At first glance, a report released last week by PricewaterhouseCoopers and the National Venture Capital Association seems to portend rich times for life sciences startups. Biotech companies raised $4.7 billion in 2011—more than any other sector except for software and enough to help make last year one of the top three years for venture fundraising in the past decade.

But drill down into the report, based on data provided by Thomson Reuters, and the numbers tell more of a mixed story. Total VC dollars poured into the life sciences sector, which also includes medical devices, increased 21 percent to $7.5 billion in 2011. The biotech portion of the haul marked a 22 percent increase over 2010. But the volume of biotech deals dropped 9 percent to 446. What’s more, the medical device portion rose 20 percent in dollar terms (to $2.8 billion) but dropped 2 percent in deal volume (to 339).

What it all means is that VCs in life sciences remain supportive of the sector, but uncertain about its future, says Tracy Lefteroff, global managing partner in PwC’s venture capital practice. “There are still some major challenges ahead in terms of getting the FDA to provide transparency to young companies about what they need to do to get their products out of the pipeline,” Lefteroff says. “For anything [in investing] to be sustainable, FDA issues will need to be worked out.”

Still, some investing trends last year showed clear signs of optimism in life sciences. During the fourth quarter, for example, VC investing in early-stage companies totaled $987 million—a 47 percent jump from … Next Page »

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It’s that outlook time of year, and Mark Heesen, president of the National Venture Capital Association (NVCA), was in San Diego earlier this week, talking about the 2012 outlook for venture capital. Today he’ll make a similar presentation to the New Jersey Technology Council. Next week,  John Taylor, the NVCA’s director of research is set to talk in Florida about the 2012 outlook.

Heesen began his presentation in San Diego by saying, “Be prepared for a roller coaster ride here, because that’s where we’ve been for the past year—and that’s where we’re going.”

In a conversation with Xconomy yesterday, Heesen talked about some of the broader trends he’s charting throughout the United States. Here are some of the takeaways from our talk, and from Heesen’s presentation in San Diego:

—The VC industry continues to contract. Venture capital investments in U.S. startups peaked in 2000, when VCs sank $99 billion into emerging companies of all kinds. There were 1,022 venture capital firms at that time, and they were collectively managing $220 billion worth of invested capital. In 2010, VCs invested more than $20 billion into startups of all kinds. The number of VCs had plunged by almost 55 percent—to 462 VC firms with $177 million under management.

—VCs are raising more capital from their limited partners, but it isn’t enough to sustain current investment levels. In 2011, U.S. venture firms raised a total of $18 billion. That was up significantly from the $14 billion that VCs raised in 2010—but it falls $10 billion short of covering the $28 billion that VC firms invested in 2011. As a result, Heesen says he expects venture investments in U.S. technology and life sciences companies to decline in 2012.

—A handful of VC firms accounted for … Next Page »

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The amount of venture financing poured into Seattle-area companies didn’t keep pace with strong growth nationally last year—in fact, it was quite the opposite.

That’s according to the latest MoneyTree Report, from the National Venture Capital Association and PricewaterhouseCoopers, which shows venture investment in Seattle region dropping to $508 million in 2011. That’s the lowest figure notched in the report’s tracking since 2003, when venture deals reached $359 million, according to data provided by Thomson Reuters.

There’s a pretty clear link between those two periods, of course: In 2011, just as in 2003, the economy at large was still trying to recover from a recent financial meltdown. The average dollar amount of venture deals tracked by the MoneyTree Report was basically identical in both of those years, at just over $4.8 million per financing deal.

(MoneyTree provided Xconomy with data focused on the Seattle area, including the Eastside, to help us track this figure. Venture deals across the entire state were higher, at around $541 million.)

The Seattle area’s dropoff came as national VC investing was on the upswing, increasing by 22 percent over 2010′s figure to post the third-largest investment total in the past decade.

Mark Heesen, president of the NVCA, noted that the number of deals nationally didn’t keep up with the growth in dollars last year, reflecting larger fundraising rounds across most sectors.

“For some, the higher rounds are driven by the challenging exit market which requires venture capitalists to fuel their existing portfolios longer and at greater investment levels than in the past,” Heesen said. “This is particularly acute in the life sciences and clean tech sectors. In other sectors such as Internet, software and media, the higher rounds speak to increasing valuations.”

The number of venture deals in and around Seattle held steady in 2011 at 105, in line with the figures seen in 2009 and 2010.

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Data on venture capital investment activity during the third quarter poured in from different sources last week. The highlights are here, along with the rest of the San Diego’s biztech news.

—Total venture capital invested in San Diego startups so far this year amounted to $567.7 million in 82 deals, according to the MoneyTree Report from PricewaterhouseCoopers, National Venture Capital Association, and Thomson Reuters. That’s down about 13 percent from the first nine months of 2010, when $652.5 million went into 95 deals. A rival survey from Dow Jones VentureSource counted year-to-date investments of $556.7 million in 66 venture deals in San Diego—down about 7 percent from the $599.8 million invested in 65 deals during the same period last year.

—Carlsbad, CA-based ViaSat (NASDAQ: VSAT) seems to have succeeded in its $1 billion-plus gamble to put a satellite into orbit over North America. ViaSat-1 has more total bandwidth capacity than any previous commercial communication satellite. The satellite, intended to provide high-speed Internet service in sparsely populated areas, was launched from the Baikonour Cosmodrome in Kazalstan.

