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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Life Technologies (NASDAQ: LIFE), the Carlsbad, CA-based provider of biotech instruments and lab supplies, says it has agreed to acquire Woburn, MA-based BioTrove, which has developed a high throughput gene expression and genotyping analysis system. BioTrove, which withdrew plans to raise $75 million in an IPO last year, says the flexible array format of its OpenArray technology enables researchers to perform more than 3,000 PCR or qPCR gene expression assays at a time. Financial terms were not disclosed.

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It was a busy week for local technology news.

—Two teams from San Diego and a third from Northern California demonstrated their development of advanced chemical sensor prototypes that are tiny enough to be found inside ordinary cell phones. The U.S. Department of Homeland Security is funding the Cell-All program, with a goal of basically creating an anti-terrorism app for cell phones that would enable authorities to crowd-source chemical detection.

—MaxLinear has filed for its initial public stock offering. The Carlsbad, CA-based fabless chipmaker, which specializes in designing semiconductor-based television receivers, intends to raise about $100 million through its IPO. The market may be de-frosting a bit, with 47 IPOs so far in 2009, compared with 45 last year, and 272 in 2007.

—ProQuo, a San Diego-based Web 2.0 company that was founded in 2007, was quietly shut down after taking in a total of $15 million in venture capital from Menlo Park, CA-based Draper Fisher Jurvetson and San Diego-based Mission Ventures. ProQuo was never able to validate its business model; its website offered consumers a way to remove their names from mass-mailing lists for free, and the company planned to sell its optimized lists back to mass marketing companies.

—San Diego’s wireless industry group, CommNexus, celebrated the opening of EvoNexus, its free high-tech incubator, by announcing the selection of three more startup companies: EcoATM, MicroPower Technologies, and TetraVue. CommNexus CEO Rory Moore says EvoNexus is believed to be the first incubator that is completely free for startups—that is, it doesn’t even require an equity stake in participating companies, as most incubuators do.

—Jitterbug, the San Diego wireless provider that puts an emphasis on simplicity, has acquired MobiWatch, a Waltham, MA-based startup developing mobile personal emergency response services. A regulatory filing shows that Jitterbug’s parent, GreatCall, provided 630,000 shares of common stock to MobiWatch and its shareholders in a deal valued at $107,100.

—San Diego-based Networkfleet is using its technology to help companies that operate fleets of vehicles go green by monitoring engine emissions and ensuring that vehicles are operating efficiently. Co-founder Diego Borrego told me the company also expects to be a player as consolidations sweep through the fleet tracking industry.

—EcoDog, a Vista, CA, cleantech startup that has developed a device that helps homeowners sniff out savings in their electric utility bill, was named best of show at GadgetFest, the annual fall competition sponsored by CommNexus, the San Diego wireless industry group. EcoDog founding CEO Ron Pitt won over the crowd when he declared, “My product is the only product up here tonight that saves you more money than it costs.”

—San Diego-based cleantech startup EESG is looking to raise $1.2 million to expand the 10-employee company’s sales staff, purchase inventory, and ramp up public relations and marketing. The company’s founders told me they have raised about half so far, including $300,000 from Longboard Capital Advisors, a green investment firm based in Santa Monica, CA.

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Woburn, MA-based remote control software company LogMeIn (NASDAQ: LOGM), which went public in July, said today that early investors plan to sell 2.9 million of their shares in a secondary public offering. At this afternoon’s share price of around $19.35, that would bring the stockholders some $56.1 million. Venture backers Prism VentureWorks and Polaris Venture Partners are among LogMeIn’s largest shareholders. LogMeIn said it will also sell 100,000 company-owned shares in the offering.

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In early 2002, a little startup named A123Systems was looking for a place to, well, start up. Even though the company had been formed to commercialize technology invented at MIT, the lithium-ion battery developer found just the space it needed across the river at Boston University, inside what’s now called the Photonics Center Incubator. The incubator occupied one floor of the 10-story BU Photonics Center, and held enough room to house up to 14 startups, which shared access to labs and equipment. A123Systems moved in with a handful of workers that March, according to a Harvard Business School case study on the company’s early history.

