San Diego’s SG Biofuels, an agricultural biotech developing the Jatropha plant to produce biofuels, says today it has raised $17 million in a Series B round of financing led by Thomas, McNerney & Partners. San Diego-based Finistere Ventures also joined the round, along with existing investors, Carlsbad-based Life Technologies (NASDAQ: LIFE) and Flint Hills Resources, the Kansas refining and chemicals business owned by Koch Industries.

Thomas, McNerney partner Pratik Shah, who moved his office to San Diego from San Francisco last year, has joined SG Biofuels’ board, along with Jerry Caulder, Finistere’s managing director and the former CEO of Mycogen, an agricultural biotech founded in San Diego.

SG Biofuels says it will use the additional capital to expand its research and development, advance commercialization efforts, and scale global operations. The company says it is working with an airline industry consortium to plant 250,000 acres of Jatropha. The agricultural biotech has focused on improving the jatropha plant to optimize its productivity in various climate zones. The shrub’s golf ball-size seeds produce oil that can be processed into jet fuel, biodiesel, and other fuels.

In a statement from the company, SG Biofuels CEO Kirk Haney says, “The funding comes at a time when we’re experiencing significant commercial adoption of our hybrid Jatropha and will be instrumental as we continue to expand our global footprint.”

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Venture capital activity that surged during the first three months of 2011 continued to rise through the second quarter, as funding for Internet startups soared by 69 percent over the same quarter last year, according to CB Insights, a New York information and data services firm.

In its quarterly venture capital activity report, CB Insights says U.S. venture firms invested $7.6 billion in 768 startups throughout the country during the second quarter ending June 30. It was a nine-quarter high point for both dollars and deals, and represented a 54 percent increase (from $5.9 billion) in capital, and a 25 percent gain in deals (from 612), compared with the same quarter in 2010. VC activity during the quarter even showed a slight increase over the first quarter of 2011, which recalled a pre-recessionary era as VCs pumped $7.5 billion into 738 startups nationwide.

If the current pace of venture funding continues, the U.S. could reach between $29 billion and $30 billion in total capital invested this year. “Of course, some of the punditry have suggested that the VC asset class’ ‘right size’ is around $25 billion,” the report says, “so it will be interesting to see if the momentum of Q1 and Q2 continues or if we’re in for a second half swoon.”

I’m expecting to get a more-detailed regional breakdown on venture activity next week, when the rival MoneyTree and Dow Jones VentureSource surveys will help triangulate VC trends. In the meantime, here are some highlights of the nationwide data being released today by CB Insights:

—Internet startups represented the busiest sector of venture activity during the second quarter, with VCs investing $2.74 billion (or 36 percent of all dollars) in 298 startups (39 percent of all deals). The capital flowing to Internet deals marked a 69 percent jump over … Next Page »

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There must be some way out of here, but venture capitalists around the world say the current level of initial public offering (IPO) activity is too anemic to sustain the venture capital industry in the United States and eight other countries, according to a global VC survey.

In the United States, 91 percent of the venture capitalists surveyed agreed with the softball question: “Is an active IPO market in your home country essential for the success of the venture capital industry?” You might ask yourself, “Who’s going to say no?” But the response from VCs in other countries ranged from 40 percent agreement in Israel to 88 percent in Brazil.

The 2011 Global Venture Capital Survey, conducted jointly by the National Venture Capital Association and the Deloitte accounting and consulting firm, was sent to venture capitalists in the United States, China, India, United Kingdom, Germany, Canada, France, Israel, and Brazil. Of the 347 responses returned, 48 percent were from U.S. venture capitalists and 52 percent were from VCs in eight other countries.

Among the U.S. venture capitalists surveyed, over two-thirds (68 percent) anticipate that total capital investments in cloud computing will increase over the next five years, with about one-third (31 percent) predicting that cloud computing investments will remain the same.

In the same vein, two out of every three American VCs (64 percent) expect an increase in capital funding for new media and social networking startups over the next five years, with almost a third (32 percent) saying such investments will remain the same. The survey also found that 54 percent of U.S. VCs anticipate an increase in capital funding for healthcare services, while 33 percent expect healthcare services funding to remain level.

In contrast, a majority of U.S. VCs said they anticipate that total capital investments in the telecommunications, semiconductors, biopharmaceuticals, and medical device and equipment sectors will stay at current levels or decline over the next five years.

