything we should add or correct, let us know at editors@xconomy.com.

Acadia Pharmaceuticals (NASDAQ: ACAD)
Cash on hand: $66.2 million
Previous Xconomy coverage:
“Acadia Pharma Shares Crash After Lead Parkinson’s Drug Fails in Trial”

Amylin Pharmaceuticals (NASDAQ: AMLN)
Cash on hand: $644.4 million
Previous Xconomy coverage:
“Amylin, Dark Horse of the Obesity Drug Battle, Follows Fast Behind Arena, Orexigen”
“In Aftermath of Proxy Fight, Amylin Pharmaceuticals Investor Expresses Concern Over Empty Board Seat”
“Amylin’s Would-Be-Savior, Once-Weekly Diabetes Shot, Shows Two Year Benefit”

Anadys Pharmaceuticals (NASDAQ: ANDS)
Cash on hand: $30.6 million
Previous Xconomy coverage:
“Anadys, Biotech’s Roller Coaster Story, Gears Up For Next Big Step With Hepatitis C Drug”
“Investors Dump Anadys Shares on Report of Itchy Side Effect
“Anadys Shares Boom on Hepatitis C Finding”
…Next Page »

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Seattle’s biotechnology industry is in significantly better financial shape than it was six months ago. The turnaround has been nothing short of amazing, thanks to a frantic run of dealmaking, cost-cutting, and remarkable clinical trial results that have made local companies some of the best-performing stocks this year on the NASDAQ.

Indeed, while our first analysis of the Northwest’s public life sciences companies, published last November, showed that six of 10 companies had less than a year’s worth of cash on hand at that point, only one—Seattle-based Northstar Neuroscience—actually folded.

And when we took a look at the most recent quarterly reports filed with the Securities and Exchange Commission by the 12 companies we’re following right now (11 of them public, one preparing for its IPO), we found that seven of them were actually in a stronger position at the end of June than they were at the start of the year. What’s more, three of the companies that were classified by this analysis as worse off (Seattle-based Trubion Pharmaceuticals and Targeted Genetics and Bothell, WA-based OncoGenex Pharmaceuticals) have recently struck partnerships or completed financings that aren’t yet reflected in the federal filings, but have clearly improved their financial futures.

Read on for a complete rundown of all 12 companies, listed in alphabetical order. To purchase a much expanded version of this report, in PDF format, click the “Add to Cart” button below. The expanded version, available for $95,* includes an assessment of each company’s financial position at the end of June compared to six months earlier, the projected length of time it can survive on its existing cash reserves, and an analysis of the strategic moves it has made to stay afloat in the current environment. Click here to see a sample entry. *Price is subject to change without notice.

We intend to repeat this analysis regularly to monitor the financial health of the life sciences companies we follow in San Diego, Seattle, and Boston. Please send feedback to editors@xconomy.com.

AVI Biopharma (NASDAQ: AVII)
Cash on hand: $20.2 million
Related Xconomy coverage:
“AVI Biopharma Bolts from Portland to Seattle to Tap Biotech Talent”
“AVI Biopharma Out to Reinvent Itself, Making RNA-based Drugs for Ebola and Other Nasty Things”
“Ebola Fighter AVI Biopharma Gears Up for Biodefense Contracts”

Cell Therapeutics (NASDAQ: CTIC)
Cash on hand: $12 million
Related Xconomy coverage:
“Cell Therapeutics Teeters on the Brink as Cash Runs Out on Promising Cancer Drugs”
“Cell Therapeutics Taps Stock Market Again, Seeks $40M or More”
“Cell Therapeutics Files Cancer Drug Application, In Nick of Time”
“Cell Therapeutics Lymphoma Drug Boosts Remissions, Shares Boom”
“Cell Therapeutics Reports Severe Cardiac Events in Drug Trial”
…Next Page »

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Last month sure seemed like a busy one for Seattle-area startup financings, especially for summer. But the hard data paints a much more modest picture. Venture capitalists invested $25 million into four companies headquartered in Washington state last month, according to data provided to Xconomy by ChubbyBrain, a New York-based information services company that develops tools for investors, startups, and entrepreneurs. There was also one debt financing for a Washington company, worth $10 million. Two other firms with Seattle offices, but whose headquarters are elsewhere, raised $16.4 in venture funding.