As best as I can determine, the company didn’t pay much (or any) rent in those early days. But now, nearly eight years later, the landlord is sure poised to collect. It looks like, according to several sources, that rather than collecting rent or fees from the young company, BU took equity. While school officials are not speaking publicly about the amount of stock the university now holds, sources at BU tell me that in the wake of A123Systems’s spectacular IPO on September 25—share prices climbed 50 percent the first day—the value of the university’s stake reached $10 million early this week or late last week.

Just guessing from the share price history, that would mean the school has approximately 500,000 shares. That’s less than one percent of A123’s stock, so it wouldn’t be enough to dictate that Boston University be listed by name in the SEC filings as a top shareholder. But it’s pretty good for any landlord. What’s more, given the rise in A123’s stock this week—which is at just over $26 per share as of this writing—the BU stock could be worth closer to $13 million today.

Ashley Stevens, executive director for technology transfer at BU, would not speak in detail about A123, but he did not deny that the university holds stock in the company. He did say, however, that the school previously took stock in at least some companies it housed, but has since stopped that practice. “We’ve moved away from that model of letting incubatee companies pay their initial fees in stock,” he says. “It was a controversial decision at the time.”

It also seems that BU isn’t the only university poised to reap the benefits of …Next Page »

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[Corrected 9:05 a.m. 9/25/09, see below] In a performance reminiscent of the frothy days of the dot-com boom, stock in Watertown, MA-based lithium ion battery maker A123Systems (NASDAQ: AONE) soared more than 50 percent in its first day of trading yesterday. It’s been years since a New England technology firm burst out of the IPO gate so strongly, and Wall Street’s interest in the company—which hopes to supply batteries for many of the electric vehicles likely to come to market over the next several years—has significantly boosted the portfolios of the major venture investors, strategic investors, and executives who hold shares in the company, at least on paper.

The individual investor whose shares gained the most value yesterday is legendary Boston-area entrepreneur and philanthropist Gururaj “Desh” Deshpande, the founder of Sycamore Networks and the donor behind the Deshpande Center for Technological Innovation at MIT. Desphande owns 7.3 percent of A123Systems; at the IPO price of $13.50 per share yesterday, that stake was worth just over $95 million. By the end of the day, when the company’s stock price had climbed to $20.29, Deshpande’s shares were worth nearly $143 million. (See Table 1 below.)

A123Systems’ main venture backer, North Bridge Venture Partners of Waltham, MA, also fared well yesterday. With 9.3 percent of A123’s outstanding shares, the venture firm is the battery maker’s single largest shareholder. Its stake was worth just under $121 million at the offering price and had grown in value by $60 million by the end of the day. [Update: PE Hub has an interesting table today, using investment data from Thomson Reuters, estimating the share values for A123's six largest venture backers. The VC firms' (as yet unrealized) multiples, based on yesterday's closing price, vary from 3.03 to 7.23, according to Thomson's estimates; North Bridge's multiple comes in at 4.35.]

Overall, the company’s eight largest shareholders saw the value of their holdings increase by almost $270 million on Thursday [Updated and corrected: not $365 million as a previous version of this story reported due to a double-counting error in the math]. The company’s total market capitalization increased by $600 million over the course of the day, ending at $1.96 billion. Not bad for a company that has raised only about $352 million in private, dilutive investments. (A123Systems also benefited from $100 million in refundable tax credits from the state of Michigan, a $249 million Department of Energy grant this August, and about $250 million in other government grants and loans, leading PE Hub’s Deborah Gage to comment that “the biggest backers of A123Systems are taxpayers.”)

Here’s a list of A123Systems’ biggest shareholders, drawn from regulatory filings, and the amounts by which their stakes grew in value yesterday.

Table 1. A123Systems’ Eight Largest Shareholders and Their Stakes

* The “Shares Owned” figures refer to shares owned after the offering.

Source: A123 Systems Form S-1, page 124.

Of course, the gains reflected in the table above are on paper only—none of A123’s largest shareholders actually sold shares in the initial offering. But as part of the offering, several A123Systems principals did sell portions of their stakes in the company. Co-founder Yet-Ming Chiang, who developed the company’s battery technology in his laboratory at MIT, sold the most shares—a stake amounting to about $2.8 million at the IPO price of $13.50 per share. Here’s the list of selling shareholders identified in regulatory documents:

Table 2. Selling Shareholders in Yesterday’s IPO

Source: A123Systems Form S-1, page 125.