—San Diego philanthropists Gary and Mary West, who made their fortune in telemarketing, have created a new $100 million investment fund to provide early stage funding for startups developing technology that promises to drive down the cost of healthcare. The new West Health Investment Fund, which is affiliated with San Diego’s West Wireless Health Institute, already has invested in six startups.

—The IPO Task Force, an independent group formed to address the dramatic reduction in venture-backed IPOs over the past decade, called for lawmakers and regulators to relax some of the rules that have made an IPO a risky and expensive hassle. The task force, headed by Kate Mitchell of Scale Venture Partners, said it doesn’t want to overturn regulations intended to protect investors. Rather, the IPO Task Force argues for taking “reasonable and measured steps” to ease certain regulations.

—JMI Equity, the private equity fund based in San Diego and Baltimore, MD, said it led a $54 million investment round in CouponCabin, a Web-based company based in Whiting, IN, that offers discounts on merchandise from Dell, RadioShack, Target.com, Best Buy and others. Paul Barber, JMI’s managing general partner in San Diego, told me Baltimore partner Brad Woloson handled the deal.

—AOL, the New York online media company once known as America Online, re-launched its Internet radio service under a partnership with San Diego’s Slacker. “Unlike other providers, AOL Radio powered by Slacker offers free mobile service, professionally curated content, and sports and news content,” AOL said in a press release last week.

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According to figures released this morning by Dow Jones VentureSource, 21 NYC-area biotech startups have been funded so far this year, down from 28 by the end of the third quarter of 2010. The dollar amounts have dropped, too: VCs have invested just $200 million in New York biotechs so far this year, compared to $294 million invested through Q3 last year.

If we’re to have any hope of matching last year’s haul—37 New York biotechs raised a total of $384.4 million in 2010—we’ll need to see some big deals, and fast.

It’s not that the VC world has soured on the life sciences. To the contrary: According to figures released earlier this week by PriceWaterhouseCoopers and the National Venture Capital Association (NVCA), the biggest deal of the third quarter—in any industry—was pulled off by Reata Pharmaceuticals, an Irving, TX-based biotech that raised $300 million. Reata is in late-stage trials of a drug to treat chronic kidney disease.

We can’t very well gripe that VCs are ignoring New York, either. The Big Apple, after all, is home to two of the top 10 money raisers of the third quarter: blog hosting platform Tumblr, which raised $85 million, and ZocDoc, the online doctor-appointment booking site that pulled in $75 million from Goldman Sachs and Russian billionaire Yuri Milner’s DST Global. Venture capital investing overall jumped 31 percent over the third quarter a year ago, according to PriceWaterhouse/NVCA.

Part of the reason biotech funding may be down in New York stems from the sheer challenge of being a biotech in the Big Apple. That’s one of the topics that came up at New York Life Sciences 2031, Xconomy’s October 13 forum on the future of biotech in the city. “Most startups that are scrappy and saving their pennies can’t afford to be here,” said panelist Barbara Dalton, a longtime VC who is now the vice president of venture capital for Pfizer (NYSE: PFE). “My funds have invested in great companies in New York. They all reach a time where they have to grow beyond five people in a lab and they have to leave Manhattan.”

But it’s not all doom and gloom for biotech fundraising in New York. In fact, the city kicked off Q4 with a pretty good one: On October 19, NYC-based Imagen Biotech announced that it sewed up a $40 million Series A financing from SV Life Sciences, Novo Ventures, and Fidelity Biosciences. Imagen is working on treatments for degenerative eye diseases such as age-related macular degeneration. Its management team is a who’s-who of ophthalmology that includes Matthew Feinsod and David Guyer, formerly of Eyetech Pharmaceuticals—the New York startup that was bought by OSI Pharmaceuticals (now Astellas) for $935 million in 2005.

Now if we could just get a few more deals like Imagen’s Series A, perhaps biotech funding in New York this year will indeed measure up to 2010.

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Between the formation of the new $100 million West Health Investment Fund and the new wet-lab space Johnson & Johnson is hosting for as many as 20 startups, you’d have to say it’s been a good week for life sciences innovation in San Diego. Get briefed here or get left behind.

—San Diego’s Gary and Mary West, who provided $90 million to establish the West Wireless Health Institute, established the $100 million West Health Investment Fund to invest solely in startups that promise to drive down the cost of health care. Don Casey, the fund manager and West Wireless CEO, vowed that the fund would not cause a “balloon squeeze,” where innovation moves the cost from one part of the health system to another.

—Johnson & Johnson has refurbished part of its Pharmaceutical Research & Development facility in San Diego to provide lab and office space for as many 20 life sciences startups. Each startup will have to make monthly payments to stay at the Janssen Labs at San Diego, but J&J says there is no “quid pro quo,” and each tenant will get office space and access to a common area with wet lab research equipment that would be difficult for a company to afford on its own.