The deals were spread evenly across software, mobile, gaming, and energy. The biggest one was Bellevue, WA-based Apptio’s $14 million Series B financing from Madrona Venture Group, Greylock Partners, and new investors Shasta Ventures and Andreessen Horowitz Fund. Apptio makes software to help businesses manage their IT costs.

A couple of notes about the companies that did not make the table below. Bellevue, WA-based Smith & Tinker’s most recent venture round, which we and others reported in August, didn’t make the list, as it closed in July. (The company has raised $29 million in funding to date.) Jambool, a virtual currency startup founded in Seattle and now headquartered in San Francisco, raised $5 million led by Madrona. And Profibrix, a Netherlands-based healthcare company focused on stopping surgical bleeding, which has a Seattle subsidiary, raised $11.4 million led by Gilde Healthcare Partners.

Four of the six venture financings in firms with ties to Washington state were Series B rounds, versus one Series A round—Madrona’s $3 million investment in mobile social gaming startup Z2Live—and one unspecified round, Portland, OR-based Pivotal Investments’ $2 million backing of Seattle solar developer Tuusso Energy (an early-stage deal). Madrona was the most active Seattle-area VC firm in August, being involved in three of the Washington deals.

In addition to the venture deals, Seattle-based NewPath Networks, a wireless infrastructure company, raised $10 million in debt financing from Square 1 Bank, to help expand its distributed antenna systems in the U.S.

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Last month, we broke the story of Marketfish, the Seattle-based online marketing startup that has raised an undisclosed sum of money from prominent local investors, including the Alliance of Angels. Today, Marketfish launched a beta version of its new online platform, which helps marketing agencies and businesses find and rent direct mail and e-mail lists of potential customers.

Here’s how the platform works. Marketfish helps media buyers at agencies and marketing departments shop for marketing lists from list owners, using a secure Web interface. The plan is to allow marketers to track the performance of their campaigns as well. Meanwhile, marketing list owners can use Marketfish to put their lists in front of more businesses and marketing agencies, and boost their own profits.

What Marketfish is doing is worth a closer look. For that, I spoke with Clark Kokich, the chairman and former CEO of Seattle-based Razorfish, the online advertising firm bought by Publicis for $530 million last month. Razorfish was formerly part of Microsoft and, before that, aQuantive (which Microsoft acquired for some $6 billion in 2007).

Kokich says he met Marketfish founder Dave Scott about four months ago and signed on as an advisor to the startup soon after. “I have a lot of respect for David. He’s been in the business a long time, and he knows what the challenges are,” Kokich says. “The more time I spent with him, the more I became convinced it was a significant opportunity. So I invested and joined the board.”

I asked Kokich for more details on what makes Marketfish special compared to what’s available now. “The thing that’s appealing to me is this looks a lot like the business we established at aQuantive,” Kokich says. “It’s an opportunity to use sophisticated technology to dramatically improve the ability to source and [rent] direct mail and e-mail lists. It appealed to me because I’ve been a purchaser, and I know it’s not working for customers.”

In the case of aQuantive—or more specifically, Avenue A/Razorfish, which Kokich joined back in 1999—the key innovation was an online ad-serving system that connected advertisers to actual sales on their websites, so they could accurately calculate return on investment and optimize their media campaigns, Kokich says. That kind of tool did not really exist before.

Similarly, Marketfish is about “creating an efficient market where one doesn’t exist,” Kokich says. “Right now, if you want to buy a list, there’s no place to go where you can search, source, and execute a campaign. It’s a lot of time and hassle, a lot of expense. This is making a marketplace for the list.”

We’ll be watching to see how much of a splash Marketfish makes, and whether the marketplace it is creating takes off with marketing agencies and list owners. As for Kokich, I asked whether he’s staying with Razorfish through the integration with Publicis. “I plan to stay on, absolutely,” he says. “Strategically, it’s a great thing for Razorfish. It will accelerate our international expansion, and allow us to provide greater integration between online and offline.”

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Heading into the holiday weekend, I wanted to highlight a few interesting recent blog posts from around town. They cut across the topics of venture capital, IPOs, and small business owners.

—OVP Venture Partners, based in Kirkland, WA, has a new blog as of this summer. In a recent post, managing director Gerry Langeler talks about what goes on in the room after entrepreneurs make a pitch at a partner meeting. One of the most tragic things the VCs can say is, “Right team, wrong idea.” Langeler’s advice: “If you have pulled together that once-in-a-lifetime team, please work hard to make sure the business you are chasing is worthy of the talent.”