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Seattle-based Voyager Capital is announcing today it has added a new venture partner—Bruce Chizen, the former chief executive of Adobe Systems (2000-2007). Chizen started in his new role this month, and he’s based in Silicon Valley, but he’s already making an impact on Northwest companies in Voyager’s portfolio.

First things first, I had to ask Chizen an obvious question: what does he think of Adobe’s $1.8 billion bid to acquire Omniture, the Web analytics firm, which was announced this week?

“It’s strategic and bold,” Chizen replied. “Now it’s all about execution. If [Adobe] can incorporate metadata into the flow, it’ll give them a competitive advantage.” He added, speaking from experience (he led Adobe’s $3.4 billion purchase of Macromedia in 2005), “Acquisitions are funny in that they’re hard to do. If an acquisition is successful, no one talks about how much they paid.”

OK, more about the actual VC news here. The addition of Chizen as a venture partner clearly strengthens Voyager Capital’s expertise and connections in the digital media industry. It’s the latest strategic hire at the venture firm, which in the past year and a half has recruited a new talent stable that includes Daniel Ahn in Silicon Valley, Diane Fraiman in Portland, and Geoff Entress in Seattle. “Voyager is increasingly a West Coast firm, with its roots in Seattle,” says Voyager co-founder and managing director Bill McAleer.

But that doesn’t mean we should expect to see more investments in California at the expense of the Northwest, McAleer says. “We’re going to stay consistent with what we’re doing,” he says. (About two-thirds of Voyager’s investments are in the Northwest, and one-third are in California.) “We’re helping our companies up here with partnering strategies and talent in the Valley. Part of what we look at is how to interconnect companies,” McAleer says.

Chizen stepped down as the CEO of Adobe (NASDAQ: ADBE) in December 2007, and stayed affiliated with the company through April 2008. He has been an adviser to Voyager since July of last year. He also serves on several boards, including Oracle (NASDAQ: ORCL), Synopsys, and Portland, OR-based Elemental Technologies, and is senior adviser to the private equity firm Permira Advisers. “What was missing for me was in the area of really working with and looking at young, cool startups with great technological differentiators. Fundamentally, what excited me about Adobe was its technology and reaching new, different, and exciting markets,” Chizen says.

He calls Voyager Capital a perfect fit—culturally, technically, and intellectually. “They really care about their companies,” Chizen says. “I think I can help them a lot. There’s a lot of deal flow in the Valley …Next Page »

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New England’s tech and life sciences companies have cut far too many deals to mention over the last week and a half, so we’re kicking it top-ten style for this installment of roundup.

#10
GreenBytes of Ashaway, RI, completed an $8 million Series A financing from Waltham, MA-based Battery Ventures. The startup also unveiled a new line of energy-efficient data storage devices.

#9
Boston-based Highland Capital Partners led a $9 million first round for Chicago-based InXpo, a provider of virtual meetings and other events and business environments for the likes of AAA, Cisco, Procter & Gamble, Forbes Media, and Ziff Davis.

#8
The assets of Mansfield, MA-based Innovative Spinal Technologies were sold in a bankruptcy auction for $9.25 million in cash. New Jersey-based Integra Life Sciences Holdings (NASDAQ: IART) was the auction’s winner, taking home IST’s product lines and development assets, which span neurosurgery, orthopedic surgery, and general surgery.

#7
Cambridge, MA-based Pervasis Therapeutics raised $10 million of a proposed $17.4 million round of private equity financing from undisclosed investors. The startup, whose board members include MIT’s Bob Langer, is developing drugs to heal blood vessels.

#6
PlumChoice scored $14.7 million in Series E funding from existing investor Edison Venture Fund and others. The Billerica, MA-based firm provides remote technical support for both home and business users.

#5
Tervela, a network messaging hardware maker with operations in Acton, MA, and New York, NY, got an $18 million message from Goldman Sachs, Sigma Partners, Acartha Group, and North Hill Ventures.