Some other findings highlighted in the survey:

—VCs in all nine countries overwhelmingly agreed (83 percent) that the top factor needed to create a healthy and vibrant IPO market is a “healthy investor appetite for equity in public companies.” VCs also cited a stable economy (52 percent) and adequate stock analyst coverage (32 percent).

—Asked to name the most-promising stock exchanges for venture-backed IPOs over the next five years, the top five selected by surveyed VCs are: the Nasdaq exchange (87 percent); the New York Stock Exchange (39 percent); Shanghai Stock Exchange (33 percent); Hong Kong Stock Exchange (26 percent); and the London (AIM) Stock Exchange (26 percent).

—Of the global VCs that are investing outside their home country, 57 percent of those surveyed said they plan to increase this activity over the next five years. Among the U.S. VCs surveyed, 42 percent said they expected to increase their investment activity outside the United States; 30 percent anticipate that it will remain the same; and 25 percent do not invest outside their home country.

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The MoneyTree snapshot of first-quarter venture activity that we reported 10 days ago showed a dire decline in venture investments in the San Diego region so far this year. But the local picture looks a lot better in data for the same period that came in recently from Dow Jones VentureSource.

The information from Dow Jones VentureSource shows that VC activity remained fairly stable in San Diego during the first three months of 2011, with $213.9 million invested in 26 deals here. That represents a 3 percent decline in capital invested and a 7.6 percent increase in deal count from the $207.2 million and 24 deals that Dow Jones counted in San Diego for the same quarter in 2010.

“The data we are seeing is basically flat investment on a year-over-year basis, both as it relates to the deal flow and dollars,” says Dan Kleeburg, an audit partner in the San Diego office of Ernst & Young, which is aligned with Dow Jones VentureSource in producing the report.

But according to MoneyTree, venture capital invested in the San Diego region during the first quarter fell by 55 percent—to just over $100 million—and the 22 deals that MoneyTree counted represented a 29 percent decline in deals from the same quarter last year. The MoneyTree Report comes from the National Venture Capital Association, PricewaterhouseCoopers, and Thomson Reuters.

Ernst & Young’s Kleeburg adds, “As it relates to stand-out sectors during the first quarter of 2011, I think there is no surprise there. San Diego continues to perform well in the biotech, cleantech, and software sectors. On a combined basis those industries represent approximately 75 percent of the investments coming into San Diego.

“In the current environment, it remains very difficult to close a round of financing, the negotiations and complexity of the deal terms are expanding,” Kleeburg says. “We continue to see a few large deals close, those in excess of $25 million; however, the bulk of the deals that are closing are closer to the $5 million range. Most of these smaller rounds are going to later stage investments where the VC’s are several rounds into the company.”

Each rival maintains its data is the most authoritative, and that their numbers vary because of differences in the way each counts and categorizes venture deals. So what one firm counts as a cleantech deal in the first quarter might be counted in a different quarter by the other—or in a different category, such as energy or IT. Still, it’s pretty ridiculous to see such huge disparities.

Who should we believe? Who do you want to believe?

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The Seattle tech scene got its first entrant in what looks like a coming wave of initial public offerings when Zillow made its intentions official, filing paperwork with federal regulators Monday for a future stock sale. In its filing, the online real-estate listing and mortgage database said it would seek about $52 million from the stock market—not a huge sum for an IPO, but significant for the area’s entrepreneurship and investing community nonetheless.

Zillow has seen increasing competition in the online real-estate sector, including vocal San Francisco-based startup Trulia, which recently boasted that it was assembling an “IPO-ready management team.” HitWise reported that Zillow’s traffic ranked No. 3 among real estate websites, one spot ahead of Trulia and just behind Yahoo—where Zillow’s listings appear under a partnership.

There was plenty more action elsewhere on the Seattle tech beat:

—PopCap looks like it’s also ready to hit the public markets. The Seattle casual game company recently went on a media and investor blitz in New York, talking up its growth, revenue, and position in the hot gaming market. We gleaned a lot of interesting bits from the various interviews that PopCap gave, including an assertion that it generated $100 million in revenue last year, an increase of about 20 percent from the year before. The company’s leaders also discussed difficulties in getting investors to understand the difference between its development compared to a console game publisher, and the attractiveness of hitting the public market before social-game giant Zynga.