—Christian Chabot of Seattle’s Tableau Software wrote a post this week entitled “Yesterday’s Most Successful Companies Wouldn’t IPO Today.” That pretty much says it all, but Chabot backs it up with data from a large sample of technology companies. He argues that today’s minimum standard for taking a tech company public—roughly, profitability and $100 million in annual sales—means (if applied to previous cases, adjusted for inflation) today’s most successful public companies wouldn’t have been able to do an IPO in their first 10 years. Chabot’s says his analysis points to “grim tidings for early stage venture capital.”

—Hillel Cooperman of Seattle’s Jackson Fish Market ran a great Web comic from XKCD poking fun at adult responsibilities (”I don’t know what you just said because I was thinking about Batman”). Cooperman has also been posting videos of talks from the Small and Special conference from earlier this summer—inspirational stories from people running small, financially successful businesses. The most recent video is of Nisha Kelen from Fleurish, a Seattle-based floral design shop.

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On Tuesday, we reported that Pivotal Investments has led a $2 million financing round for Tuusso Energy, a solar power developer based in Seattle. Tuusso is an intriguing startup focused on developing and operating solar plants to supply renewable energy to utility companies; its first plant is slated to be built in the California desert by 2011. But the deal is worth a closer look through the lens of what Pivotal is doing.

Pivotal Investments is a venture capital firm that started investing in cleantech and sustainability companies out of its first fund in January. The firm, based in Portland, OR, is led by managing directors Gregg Semler, Brad Zenger, and John Miner. (Semler and Zenger previously were co-founders, along with Reference Capital, of the Sustainability Investment Fund 2007, which backed Northwest firms EnerG2, SeQuential Biofuels, Plas2Fuel, and RNA Networks.) Pivotal’s investment focus is primarily early-stage startups in the Pacific Northwest, often with first-time entrepreneurs. The firm’s areas of expertise include clean energy, water, air, green materials, and sustainable agriculture.

Semler confirmed via e-mail that Tuusso Energy is the first investment from Pivotal’s new fund. He says his team is excited about the solar company because of its strong team; it’s in a big market; it is capital efficient; it provides strategic insight into multiple facets of the renewable energy market; and it represents a “strong opportunity for investor returns with or without an IPO or acquisition.”

The Pivotal team says it has evaluated more than 250 companies since January. “This deal flow in quantity, breadth, and quality is a proof point that the Northwest is a great place for investing in sustainability,” Semler says. “It also validates the premise behind Pivotal Investments as the only venture fund in the Northwest completely dedicated to these opportunities.”

Earlier this summer, Semler and Zenger told me a little more about their investment themes. And what they said rings true with Tuusso Energy. “We get excited about investments that have systemic disruption in large markets that can be proven in the Northwest, and then scale to other markets like California and Asia,” said Semler, a cleantech entrepreneur himself who has led firms such as ClearEdge Power and PolyFuel over his career as an executive.

Yet if you ask Seattle entrepreneurs and investors alike, they’ll say alternative energy and sustainability are not in most local venture capitalists’ comfort zone. “We talked to most of the VCs in Portland and Seattle, and this is a new space for them—new markets, new technologies, and many times new teams,” Semler said. (A notable exception would be Rick LeFaivre of Kirkland, WA-based OVP Venture Partners, who notes that cleantech VCs should invest in the sweet spot between mom-and-pop companies and $100-million-upfront deals, like wind farms, that call for private equity or other means.)

Which is also why cleantech and sustainability can be such an attractive field—for the right firm. “This is bigger than the original Industrial Revolution,” said Zenger, a co-founder of Portland-based Pixelworks (NASDAQ: PXLW) and an expert in global technology markets. “The scale of these opportunities is just huge.”

Huge investments, however, are not what the Pivotal VCs have in mind. Their typical deal structure will be to contribute around $3 million, investing over multiple rounds—often with other investors—to ensure the company has the resources it needs to achieve its plan. I wondered how much you can really do with $3 million in a capital-intensive space like energy. Quite a bit, they said. “Entrepreneurs need to be creative and find ways to use less capital to make the same progress,” Semler explained, “especially in the current market environment.”