#4
Westford, MA-based Verivue, a producer of multimedia distribution switches for cable and telecom operators, raised $20.1 million in an equity offering. The deal was reportedly led by new investor Sigma Partners.

#3
This one’s a tie. Cambridge, MA-based Seaside Therapeutics, a stealthy biotech startup out to turn MIT research into treatments for Fragile X syndrome and autism, raised $30 million from an anonymous family investment firm. And Portsmouth, NH-based software maker BeyondTrust, a maker of tools for controlling IT access privileges, was acquired by Symark International in a deal reportedly worth about $30 million.

#2
Bedford, MA-based software startup 170 Systems was acquired for $32.9 million in cash and notes by Irvine, CA-based Kofax (LSE: KFX). The startup’s technology helps businesses digitize paper-based work flows.

#1
Advanced battery maker A123Systems of Watertown, MA, set a price range for its planned initial public offering. At the proposed $8.00 to $9.50 per share price, the 25 million shares A123 hopes to sell would bring the company between $200 million and $237.5 million in new working capital.

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A123Systems, the Watertown, MA-based advanced battery manufacturer that hopes to provide lithium ion batteries for the next generation of electric and hybrid vehicles, today revealed the expected stock price for its initial public offering. The company will seek to sell 25 million shares of its common stock at $8.00 to $9.50 per share, according to regulatory forms filed today. That would bring the company between $200 million and $237.5 million in new working capital.

Individual shareholders, including senior managers at A123, will sell an additional 680,500 shares, potentially netting them $5.4 million and $6.5 million. A date for the IPO has not been announced. Morgan Stanley and Goldman, Sachs are the lead underwriters, and A123 will trade on the NASDAQ exchange under the ticker symbol “AONE.”

There is likely some numerological significance to the timing of the announcement of A123’s IPO terms. As Bob reported last year, A123 deliberately chose to submit its original IPO filing at 8:08 a.m. on August 8, 2008 (8:08 on 08/08/08). A123’s co-founder, MIT material scientist Yet-Ming Chiang, was born in Taiwan, and in Chinese culture the number 8 is considered to be especially lucky, associated with sudden fortune and prosperity.

Today is 09/09/09, and in Chinese numerology, the number 9 is traditionally associated with power, since it is the highest number before 10. In Mandarin (though not Cantonese) the word for 9 is also a homonym for “long-lasting.” Traditionally, the robes of the emperor of China showed nine dragons, and in Chinese mythology, dragons have nine children.

As Chiang wrote in an e-mail after the initial IPO filing: “It was not a coincidence that the ’send’ button was pushed at 8:08am on 8/8/08, although I wasn’t the one who did it!” Today’s filing is probably no coincidence either.

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Finally, an IPO! That, and the rest of the week’s deals news from New England’s tech and life sciences industries below.

—Lexington, MA-based Highland Capital Partners reportedly pushed the close of its eighth venture fund back from late June until mid-July to give limited partners more time to contribute. PE Hub’s Dan Primack wrote that the firm is still about $100 million short of its $400 million target for the fund.

—Diagnostic test developer IntelligentMDx raised $3 million from a group of unnamed, non-venture investors. The Cambridge, MA-based startup had previously raised about $23.5 million.

—CloudSwitch, a Burlington, MA-based startup out to help make it easier for companies to avail themselves of cloud computing technology, closed an $8 million Series B funding round. Commonwealth Capital Ventures led the deal, which was joined by Matrix Partners and Atlas Venture.

—Software firm LogMeIn pulled off a $107 million IPO, the year’s first for a venture-backed New England firm. Shares of the Woburn, MA-based company (NASDAQ: LOGM), which makes software for remotely accessing computers, were priced at $16 apiece—the high end of the projected price range—and quickly climbed into the $20 range.

—Cambridge, MA-based CombinatoRx (NASDAQ:CRXX) announced plans to merge with a privately held firm in Vancouver called Neuromed Pharmaceuticals. The deal’s unusual structure initially gives each firm’s shareholders 50 percent of the combined company, with the ratio to shift in favor of Neuromed’s shareholders if the company’s anti-pain drug candidate Exalgo is approved by the FDA before October 1, 2010, or in favor of CombinatoRx shareholders if the drug is approved after that date or not at all.