—Anadys Pharmaceuticals (NASDAQ: ANDS), the San Diego-based biotech developing antiviral drugs for treating hepatitis, agreed to an all-cash buyout offer worth $230 million from Roche, the Swiss pharmaceutical giant. Roche’s offer to pay $3.70 for each Anadys share was a 256 percent premium over the previous trading day’s close of $1.04. Anadys had just released encouraging results from a mid-stage clinical trial of its lead hepatitis C drug.

—Venture capital firms invested $6.95 billion in 876 deals throughout the United States—including $202 million in 21 venture deals in the San Diego area—during the three months that ended Sept. 30, according to the MoneyTree Report. The third-quarter survey from PricewaterhouseCoopers, the National Venture Capital Association, and Thomson Reuters also highlighted a shift in VC activity, with a pullback in funding for life sciences. That was also true in San Diego, where nine life sciences companies got $26 million, or 13 percent of total VC investments here.

—Following a two-year setback, San Diego’s Sequenom (NASDAQ: SQNM) rolled out a laboratory-developed blood test that can determine with … Next Page »

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Microsoft traffic-data spinout Inrix and flash-sales startup Zulily led the field of Washington state-based companies raising venture capital in the third quarter, which yielded $192.5 million across 27 deals, according to the latest MoneyTree Report from the National Venture Capital Association and PriceWaterhouseCoopers.

Inrix‘s $37 million expansion round made news in late July. CEO Bryan Mistele said the profitable company added the funding to step on the growth accelerator, and followed through pretty quickly: Inrix wrapped up the acquisition of UK-based competitor ITIS Holdings the next month. After raising the dough, Mistele also said Kirkland, WA-based Inrix was eyeing an IPO “sooner rather than later,” although that was before the big swoon in the public markets.

Zulily ranked second for the quarter in the MoneyTree Report, which draws its data from Thomson Reuters. Seattle-based Zulily actually had a larger overall fundraising figure than Inrix, at $43 million. But it looks like the MoneyTree Report discounted that figure by the $10.5 million that was taken off the table in a share buyback, which is noted in the SEC filing. In any case, Zulily has been a very fast-growing success story in the moms-and-kids flash-sales arena. It’ll be interesting to see how long the company can keep up its pace, given all the hullabaloo over customer acquisition for email-based deals brands like Groupon.

Third place for Washington state deals goes to Avalara, a Bainbridge Island-based sales-tax software provider. The company closed out a $21.2 million round in mid-September.

Fourth was Bellevue, WA’s RF Surgical Systems, which filed paperwork for a $12 million round in September. As Luke wrote last year, the company is working to embed radio-frequency tags in surgical sponges, so hospitals and doctors can track whether the very common surgical accessories are left behind in a patient.

The fifth-largest financing in the quarter went to Seattle’s Immune Design, a biotech company working to make vaccines more effective and fine-tune the body’s immune response. The $10.6 million listed in the MoneyTree data was actually the second segment of an existing Series B round that the company announced last summer.

Here’s a quick chart running down the leaders and the rest of the deals captured in the MoneyTree Report, from $10.6 million for Theraclone Sciences down to $532,000 for Moprise.

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Venture capital firms invested $6.95 billion in 876 deals throughout the United States during the three months that ended Sept. 30, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association.

The numbers marked a slowdown from the preceding quarter, when venture capitalists put $7.9 billion in 1,015 deals.

But look at what’s happened since June: Fresh worries about Europe’s debt crisis, U.S. market volatility, and waning economic confidence all followed a protracted political stalemate over raising the federal debt ceiling and adopting a new federal budget. Are we better off than we were six months ago?

Still, VC activity during the third quarter was significantly better than a year ago. The MoneyTree Report, based on data from Thomson Reuters, shows that the $6.95 billion VCs invested during the third quarter of 2011 was nearly a third more (31 percent) than the $5.3 billion invested during the same quarter last year. The 876 deals also was higher, albeit only slightly, than the 850 deals counted during the third quarter of 2010.

The slowdown charted in the MoneyTree Report contrasts with the VC report released last week by CB Insights, which shows continuing momentum, with VC activity strengthening this year from $7.5 billion invested in 738 deals during the first quarter through the $7.9 billion invested in 790 deals during the third quarter.

The MoneyTree Report also highlighted a fairly dramatic shift in VC activity, with funding flooding into the software and Internet sector and pulling back in the life sciences and cleantech sectors.

Venture investments in 263 software and IT-related deals totaled $2 billion during the third quarter—the biggest slug of money to go into IT since the fourth quarter of 2001, according to the MoneyTree Report.

Meanwhile, venture funding for biotech startups fell. The $1.1 billion invested in 96 biotech deals nationwide during the third quarter represented an 18 percent drop in dollars and a 20 percent decline in deals from the preceding quarter, according to Tracy Lefteroff, a global managing partner of PricewaterhouseCoopers’ U.S. venture capital practice. Funding for medical devices and equipment showed a similar decline. The $728 million that was invested in 74 deals during the quarter marked an 18 percent decline in capital and a 21 percent fall in deals compared with the preceding quarter.