“While we’re a little concerned about the amount of capital pouring into the cleantech sector, we believe it’s a great time to be a cleantech investor in the Northwest,” Semler said. “Valuations are low, innovation is high. If you’re willing to do early-stage work, there is a great opportunity for reward.”

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You can tell a lot about a company from its chief executive. They set the tone, the direction, the pace of operations. For a startup, it all starts with the CEO.

A startup’s culture is what sets it apart from its peers. It is the essence of the operation. It directly affects the company’s strategy, hiring practices, and the personality of its products.

Corporate culture is notoriously hard to define and measure, but critically important to whether a business will succeed. So I recently took a small (and highly unscientific) sample of Northwest startups, spanning the fields of business software, Internet, mobile, gaming, video, and materials—and asked the CEOs to talk about their company’s culture. Furthermore, I asked them to boil their culture and philosophy down to one word.

I’ll spare you any psychoanalysis of their answers, but it’s interesting to see how their descriptions reflect both their own personality and the market they’re in:
.

Apptio (Bellevue, WA)
CEO: Sunny Gupta
Culture: “Paranoid”
Comments: Gupta says the Apptio mantra is “glass half-empty.” But he doesn’t mean it in a negative way. He means the company is relentlessly focused on pushing its advantage, improving its weaknesses, and crushing its competition all around—a necessary mindset in the crowded and cutthroat environment of IT cost management and optimization.

Elemental Technologies (Portland, OR)
CEO: Sam Blackman
Culture: “Execution”
Comments: Blackman says he and his co-founders came from a previous company that started out executing well, but then took its eye off the ball and got distracted by things like …Next Page »

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Here’s an interesting “people” trend to start out the week. I always like hearing about Seattle-area tech companies that spawn huge amounts of entrepreneurial activity. Besides the obvious giants—Microsoft, Amazon, RealNetworks—there are a few notable smaller companies whose employees go on to influence an inordinate number of other firms. These connections don’t get covered in the press much; you have to follow the family tree to uncover some important relationships.

Earlier this year, for example, we pointed out that employees of Bellevue, WA-based Onyx Software have gone on to become CEOs of at least 13 other companies in the past few years. Besides strong talent, these employees shared solid fundamentals around teamwork and business operations, according to Onyx co-founder Brent Frei (now executive chairman of Bellevue-based Smartsheet).

I wonder if there’s something similar at work in another trend that has come to my attention: the influence of former employees of Seattle-based Qpass, the digital commerce company founded in 1997 that survived the dot-com crash and achieved a successful exit. In 2006, Qpass was acquired by Missouri-based Amdocs (NYSE: DOX) for $275 million. The company, which provided mobile services and payment processing software (e.g., for games and ringtones on carriers like Cingular, T-Mobile, and Alltel), among other products, had been backed by some $100 million in venture funding from Oak Investment Partners, SeaPoint Ventures, Venrock Associates, Westbury Partners, RRE Ventures, and others.

Now that Qpass’s integration into Amdocs is complete, a number of Qpass leaders have moved on to intriguing new projects. Some are prominent VCs—take Tom Huseby and Bill Bryant, who back companies like Ontela, Zumobi, and Mpire. But other execs are leading companies you don’t read about quite as much, like Datacastle, DropStation, Zipwhip, and stealth startups Doxo and Ground Truth.

I asked Sterling Wilson, a former Qpass president and eight-year veteran of the firm (now CEO of Ground Truth), what traits or skills these former Qpass employees share. Wilson didn’t give too many specifics, but he said the success of Qpass resulted from the following four factors:

—”Recruiting great employees and giving them the leeway to do their jobs.”

—”The market we served and the support of our customers.”

—”The ability of the leadership team to make tough decisions and to never give up, even in the face of tough odds.”

—”The support the company received from its venture investors.”

Without further ado, here is my initial list of the “Qpass mafia” (17 people total, including 6 CEOs), giving their former positions at Qpass and their current companies. It’s an impressive snapshot of a growing sphere of influence; let me know if I forgot anyone.