—Weston, MA-based ActiFio, a stealthy IT firm, raised $4 million of a planned $8 million equity financing round. Investors in the deal were not identified, but James Goldstein of North Bridge Venture Partners is named in a federal filing as a member of the startup’s board.

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Maybe somebody at LogMeIn (NASDAQ: LOGM) has a remote control for the NASDAQ exchange? Shares of the Woburn, MA-based remote access software company are flying high today, selling for more than 25 percent above the $16 per share price set last night for the company’s initial public offering. As of 1:25 p.m. ET, shares were trading at $20.50, up about 28 percent for the day.

LogMeIn raised $106.7 million in its IPO, about $80 million of it going directly to the company and the rest to individual shareholders selling their stakes. It’s the 11th company to go public in the United States this year, the fourth venture-backed company to attempt an IPO, and the first venture-backed company from New England to do so.

At the $20.50 price, LogMeIn venture backer Prism VentureWorks’ shares in the company are worth $79.2 million, about $17 million more than they were last night. Polaris Venture Partners, which sold $7.4 million worth of shares at the $16 price, retains shares worth $61 million, about $13 million more than last night.

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In the year’s first initial public offering by a venture-backed company from New England, Woburn, MA-based remote access software maker LogMeIn has raised $80 million, according to a report late Tuesday night in the Wall Street Journal. Through lead underwriters Barclays and JP Morgan Chase, the company sold 5 million shares at $16 per share—the high end of the price range it had hoped the offering would bring.

Altogether, 6.67 million shares were sold in the offering, raising $107.2 million, according to the Journal. (PE Hub’s sources put the amount slightly below that, at $106.7 million.) Of that, $27.2 million will go to individual shareholders who sold parts of their stakes, including LogMeIn CEO Michael Simon and chief technology officer Martin Anka. LogMeIn’s stock will begin trading today on the NASDAQ exchange under the ticker symbol LOGM.

It’s only the fourth time in 2009 a U.S. venture-backed company has gone public, after a four-month period at the beginning of the year with no venture-backed IPOs at all.

Whether or not the sale heralds the gradual restoration of the IPO as one of the traditional exit paths for venture investors, it’s bringing respectable returns to LogMeIn’s investors. Altogether, venture backers put $20 million into the company, in return for shares now worth a collective $155 million, according to the Journal.

Prism Venture Works, the company’s single largest shareholder, comes out of the IPO with an 18.2 percent share of the company that’s worth $62.3 million at the $16-per-share price. Polaris Venture Partners sold shares worth $7.4 million in the offering and is holding onto a 13.9 percent stake worth $47.6 million. Intel Capital’s 4.2 percent stake is now worth $14.2 million, and Integral Capital Partners sold shares worth $5 million and retained a 5.4 percent stake worth $18.4 million.

Medidata of New York, OpenTable of San Francisco, and SolarWinds of Austin, TX, are the other three venture-backed companies that risked IPOs this year.

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[Update, 7/1/09: The IPO went forward last night as planned---see our full coverage.] The underwriters of LogMeIn’s planned initial public offering are expected to price the stock this evening and begin trading it on the NASDAQ exchange tomorrow, the Wall Street Journal and several other outlets are reporting today. As we wrote on June 16, the Woburn, MA-based maker of remote control software for PCs and servers hopes to raise up to $80 million in a sale of 5 million shares—and to join a very small handful of venture-backed companies to brave the public markets in the midst of a severe IPO drought. Company officers plan to sell an additional 1,666,6667 shares.

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LogMeIn, the Woburn, MA-based startup that makes software for controlling PCs and other devices remotely, today filed updated registration documents with the Securities and Exchange Commission revealing how much stock it hopes to sell in its planned initial public offering, and at what price.

The company plans to offer 5 million shares of common stock for sale, while individual stockholders, including CEO Michael Simon and chief technology officer Martin Anka, plan to sell an additional 1,666,6667 shares. The company hopes to price the shares at $14 to $16 per share. At that level, an IPO would bring in $70 million to $80 million for LogMeIn and between $23.3 million and $26.6 million for the individual shareholders.