“For life sciences investors, 2011 started with quite a bit of optimism, with six IPOs in Q1 and a nice bump in Q2 investment,” said Nina Kjellson, a general partner in the Menlo Park, CA office of InterWest Partners. “But we’re now returning to … Next Page »

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Time for our data-driven roundup of business and technology news and deals in the San Francisco Bay Area. From biggest to smallest:

$6.3 billion—the aggregate value of the 101 merger-and-acquisition deals involving venture-backed companies in the third quarter of 2011—an 8 percent increase over the second quarter, according to data released today by Thomson Reuters and the National Venture Capital Association (PDF). That good news was balanced out by some bad: only 41 venture-backed companies have managed to go public in 2011, only five of them in the third quarter.

$300 to $350 million—The reported amount that Intel, the Santa Clara, CA-based chipmaker, is paying to acquire Telmap, an Israeli maker of navigation software. Intel said in a blog post that Telmap’s local search and mapping services “helps bring to life our vision for integrated, uniform experiences across consumer devices.”

107 million—The number of iPhones Apple will sell worldwide in 2012, according to a prediction from Janney Capital Markets analyst Bill Choi. That would be a 27 percent jump over predicted 2011 sales of 84 million units.

$30 million—The reported size of the latest funding round for Mountain View, CA-based Coupons.com, announced today. Greylock Partners contributed the funds, joining a group of institutional investors who put $200 million into the digital coupons company in June.

$15.5 million—A new funding round announced today for Axcient, the Mountain View-CA-based provider of backup and disaster recovery services. Scale Venture Partners led the round, with existing investors Allegis Capital, Peninsula Ventures, and Thomvest Ventures joining in.

$4.9 million—A Series A venture round for Mobeam, a Cupertino, CA, startup with software that uses the LEDs illuminating most mobile handset displays to communicate data directly to the laser barcode scanners in supermarkets and other retail locations. According to today’s announcement of the round, Yet2Ventures, Samsung Ventures, Mitsui, and unnamed independent investors provided the funds.

$4.4 million—A Series C funding round announced today for Enkata, the Redwood City, CA-based customer experience analytics startup. New investor IT Farm Corporation participated in the round, which was joined by existing investors Apex, ComVentures, Sigma Partners, and Enkata CEO David Stamm.

More than 250,000—The number of websites that use fonts from Typekit, the San Francisco-based cloud typography startup acquired today by Adobe. The startup had raised just over $2 million from True Ventures, Freestyle Capital, and individual investors Ron Conway, Caterina Fake, Matt Mullenweg, Chris Sacca, and Evan Williams. The financial terms of the acquisition were not disclosed.

20,000—The number of core Twitter users who generate 50 percent of all tweets, according to a Yahoo study cited in this week’s New York magazine cover story on Twitter.

300 percent—The increase in sales at London- and San Francisco-based Huddle in the company’s latest fiscal quarter, according to a release. The company makes business collaboration software platform that competes with Microsoft’s Sharepoint server. Huddle also announced that it has stolen a key international executive away from Salesforce.com: Simon O’Kane, former managing director of Salesforce.com’s UK and Ireland operations, has joined Huddle as its vice president of enterprise.

$100 per month—The starting price of Pantheon‘s new cloud-based platform for building and hosting enterprise websites based on the Drupal content management system. The San Francisco company introduced its service on Friday.

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The U.S. venture capital industry is raising more capital for fewer funds so far this year, continuing a contraction in the number of venture firms, according to a couple of rival surveys released today.

While the $2.7 billion raised by VC firms during the second quarter marked a 28 percent increase over the $2.1 billion raised during the same period last year, the 37 venture funds that raised capital represented a 23 percent decline from 48 funds in the second quarter of 2010, according to Thomson Reuters and the National Venture Capital Association (NVCA). That’s the lowest number of funds raising capital in 16 years, according to the NVCA.

Half of the $2.7 billion raised during the quarter came from commitments to two funds managed by Accel Partners of Palo Alto, CA—Accel Growth Fund II, which raised $875 million and Accel XI, which raised $475 million.

In a statement from the NVCA, president Mark Heesen says, “While a smaller venture industry will intuitively produce higher returns, it is critical that the mix of funds remain geographically diverse and cover a broad base of industries if we expect to contribute to economic growth and innovation at the levels we have historically.”

“Brand name” venture firms raising new funds attracted a much bigger proportion of capital from limited partners, which include college endowments, pension funds, insurance companies, and other institutional investors, according to a semi-annual survey from Dow Jones LP Source. “This year and next will be make-or-break for scores of venture capital firms in search of new funds,” said Scott Austin, editor of Dow Jones VentureWire. “Limited partners have made it clear they’re in no mood to back underperforming firms, so the competition for capital will be fierce.”

Dow Jones said 50 venture funds raised a total of $8.1 billion during the first half of 2011. That’s a 20 percent increase over the $6.8 billion raised during the first half of 2010, but a 38 percent decline from the 81 venture firms that raised capital during the same period.

Seven firms were responsible for raising $6.3 billion, or almost 80 percent, of the $8.1 billion in capital raised during the first half, according to Dow Jones, which identified the seven as Insight Venture Partners, JPMorgan Chase, Bessemer Venture Partners, Accel Partners, Sequoia Capital, Greylock Partners, and Summit Partners.

The survey released by the NVCA and Thomson Reuters reports that U.S. venture capital fundraising during the first half of 2011 totaled $10.2 billion from 76 funds. That’s a 67 percent increase over the $6.1 billion in capital raised that the NVCA counted during the first half of 2010, but a 15 percent decrease from the 93 funds that raised capital during the same period. The rival surveys use different criteria in their surveys, but the overall trends are usually comparable.