Jeff Arrowsmith (senior director of finance, Qpass)
COO of Tax Credit Group of Marcus and Millichap

Scott Blanksteen (head of business and corporate development, Qpass)
VP of product strategy at IceBreaker

Bill Bryant (co-founder of Qpass)
Venture partner at Draper Fisher Jurvetson …Next Page »

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One of the biggest tech deals of the year came over this past weekend—the $530 million acquisition of Seattle-based Razorfish by French marketing firm Publicis Groupe. Most people I’ve talked to seem to think the deal makes good sense for all parties. (Razorfish became an online advertising subsidiary of Microsoft in 2007 when Microsoft bought aQuantive for $6 billion-plus.)

For some deeper perspective on recent events, I asked Warren Gouk, managing director at Cascadia Capital in Seattle, about the implications of the deal for Razorfish, Microsoft, and the future of online advertising. Gouk specializes in mergers and Internet strategy, particularly in the realm of online marketing.

Gouk draws parallels between the Razorfish sale and Google’s sale of Performics, also to Publicis, last August. Google inherited Performics, another online ad agency, as part of its $3.1 billion acquisition of DoubleClick in 2007. “Both companies (Microsoft and Google) wanted to maintain their Switzerland/neutral status in selling search, display and other online marketing services to the agencies and therefore decided to divest their agency businesses,” Gouk writes in an e-mail. “Similar in both divestitures, commercial deals required the buyer (Publicis) to buy online marketing services from the sellers.”

Microsoft was “very motivated to find a buyer that would make a meaningful and long-term commitment to buy [Microsoft's] online marketing services, in particular their search services,” Gouk adds. “Publicis is rumored to have agreed to a 5-year deal to purchase a minimum amount of display and search services from Microsoft worth several hundreds of millions of dollars each year.”

As for the future of Razorfish, Gouk says, “I believe Razorfish is much better situated for success under the ownership of Publicis. Publicis is very strong in international markets and can help Razorfish expand internationally. The internal conflict Microsoft faced with trying to sell online search services to competitors of Razorfish should be cleared up; as well, there may be more of an opportunity for Razorfish to go outside Microsoft for other alternative online marketing services.” He adds, “In the near-term it will be interesting to see how Publicis integrates Razorfish into VivaKi [its digital media division], deals with competitive client situations (Ford vs. GM), and handles the taxing effects of the 5-year commitment to the Microsoft search and display advertising agreement.”

More broadly, Gouk sees the deal as a “healthy valuation in the present market.” He says it paves the way for a “closer working relationship between specialized online marketing software/service vendors (e.g. Media Math, Covario, AdXpose/Mpire) and the big holding company agencies like WPP, Omnicom, IPG, Havas, etc.”

Gouk also thinks the deal is a “great outcome” for Microsoft if it helps drive the Redmond company’s search and display advertising business. “Microsoft was never really well situated to chase agency business from Fortune 1000 accounts—their historical strength comes from the [small to medium-size business] market, which was not a core focus for Razorfish. The big holding company agencies are likely to be the future gatekeepers of online marketing and advertising—much the same way Accenture and others help drive decisions in the world of [enterprise resource planning]. It’s a strong move for Microsoft to begin to shore [up] ’special’ relationships with as many agencies as they can.”

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Yesterday was a busy day for Razorfish chief strategy officer Jeff Lanctot. With the official announcement that French advertising firm Publicis will acquire Microsoft-owned Razorfish, Lanctot had quite a lot on his plate. Despite his having to fly out from Seattle to another office, I managed to get a few answers from him about the deal and what it may actually mean for Razorfish.

Publicis is buying the digital marketing company from Microsoft for $530 million in cash and stock. “We view this deal [as] accelerating our mission of expanding our global reach and client offerings,” Lanctot said in an e-mail. But he added that even with the change in ownership, Razorfish won’t change unduly, existing as part of Publicis but operating autonomously. “Razorfish will operate as an independent entity under VivaKi, the operating unit of Publicis Groupe,” he said. This means there won’t be any big changes in management either, he added, with Bob Lord staying on as CEO with the rest of the Razorfish managers—at least in the coming weeks and months.

Publicis stands to gain a lot from the deal, with Razorfish already being one of the largest companies of its kind in the world. Acquiring Razorfish “will make Publicis Groupe a leading player in digital communications, including Search and Display,” Lanctot wrote.

Razorfish users don’t need to panic yet, even if they are concerned about how things may change, since the final transaction isn’t expected to conclude until the end of the year. “Until the deal closes, it’s business as usual,” Lanctot said.