LogMeIn plans to go public on the NASDAQ exchange, where it would have the ticker symbol LOGM. The underwriters for the offering are J.P. Morgan, Barclays Capital, Thomas Weisel Partners, Piper Jaffray, and RBC Capital Markets. A date for the offering has not been set.

Remote device management is seen as a growing sector of the software business at a time when more and more people are doing their computing using mobile devices. LogMeIn says that over 70 million devices around the world are controlled using its subscription-based software, which can be used in situations from remote backup, server management, and file transfers to help-desk diagnostics and support. In December the company released a $30 application for the Apple iPhone and iPod Touch that lets users control their home or work computers directly from the mobile device’s screens

Founded in 2003, LogMeIn has raised $30 million in venture funding from Intel Capital, Integral Capital Partners, Prism VentureWorks, Polaris Venture Partners, and 3TS Capital Partners. Prism is its largest single shareholder.

LogMeIn got the ball rolling on registration for its IPO way back in January 2008, but waited out the worst of the economic crisis before proceeding. It would be only the second venture-backed company to move forward with an IPO this year, after San Francisco-based OpenTable. Only six U.S. venture-backed companies had IPOs in 2008.

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Noble Environmental Power, an Essex, CT-based wind energy company, has withdrawn its planned for an IPO. The offering, initially filed in May 2008, was to include some 23.4 million shares worth up to $375 million. In its filing today, Noble said withdrawing the offering “is consistent with the public interest and protection of investors.” The company operates six wind farms in New York state, one in Texas, and has 8 more under development in New York, Minnesota, New Hampshire, and Vermont.

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Veteran software entrepreneur and investment banker Michael Orbach is joining Seattle-based Cascadia Capital today. As a new managing director in the investment bank, Orbach will focus on mergers and acquisitions, as well as capital raises, in software and services—all in the mid-market range of $20 million to $500 million deals. The new hiring looks to be a strategic move to strengthen Cascadia’s national and global presence in information technology.

Orbach comes most recently from Palo Alto, CA-based Pagemill Partners. But he is a Seattle-area resident and says he has been commuting to Silicon Valley for 12 years. In the early 1980s, he co-founded Simulation Sciences in the U.K. (he’s a native of Manchester), and took the company public in the early 1990s. After Simulation Sciences was bought by Invensys, Orbach joined Aspen Technology and handled mergers and acquisitions, moving to the Seattle area with that company’s purchase of Industrial Systems, Inc. in Bothell, WA, in 1995.

“We liked the place,” Orbach says. “My family was suffering major culture shock between Manchester and California.” Orbach also got his MBA at the University of Washington.

The professional rationale for Orbach’s latest move is equal parts opportunity and timing. “There’s a very large opportunity to build a software and services practice here at Cascadia,” Orbach says. Cascadia Capital has a strong national brand in capital raising, and it can use that strength to grow its mergers and acquisitions business. That sort of leverage between M&A and capital raising expertise, he says, “is very appropriate in the market today.”

And why is that? “You tend to build out new business models and get the best growth strategy when you’re coming out of a recession,” Orbach says. And because of the dearth of IPOs, startups looking for an exit have little choice but to get acquired, he says. That, of course, gives buyers the upper hand in negotiations. “The economics of buying companies has never been better. For the Oracles, SAPs, and Microsofts, less and less will they make internally, and more and more will they buy,” he says. What’s more, how they’re buying has changed radically in recent years. “M&A has become a national/global practice,” Orbach says. “The days of looking at specific geographies or specific verticals are gone, because the technologies cross those.”

What all this means is that the precise skills of bankers making deals in the technology space are more important than ever. “The days of watching lawyers doctor the deal are long gone,” Orbach says. Bankers have to position a company’s financials to a prospective buyer in the right way, which means having a deep understanding of where the technology and the business model fits into the market, and of what the buyers want. Orbach says he draws on his experience as an entrepreneur, as well as having lived in many parts of the world with diverse cultures (the U.S. and U.K., France, Germany, Switzerland, and South Africa).