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While venture capital activity increased nationwide during the first quarter that ended in March, VC investing in San Diego fell to its lowest level since the first quarter of 2009. Our roundup of that and the rest of last week’s tech news begins now.

—Data on first-quarter venture capital activity arrived separately from New York-based CB Insights and the MoneyTree Report, which is put together by the National Venture Capital Association, PricewaterhouseCoopers and Thomson Reuters. CB Insights found that venture investors sunk $7.5 billion into 738 deals throughout the country, while the MoneyTree Report said $5.9 billion was invested in 736 deals. Both reports say the dollars invested were up sharply from the same quarter a year in 2010—27 percent in CB’s case and 14 percent, according to MoneyTree.

—In the San Diego area, VCs invested just over $100 million in 22 startups during the first quarter, a 55 percent drop in capital and a 29 percent decline in deals from the first quarter of 2010, according to the MoneyTree Report. CB Insights does not break out regional data on venture capital investing.

—The Ford Motor Company is targeting San Diego for the initial launch of its 100-percent electric vehicle later this year. In an exclusive interview, Ford’s Mike Tinskey told me how Ford used its popular Focus model compact as the automotive package for its all-battery drive train in order to leverage its existing economies of scale, since Ford has been selling about 2.6 million Focus compacts a year. Ford also hopes to differentiate itself from rival EV carmakers by developing its own charging stations, which it says are capable of recharging an EV twice as fast as other chargers.

—San Diego’s Mushroom Networks has developed HD video capability for the Teleporter technology it launched a year ago. Mushroom Networks said that makes its Teleporter the first cellular-based high-definition live video streaming technology, enabling a TV crew to transmit real-time HD video from any location where … Next Page »

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“”Figures often beguile me,” Mark Twain wrote more than a century ago, as he worked his way up to the proposition that “There are three kinds of lies: ‘lies, damn lies, and statistics.’” I wonder what the cantankerous Twain would say today about the disparities in data concerning venture capital activity that are issued each quarter.

The first quarter venture capital investment activity that came in yesterday from the New York data services firm CB Insights showed a substantial gain in nationwide funding. Now comes the MoneyTree Report, which shows a modest increase in capital and a decline in the number of deals.

According to the MoneyTree Report, venture capitalists invested $5.9 billion in 736 deals nationwide during the first quarter of 2011. That was a 13.7 percent increase in capital and a 6.4 percent decrease in the deal count, compared to the same quarter in 2010, when nearly $5.2 billion went into 787 deals nationwide. The report is prepared by the National Venture Capital Association, PricewaterhouseCoopers and Thomson Reuters.

CB Insights said yesterday that VCs invested $7.5 billion in 738 deals during the first quarter. That was a 27 percent increase in dollars and a 1 percent gain (which isn’t a significant change) in deal count over the first quarter of 2010, when CB Insights counted $5.9 billion and 730 deals.

The numbers vary because the surveying firms rely on different sources, and they use different ways to count and categorize venture deals. For example, CB Insights counted half of the $950 million funding deal that Groupon announced in December in the fourth quarter of 2010 and half in the first quarter of 2011. What one firm counts as a cleantech deal another might count as energy or IT.

A more worrisome trend has been unfolding in the MoneyTree data about venture investment activity in San Diego. CB Insights doesn’t provide regional data in its report, and MoneyTree found that VCs invested just over $100 million in 22 San Diego startups during the first quarter of 2011. That’s a 55 percent drop in capital and a 29 percent decline in deals from the first quarter of 2010, when venture investors put nearly $223 million into 31 companies.

There was also a drop for the San Diego region during the … Next Page »

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Can you ever fire people too quickly, as chief executive? How do you foster a company’s culture as it grows? And what are the pros and cons of going public?

Answers to these pointed management questions could be found in yesterday’s technology track at the National Venture Capital Association’s annual meeting in Boston. Harvard Business school professor Bill Sahlman (a busy man this week) led a CEO panel consisting of some heavy hitters: Jim Baum from Netezza, now part of IBM (NYSE: IBM), Tim Healy from EnerNOC (NASDAQ: ENOC), and Andy Ory from Acme Packet (NASDAQ: APKT).

Here are 10 things I heard that stood out to me. Please excuse the rapid-fire mode; been tweeting too much lately:

1. “When you’re CEO of a public company, you’re at the top of the aggravation pyramid but the bottom of the liquidation pyramid.” That was Sahlman, referencing investor Tom Volpe.

2. “Going public is the beginning of a long process. It’s about locking everyone in. It’s an exit, but not for me [as CEO].” That was Ory talking about Acme Packet. “You have 180 days to understand who you are” in the transition from private to public company, he said. “Realize you can’t satisfy everybody.”

3. “In spite of [various investor issues], becoming a public company really did give us credibility, it really did help us with large customers. The benefits outweighed the negatives,” Baum said of Netezza.

4. “We’d rather have a hole in the organization than pick the wrong person and have to live with that,” said Healy of EnerNOC. (He spent 22 months interviewing 150 candidates for chief operating officer before going public in 2007.)