—Speaking of Zynga, I headed over to the San Francisco company’s new Seattle office to look at the digs and hear some remarks from founder and CEO Mark Pincus on the company’s plans for its new Northwest beachhead. In one word: Hiring. The maker of addictive Facebook-based games like “FarmVille” and “Mafia Wars” was not shy at all about inviting techies in the packed crowd to send in their resumes—Pincus gave out his e-mail address and spent quite a bit of time talking one-on-one with people afterward about jobs.

—Microsoft co-founder Paul Allen continued drumming up interest in his new autobiography, “Idea Man,” with an interview on 60 Minutes that delved into some of the early Microsoft stories and Bill Gates arguments detailed in the excerpt published recently in Vanity Fair. For a guy who hasn’t … Next Page »

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Since part of my job at Redstar Ventures is to meet as many entrepreneurs as possible who might want to co-found a startup with us, I’ve swilled plenty of coffee at Voltage and Peet’s swapping ideas with many a bright, passionate, and inventive entrepreneur. Somewhere into my second gallon of cappuccino, I began to notice a simple pattern emerging in the fundamental approach entrepreneurs have to their ideas. Grossly speaking, the ideas and entrepreneurs that go with them tend to fall into one of four quadrants of the following matrix (with deference and apologies to the BCG Cash Cow)

Let’s look at the left half of the chart below first. A great example of the Technology driven / Me market quadrant (lower left) would have to be the entrepreneurs behind Rockmelt, who are building an integrated web and social media browser for, well, twenty-something hipster tech guys. In their homepage “what is it” video, the narrator and prototypical user is “a recent college grad who moved out to California to join the Rockmelt development team.” Can’t be any clearer than that—their initial target market is their own employees! I have no first-hand knowledge of Rockmelt’s early ideation, but it feels like a pretty classic tech-driven concept in the sense that it takes something people are doing already (web browsing, Facebook, Twitter) and tries to make it easier and more efficient through a unified, integrated user interface.

An example of the Technology-driven / Others quadrant (upper left) would be Radianse, a startup that uses RFID tags to track patients, workers, and pharmaceutical containers in a hospital to make sure that the right patients are being given the right drugs. The headline of Radianse’s very first press release is “Indoor Positioning Systems reach Tipping Point: Reduced cost and complexity expand application potential for healthcare.” What typifies a Technology / Others Market is that the founders are usually taking their expertise in a technology and exploring what new markets might exist for that technology. They might be completely indifferent to the market itself other than its profit potential.

Opportunity-driven concepts, on the other hand, tend to start with an identified exploitable gap, such as a new law (or loophole), economic shift, or simply an insight into a market opportunity that some other incumbent player has left open. My favorite example of a lower right quadrant company is Facebook. If we believe what was depicted in The Social Network, Mark Zuckerberg, through the Winklevoss twins, became aware of the market opportunity for social networks that were exclusive—in their case, restricted to the ivy walls of Harvard and its peers. The opportunity itself was left open by the dominant player, MySpace, whose lack of restrictions and encouragement of extremes in tackiness built a sort of unwashed masses environment that lacked appeal to the better-heeled denizens of higher education. By definition, Facebook was targeting Zuckerberg and his fellow undergraduates themselves, only pushing to other universities and ultimately the broader public once they had successfully dominated their initial market.

Lastly, the upper right quadrant in my chart belongs to Opportunity-driven concepts that again target markets that the entrepreneur is not a member of. The best example I can think of here is when Andrew Mason took his social motivation site, The Point, and pivoted some of the pieces into launching Groupon. According to Mason, he carefully studied the original group buying site, Mercata, identifying a major market opportunity in selling services as opposed to hard goods, particularly in the depths of a recession where bookings in almost every restaurant, spa, and event had plummeted. In terms of target market, choosing a name and visual design that could not allude more appealingly to weekly circular coupons strongly points to a service laser targeted towards women. And indeed, Groupon’s Female to Male ratio is an astonishing 3.3-1!

But, it’s hard to find lots of upper-right quadrant examples—mainly, I think, because there are simply fewer startups that fall into this corner. The reason behind that is fairly obvious: it’s much easier for entrepreneurs to solve problems for people like themselves, because they can use their own opinions, emotions, and reactions as a proxy for their market. Similarly, it’s a lot easier to take an existing tool and find new uses for it than it is to figure out what tool should be invented in the first place. As the proverb goes, when you are carrying a hammer everything looks like a nail. But unless you know what a nail looks like and understand that there’s money to be made in smashing them into things, it’s pretty hard to imagine inventing the first hammer. In more concrete terms, developing startups in the upper right quadrant favors entrepreneurs who have access to more sophisticated insights about market trends, demographics shifts, latent demands, and consumer motivations across a broad spectrum of industries and population segments.