We didn’t get a chance in this conversation to dive deep into software M&A trends yet, but Orbach did offer a hint at what he’s looking at. “Venture capitalists are focused on triage. Many businesses need something done. Not only here, but everywhere,” he says. “As we come out of this recession, the dealmaking will be done in countercyclical markets.” He points to a few specific areas to watch: IT infrastructure, virtualization, legal, and corporate governance, risk, and compliance. We’ll be watching to see what effect this all has on Cascadia’s dealmaking, and the broader IT world.

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If you’re the CEO of a venture-backed company, what can you do when the exit doors remain closed for IPOs, and the collapse of capital markets has slowed mergers and acquisitions to a trickle?

That may be the question of the hour, or perhaps the year. But preserving your options, and creating new ones, was key to the answers that three venture investors and a San Francisco software company CEO offered yesterday at the Red Herring North America 100 conference in downtown San Diego. John Malloy of BlueRun Ventures in Menlo Park, CA, said he could think of two words that epitomize the situation for many startup ventures. One is constraint, and understanding this is a new world of constraints. The other is optionality. “Remember there are multiple ways to solve a problem,” Malloy said. “You certainly shouldn’t believe just what your bankers tell you.”

Just how startup CEOs can work to maintain their options and generate new ones, of course, was the hard part. But the participants in a panel discussion had a number of decent recommendations, along with some interesting observations. For example:

—It’s unclear whether the IPO market will open anytime soon, said Bob Ackerman, co-founder of Palo Alto, CA-based Allegis Capital. “We’re in a market where there’s a lot of chop, a lot of back and forth,” Ackerman said. But the burly venture investor added that mergers and acquisitions activity will likely resume sooner rather than later because “the big companies have pulled in their internal innovation,” as a way to cut their costs. “Now they are going to an external innovation model,” which means acquiring the startups that have been developing innovative technologies.

—Become extremely efficient. Cash-starved companies are better run, and keeping tight control of operations is crucial to survival. “We tell our companies to get to profitability and you can control your own destiny,” said Paul Ferris, a general partner with Azure Capital Partners, which has offices in San Francisco and Menlo Park, CA.

—”We’ve taken time to get a handle on our metrics,” said Brian Gentile, CEO of Jaspersoft, a San Francisco company that develops business intelligence software. “In the downturn, we saw an opportunity to take market share… It wouldn’t have been an opportunity, though, if we …Next Page »

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It’s probably fitting that I caught up with Boston venture veteran Terry McGuire this week while he was chatting in a corner of a busy conference room with his West Coast counterpart, Dixon Doll. McGuire, a co-founder and managing general partner of Waltham, MA-based Polaris Venture Partners, introduced Doll to me as the chairman of the National Venture Capital Association, which was having its annual meeting in Boston at the time. But that wouldn’t be true for long. Now, for those who don’t know him, meet Terry McGuire, the new chairman of the National Venture Capital Association.

McGuire, 53, yesterday began his one-year term as the head of the NVCA board of directors. It’s no secret that he takes the baton from Doll, a general partner at Menlo Park, CA-based venture firm DCM, amid uncertain times for the U.S. venture industry. The number of venture-backed companies to complete initial public offerings has fallen off a cliff since the dot-com bubble went pop in early 2000, prompting an action plan put forth by the NVCA on Wednesday for reviving the IPO market. Meantime, amidst a litany of other problems facing venture firms in these turbulent economic times, the lack of exit pathways leaves many stuck with stakes in startups at a time when their options for selling those positions for a profit have hit historic lows.

Enter McGuire, who at least has the resume to provide leadership to the Arlington, VA-based venture industry group in troubling times. He and two other colleagues from former venture firm Burr, Egan, Deleage & Company started Polaris in 1996. With capital from Polaris’s maiden fund, McGuire became a founding investor in Advanced Inhalation Research, a Cambridge, MA, developer of inhaled drugs, co-founded by renowned MIT inventor Bob Langer. In 1999, Cambridge, MA-based biotech firm Alkermes (NASDAQ:ALKS) acquired the startup for about $125 million in Alkermes common stock. Polaris didn’t sell its shares in Alkermes until the stock had multiplied in value at least a couple of times, McGuire tells me, and the profit from that one deal contributed to about half of the returns of Polaris’s first fund. The firm now has $3.2 billion under management, and several other big exits in the life sciences and technology sectors under its belt.