5. “Are they a happy soul? I won’t hire unhappy people,” Ory said. Baum added that he looks for intelligence, enthusiasm, passion, integrity, and cultural fit in his hires—experience is less important.

6. “You have to have the right people. If you don’t make the changes that need to happen, everyone sees it [and you harm the culture],” Baum said. That’s a lesson from his PTC (Parametric) days. Baum had fired an employee for poor performance, and his manager, Dick Harrison, said, “Do you think you fired that guy too quickly? Have you ever said, ‘Well, I moved too fast on that one’?”

7. “We’re in the middle of nowhere, and everyone’s against us. We’re the little guys,” Healy said of EnerNOC’s culture and mindset.

8. “We had a common enemy: Oracle,” Baum said of Netezza’s mindset. As for Acme Packet’s culture, Ory described it as “a positive, results-oriented humanistic environment where people are changing the way the world communicates.”

9. “Get in there, talk to a lot of customers, figure out what their real pain is,” Healy said of his company’s business growth strategy. “You cannot innovate in a vacuum. There is enlightenment when you engage [with customers],” Ory added.

10. “I try to get off the board [of a company] if we start having Groundhog Day meetings.” That’s Sahlman talking about companies that keep having the same board meeting over and over again.

In sum, these were some telling tips from four business leaders who have seen it all.

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Is there increased tension between venture capitalists (VCs) and angel investors? Lots of stories these days would lead you to that conclusion. Are angels cutting into our deals? Are they making venture capitalists less relevant, especially if some angels are raising sizable funds? Are we competing with them for LP money? The answer to each of these questions is “Yes,” but that is not really the point. Not only do I think we need to co-exist with angels, I think we need to embrace them, champion them and get Congress and other policy makers to enact tax and state policy that encourages more of them. It seems clear to me that the more angel investors we have, the better—not only for entrepreneurs (which is obvious), but also for our VC ecosystem as well as for the country at large.

I’ve been a VC for 42 years and served as a past chairman of the National Venture Capital Association (NVCA). For better or worse, I have a long historical view. Angels have always been with us—you can say Queen Isabella (who was even before my time) was an early angel when she financed Columbus’ storied trip across the Atlantic in 1492 (and just like entrepreneurs of today, he too had to change his plans when the unexpected, i.e. America, came up).

Before the late 1940s there were only angels. The earliest VC firms were Venrock, JH Whitney, and Bessemer, which grew out of the angel activities of the Rockefeller, Whitney, and Phipps families respectively. My firm also evolved from the Whitney family. Similarly, the California VC industry was developed by some very early California angels like Reid Dennis and Arthur Rock. In fact, Reid Dennis probably gets the record. I can think of six venture firms which can trace their roots back to him—IVP, TVI, Sigma, Redpoint, August, and Benchmark. Reid’s impact on the US VC industry is really impressive.

Today, angels quietly help spur our economy. According to the Center for Venture Research, in the first half of 2010, there were 125,000 angel investments totaling $8.5 billion into 25,000 companies at the rate of $70,000 per investment or $340,000 per company. That is almost as much money as VCs invested during that same six month period. The number of companies financed by angels, however, is more than 50 times the number that we VCs finance. In addition, there is sure to be an enormous number of smaller—$10,000-20,000—transactions with “Friends and Family” that are not counted.

What’s an Angel?

Before I go on about why we need to celebrate angel investors, let’s define what they are. First we need to recognize that there are something like 250,000 of these angels, and they are in all 50 states—so needless to say, they are not all alike. What they have in common is that they have some money and they are willing to risk serious amounts of that money in illiquid, risky investments—backing an entrepreneur who wants to build a company, create jobs, and make a mark on the world. Early stage VCs like my firm start some companies from scratch but otherwise it is rare for us to see a deal that has not been funded by an angel. The majority of angels invest their own money (as opposed to VCs who invests a pool of money from their limited partners, like pension funds, endowments, etc.).

Angels fill a critical funding gap between “friends and family” money and VC money. For example, an entrepreneur may be able to raise tens of thousands of dollars from friends and family, but his or her next round will usually come from an angel. That’s because a typical VC firm cannot consider investments below $1 million. Angel investors can put in … Next Page »

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San Diego’s innovation economy continues to move mostly sideways, with venture capital investments plunging and employment improving slightly among high technology and life sciences startups, according to a report today from Connect, the nonprofit group for technology and entrepreneurship. The mixed signals also showed San Diego’s merger and acquisition activity soared and federal grants to researchers strengthened during the last quarter of 2010.

A .pdf file for the full report can be downloaded here. My breakdown of the highlights and leading indicators for San Diego’s innovation economy follows:

—Eighty-four high tech and life sciences startups were formed in the region during the fourth quarter of 2010, a 13 percent increase from the same quarter of 2009, when 74 new companies were started. For the year, the report counted 277 new startup companies, which was a 13 percent decline from the 319 startups founded in 2009.

—Mergers and acquisitions jumped substantially across California in 2010 compared to the previous year. The value of reported San Diego M&A deals that closed during the fourth quarter was almost $1.7 billion. The nearly $4 billion in M&A deals reported here in 2010 was more than double the value of deals reported 2009. In Southern California, the M&A market in 2010 totaled more than $40 billion—almost seven times more than what was reported in 2009.