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If you really want to keep your finger on the pulse of the Seattle business scene, go get your shoes shined. That’s the advice Todd Dean gave me recently. Dean is president of Keiretsu Forum Seattle/Northwest, the local chapter of the world’s largest angel investor community. He took me to see a couple of the top shoeshiners in town. Even though I don’t really own shoes worthy of a shine, I hope to become a regular customer and soak up their wisdom. You might call them shoeshiners. I call them oracles.

Morgan Perkins runs the family shoeshine business at Nordstrom downtown. Their clientele includes lawyers, judges, investors, business people, and, that morning, the superintendent of Seattle public schools. Perkins has been a fixture at Nordstrom since 1974. Perkins, who is African-American, came up as a railroad porter from Salt Lake City in an era of Jim Crow laws, and he has seen it all. For the past 35 years, while he and his family have shined customers’ shoes, they’ve told him things—about business, jobs, the economy, whatever’s on their mind. (See this profile in the P-I for more on the Perkins family.)

“People want five minutes of peace, they want to relax,” said Morgan’s wife, Patricia, as she meticulously gave new life to my dress shoes.

I asked how their shoeshine business has been doing during the recession. Sunny, the Perkins’ daughter, was working next to us. She said business has actually improved. Instead of buying new shoes, people are keeping their old shoes longer, she said, and they need to be polished. Especially for all those job-seekers out there. (The familiar refrain of doing more with less, among techies and non-techies alike.) Her customer, sitting next to me, was a former Washington Mutual employee who just got a job running security for the Sound Transit light rail system in Seattle.

Mr. Perkins had some sage advice for entrepreneurs and startups. “What I’ve learned in my life is, people do things for people they like,” he said. “It doesn’t matter whether you’re selling cars, shining shoes, or you’re the head of this company. If your initial meeting with that person is not positive—it only takes the speed of light for me to figure out if I’m going to like you. And that’s the whole idea right there.”

As Perkins explains, it’s all about building a sincere relationship with customers. “When a person comes into contact with you, it is your duty to create a situation where that person’s going to like you. And that’s not really hard. We want to like other people,” he said. “When I stand here at the door, it’s a smile, ‘Hello sir, how are you doing today?’ And I got you. I’ve seen it happen so many times, a person comes with her husband, I’ll catch the eye of the wife, and he’s looking down. Wife will look down at his shoes, they look at each other, and here he comes. See what I’m saying?”

“You develop a relationship that way,” Perkins continued. “You have to always recognize another’s presence on the face of the earth, no matter what your station in life is. That’s what I’ve always …Next Page »

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So that’s what all those late-night phone calls were about. In the weeks leading up to the Microsoft-Yahoo search deal announced last Wednesday, executives from both companies would gather (virtually) at 9:30 pm PT every night, including weekends, for a conference call to discuss the latest developments. Dinners, baseball games, and camping trips were interrupted. The Microsoft search team, at least, has apparently been working seven days a week for many months now.

And for what? Besides working on improvements to their Bing search engine, they were hammering out many more parameters of the 10-year search and advertising deal with Yahoo, some further details of which have now emerged in a filing (Form 8-K) with the Securities and Exchange Commission.

For starters, Microsoft has agreed to pay Yahoo $50 million a year for three years, to cover “transition and implementation costs.” Microsoft also guarantees a minimum amount of gross revenue per search for 18 months. (Yahoo keeps 88 percent of search ad revenues and control of ad sales for five years, in exchange for replacing its search technology with Bing.) In terms of personnel, Microsoft will hire 400 Yahoo employees, plus another 150 to assist with the transition, according to the filing.

The deal includes its fair share of escape clauses. Yahoo can opt out if Microsoft and Yahoo’s combined market share of search falls below an undisclosed percentage—currently they combine for about 28 percent of search queries in the U.S., as compared with Google’s 65 percent. Yahoo can also back out if the deal isn’t approved within one year (by July 29, 2010). Lastly, Microsoft can end Yahoo’s exclusive selling of search ads for Bing results after five years. If that happens, Yahoo would get 93 percent of the ad revenue from its sites; but if Yahoo wants to keep exclusive control over ad sales for Bing, it would get 83 percent of the revenues.

Will the deal work? That’s a search query you won’t find an answer for just yet—unless, perhaps, you and all your friends switch to Bing.

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