At least at Polaris, which also has an office in Seattle, McGuire has proven that it pays to play nicely with entrepreneurial inventors. MIT’s Langer, for example, says that about 90 percent the companies he has helped found—and there have been more than a dozen of them—have chosen to work with Polaris. “His rule is to treat people well, and that’s more important than making money,” Langer said of McGuire, in an interview yesterday. “And by treating people well, he’s made a lot of money.”

But because of the dire straights that the venture industry is in, my conversation with McGuire yesterday about taking over the NVCA reins focused more on future hurdles than past successes. Here are some excerpts from our conversation:

Xconomy: The venture industry is in rough shape. What are your plans to address that?

McGuire: We have a number of challenges that we need to make sure get addressed, and to maintain the innovation that venture capital stimulates. Those challenges include doing our part to make sure that the capital markets open up for venture-backed companies and IPOs. The second goal would be to make sure that we as venture capitalists have the same incentives to build companies as entrepreneurs, and that means taxing our returns on investments at a the current 15-percent capital gains rate rather than, as proposed in the President’s budget, paying double that amount on our profits in the form of an ordinary income tax. And we clearly know that under [U.S. Treasury Secretary Timothy] Geithner’s initial proposal, the venture capital industry would be regulated, and our goal would be to make sure that, if we are regulated, we are not regulated in an adverse way that causes limited partners to stop investing in venture capital.

X: What are your concerns about where things are headed in the venture industry?

TM: We recognize that everyone in the marketplace, whether it’s the average individual or endowments and pension funds, their assets have shrunken. Their assets dedicated to investments in venture capital will likely shrink, so our industry will probably get smaller within the next several years. We’re also part of the mix of stimulating innovation. The contradiction is that at a …Next Page »

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Initial public offering activity among venture-backed companies has fallen off a cliff. That’s a top problem facing the venture capital industry right now, and, as can be imagined, the hot topic of discussion in the early hours today at the National Venture Capital Association’s (NVCA) Annual Meeting in Boston. The mood here at the Westin Boston Waterfront Hotel can be summed up by the comment of one member of the venture community to his counterpart near the registration desk: “These are certainly interesting times.”

Indeed, the venture industry is, to say the least, struggling. A chief concern is that the steep drop in IPOs—not only in the past year, but over the past decade—has forced venture firms to hold onto their shares of private portfolio companies longer than they would like. So the day here began with a press conference where the VC honchos (including new incoming NVCA chairman Terry McGuire, managing general partner at Waltham, MA-based Polaris Venture Partners, and Paul Maeder, general partner at Highland Capital Partners in Lexington, MA,) and others discussed their recommendations on how to improve the climate for venture-backed companies to go public. Before this month—when San Diego-based online education firm Bridgepoint Education, Chinese gaming company ChangYou, and language education software provider Rosetta Stone of Arlington, VA, all completed IPOs—there hadn’t been a single venture-backed company IPO for eight straight months.

For sure, venture firms can also get big returns on investing in companies when those companies are acquired. In fact, last year 87 percent of venture exits were via a merger or acquisition, according to the NVCA. Yet to hear Dixon Doll, outgoing chairman of the NVCA, the concern is that only 13 percent of venture exits last year stemmed from company IPOs. “The question that always comes up is that if you have a thriving M&A environment, why isn’t that good enough to have a flourishing VC industry,” said Doll, who is also a general partner at Menlo Park, CA-based venture firm DCM. “In order to have really successful M&A exits, the M&A buyers have to know that the company really can go public, or much of the leverage is lost and the value creation that we’re so concerned about is stifled.”

Thus, the NVCA is offering four main areas in need of change in order to improve IPO activity. Here they are:

—Improve the IPO ecosystem. This one involves …Next Page »

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Worcester, MA-based World Energy, which runs online auctions for energy contracts as well as carbon emissions allowances, said today that its stock will be listed on the NASDAQ exchange under the ticker symbol XWES. Since its 2006 IPO, the company has traded only on the Toronto Stock Exchange, under the system XWE. “Gaining increased exposure to the U.S. investment community through a listing on NASDAQ has always been part of World Energy’s capital markets strategy; I’m glad to say we have achieved this important milestone,” CEO Richard Domaleski said in a statement.

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