—Combined funding from the National Institutes of Health and the National Science Foundation for scientists in the San Diego area increased in 2010 to $42.5 million per 100,000 residents from $34.4 million per 100,000 in 2009. The report says that makes San Diego one of the state’s top innovation economies, based on federal grants received per capita. Total NIH financing for this region was almost $1.2 billion in 2010, a 28 percent gain from 2009, while NSF support amounted to almost $126 million, a slight increase from 2009.

—In the fourth quarter, San Diego got $278 million in NIH backing, and more than $31 million from the NSF.

— San Diego innovation companies received almost $32 million in Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) program grants in 2010, according to new data from the Department of Defense.

—As we reported in January, venture capital investors put … Next Page »

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The innovation economy took center stage last week in San Diego, where new innovations were announced in mobile apps, unmanned aircraft, and new technology platforms developed for smart grid operating systems. We’ve got it wrapped for you here.

—Diego-based Cymer (NASDAQ: CYMI), which is considered a bellwether for the semiconductor industry, said during a fourth-quarter conference call last week that several of its chip-making customers had recently raised their capital expenditure projections for 2011. Cymer makes advanced, deep-ultraviolet lasers for use in photolithography to make chips. “We believe this increase in ‘capex’ investment will translate into continued growth as the year proceeds,” CEO Bob Akins told investors, analysts, and journalists.

—Los Angeles-based Northrop Grumman (NYSE: NOC), which operates an engineering and development center for unmanned aircraft in San Diego, said its stealthy X-47B unmanned combat air system (UCAS) successfully flew its long-delayed first flight at Edwards Air Force Base on Friday. The unmanned aerial vehicle (UAV) is intended to serve as a carrier-based combat strike aircraft.

—-I profiled Fluorotronics, an 11-year-old startup in Vista, CA, founded by Russian immigrant Olga Sharts to commercialize a specialized type of laser spectroscopy that is tuned to the unique spectroscopic signal of carbon-fluorine bonds. Such bonds are found only in manmade products, including pharmaceutical products. Carbon-fluorine bonds also are used to make Teflon and other advanced materials, including microelectronics, semiconductors, chemicals, and aerospace materials.

—Wade described how innovation and entrepreneurship have become the bywords for efforts in various quarters to drive economic resurgence in the United States. He noted the Startup America initiative launched by the White House, an unexpected source of funding for the Y Combinator venture incubator program, an expansion of the TechStars operation, and much more.

—Mountain View, CA-based Intuit (NASDAQ: INTU) has developed more than 15 mobile apps that are focused on … Next Page »

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Charles River Ventures partner Bill Tai made an interesting analogy between surfing and venture investing for the San Diego audience that gathered last week at the San Diego Venture Group’s panel discussion on the venture outlook for the coming year. The annual event usually draws big crowds, and this year was no exception. Some 350 people attended.

Tai told the crowd that VC investors had an advantage during the glory days of venture capital—10 or 15 years ago—because they could anoint an entrepreneur by simply funding his or her startup. “Syndicates could form and we would essentially own all the surf boards at the beach, which meant that we could limit the number of riders on each wave of new technology.”

But Tai said the tables have been turned on VCs in certain categories, such as the consumer Web and iPhone apps. “Now there are 600,000 new apps a year, and we can’t keep up with those kind of numbers. So now there are 2,000 riders on each wave, and they all own their own surfboards.”

Tai says startups require much less funding in his areas of greatest interest, which are digital media, enabling technologies, and Web services. As a result, more startups in these sectors are self-funded, or they are getting funding from friends, family, or angel investors. Because venture firms are no longer anointing industry leaders, Web-based industries are more fragmented—with a multitude of startups fighting to gain a foothold.

“If there are two areas I’d encourage you guys to focus on,” Tai told the San Diego audience, “it would be around mobility and cloud computing. The cost of building a company is down by a third these days and the cost of building an app is down by 50 percent.”

The proliferation of digital media and Web startups has been fueled in part by the emergence of so-called “super angels,” who invest about $250,000 individually or in syndicates, according to Peter Solvik, a managing director at Sigma Partners, which has offices in Boston and Menlo Park, CA. Some super angels are investing in companies by the score, but as Solvik noted, “super angels can’t afford to keep 200 to 300 companies going. So if you’re not in the top 5 percent of your class, it’s really hard to get a second round of funding.”

Tai’s surfing metaphor was an example of how the venture industry has changed from its glory days. But the overarching theme that Kate Mitchell sounded … Next Page »

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Poor investment returns have had a similar effect to cold water – the VC industry is shrinking. As a follow-up to comments I posted this past weekend, I wanted to look deeper into recent fundraising data and see what other implications one might draw.

Since 1980 the VC industry has raised $495 billion across 4,333 funds or 1,670 firms (firms typically raise more than one fund). Today the industry is thought to actively manage right around $200 billion of capital and industry analysts estimate that there are about 770 active firms in the US today. There are 415 firms which are members of the National Venture Capital Association (where I am a board member).

VC funds tend to be fully committed within the first three to four years of being raised, although it may actually take quite a few years—upwards of eight to 10 years to be fully invested (because of reserves for follow-on investments in existing companies) and at least that long to be fully liquidated. Most VC funds have a contractual 10-year life. Firms are deemed active if they have raised a new fund in the prior eight years, per the NVCA.

In 2010 nearly $21.8 billion was invested in 3,277 deals but only approximately $12.3 billion was thought to have been raised by VC’s to invest—thus the shrinkage issue. Between 2007 and 2009 roughly 100 venture firms left the industry each year—in 2007 there were just over 1,000 firms—-not terribly surprising given the global economic meltdown. Perhaps a more interesting metric, though, is the number of funds raised; the high water mark in 2000 saw 635 new funds raised (six hundred and thirty five—over two per day not counting weekends), which declined to 157 in 2010. In 2000 all those funds invested in 7,970 deals – simply staggering.

More stats. Since 2004 more than $166 billion was raised by VC’s and $168 billion was invested (since 2005, $149 billion raised, $147 billion invested) so things seem to be in reasonable balance. The analysis is tricky because how long it takes to actually invest a fund once raised, but the industry has a nice ability to recalibrate itself quite quickly.

So as the economy recovers we would naturally expect to see the amount raised and the amount invested to converge – but we did not see that in 2010. In fact – other than for 2001 – we have never seen such divergence. What happened?

The venture industry this year reported for the first time 10 year returns data—which was quite negative—while expected, sent shockwaves through the LP community. As of September 30, 2010 the … Next Page »

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It was a short week for news with the Martin Luther King holiday, and it showed. Here’s a short and (we hope) sweet wrapup of San Diego’s tech sector.

—Venture capital investing in San Diego startups plunged during the fourth quarter that ended December 31st, with $193.1 million invested in 26 companies, according to the MoneyTree Report from the National Venture Capital Association, PricewaterhouseCoopers, and Thomson Reuters. That was a 43 percent drop in dollars invested and a 25 percent decline in deals, compared with the fourth quarter of 2009, when $343.9 million in funding went to 32 local companies. Total funding in 2010 amounted $846.9 million in 115 local companies, compared with $943.9 million in 109 San Diego area companies.

—Nationwide, the MoneyTree Report found that venture firms invested $5 billion in 765 deals nationwide, a nearly 7 percent drop in dollars invested and an 11 percent decline in deal count compared with the same quarter of 2009, when $5.4 billion went into 864 deals.

—Verve Wireless of Encinitas, CA, hired Tom MacIsaac as CEO, replacing founder Art Howe, who will remain as chairman of the mobile media technology company. MacIsaac, who is the former CEO of ExtendMedia, will remain in the Washington D.C. area, where Verve has established a new office. The arrangement raises a question as to how long Verve’s headquarters will remain in the San Diego area.

—Transaction Wireless, a San Diego startup that provides virtual and mobile gift cards, named Doug Schneider as President and CEO. He is the former CEO at Genea.

—San Diego’s Fallbrook Technologies said it has established a partnership with Team Industries of Detroit Lakes, MN, to develop electric vehicle transmission prototypes. Fallbrook and Team Industries plan to develop the power train for a low-speed vehicle electric vehicle, the Tomberlin Anvil. Fallbrook has been developing a more energy-efficient, continuously variable transmission that does not use a conventional gear and clutch.

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Another report on venture investing is being released today, this time showing a decline in fourth-quarter deal activity compared with the same quarter in 2009—albeit a slight uptick from the previous quarter—and a significant overall gain for the entire year.

Venture funding during the fourth quarter of 2010 amounted to $5 billion in 765 deals nationwide, according to the MoneyTree Report from the National Venture Capital Association (NVCA) and PricewaterhouseCoopers, based on data from Thomson Reuters. That represents a 6.8 percent drop in dollars invested and an 11 percent decline in deal count compared with the same quarter of 2009, when $5.4 billion went into 864 deals.

However, the numbers mark a 2 percent increase in dollars and a 3 percent decrease in the number of deals in comparison with the third quarter of 2010, when VCs sank $4.9 billion in 789 deals. Venture investors said in a conference call with reporters that they’re sensing a return to normalcy amid a broader economic recovery and as the capital markets relax from the clampdown that began in 2007.

With the pace of venture buyouts and IPOs increasing, there are fewer later-stage startups now than in recent years, said John Taylor, the NVCA’s vice president of research. “It suggests that a lot of companies that arrived at a later stage, and needed late-stage funding, are starting to move on,” Taylor said during the conference call.

“The overall market for investing has clearly been strengthening,” said Seth Levine, a managing partner at the Foundry Group in Boulder, CO. He said the 2010 data reflects “an increase in activity, and an increase in energy,” and added that he expects to see single-digit growth rates in venture investments in 2011. Levine also singled out advertising technologies, mobile, and personal instrumentation (for monitoring calorie intake, steps taken, and other personal data) as hot areas for tech-related venture investments.

For the year, venture capitalists invested $21.8 billion in 3,277 deals, according to the MoneyTree Report. That’s a 19 percent jump in dollars invested and a 12 percent increase in deals over 2009, when the MoneyTree survey counted $18.3 billion in 2,927 deals.

“2010 for us was what I would call an average year,” said Gerry Langeler of Seattle-area-based OVP Venture Partners. Langeler, who called … Next Page »

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