Note that unlike most four-quadrant charts, it’s not at all clear that being in the upper right quadrant is the most desirable. But, with the flood of new Internet startups hitting the space, accompanied and sometimes assisted by the flood of new startup incubators (full disclosure—including Redstar!), there are clearly some conceptual areas that are seeing ridiculous amounts of overlap and repetition. The downside of the incredible connectedness of the global Internet startup community is the tendency to swarm around the same ideas at the same time. Most markets shake out to two or three “winners,” with all the other also-rans ending up as venture industry statistics. While there are huge success stories in all four quadrants, personally, I’m most interested in startups in the upper right, if only because there’s a lot more white space there and will likely continue to be for the foreseeable future.

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Seattle online real-estate company Zillow is trying to raise nearly $52 million in an initial public offering, according to registration paperwork filed today with the Securities and Exchange Commission.

Zillow, which has been edging toward an IPO for some time, said in the statement that its revenues nearly doubled last year to about $30.5 million. The company is still losing money—but those losses have been declining significantly, dropping from about $12.9 million in 2009 to about $6.8 million in 2010.

The filing also shows that Zillow has been spending down its cash stockpile in the past few years, and although it isn’t running out, the company is apparently looking to this IPO to replenish its well. The S-1 said that Zillow’s cash and short-term investments stood at about $41.7 million in 2007, but had dropped to about $13.8 million last year.

Three investment groups have the most to gain through a Zillow IPO. TCV Funds holds almost 30 percent of Class A common stock, followed by Benchmark Capital, with 19 percent, and Par Investment Partners, with about 11 percent ownership as of today. Company co-founders Rich Barton and Lloyd Frink also are the sole holders of Zillow’s existing Class B stock, which gives them a 10-to-1 vote advantage over other stockholders. The split is roughly 55 percent for Barton and 45 percent for Frink.

The company also said it would sell $5.5 million worth of stock at the IPO price to existing investors, including Technology Crossover Ventures, in a concurrent private placement. Zillow has attracted nearly $90 million in financing over its lifespan.

Zillow said its revenue growth in the past few years has been largely driven by growth in its “marketplace” revenues, which include subscription fees for real estate agents and advertising sold to mortgage lenders, along with charges for lenders to participate in the company’s Mortgage Marketplace.

The underwriters of the proposed deal are Citi, Allen & Company, Needham & Company, ThinkEquity, and First Washington.

Zillow had a pretty big year in 2010. In July, the company partnered with Yahoo Real Estate, creating the largest real estate advertising network in the industry. It inked another partnership in the fall, this one with Chicago-based Apartments.com to create a more comprehensive national database of apartment listings.

Spencer Rascoff was promoted to chief executive last fall, taking over for Barton. At that time, Rascoff said the Zillow Mortgage Marketplace was its fastest-growing business. That feature lets consumers anonymously shop for mortgage rates in different markets around the country. Zillow also recently extended its brand of pricing estimates—or “Zestimates”—to apartment listings.

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Cambridge, MA-based Atlas Venture and the agribusiness giant Monsanto (NYSE: MON) are working together to find interesting life sciences investments to complement Monsanto’s agriculture business, Monsanto said today. It’s another case of venture firms working with large companies at an early stage.

While no financial terms of the agreement were disclosed, the companies called this deal a “multi-year collaboration.” St. Louis-based Monsanto says it wants Atlas’s help in scouting investments in the areas of genomics, informatics, and biology. In return, Atlas says it will gain additional technology capabilities and valuable insights from an industry heavyweight that it can use during its own investment process. It also wouldn’t be surprising if Monsanto chose to make a strategic investment or two in early-stage companies found in Atlas’ portfolio.

We’ve seen big companies working closely with venture firms and startups an early stage before. For example, Boston-based PureTech Ventures has formed collaborations with Big Pharma companies to support its portfolio firm Enlight Biosciences, which develops technologies to advance drug companies’ research and development productivity and efficiency. At six-year-old Aileron Therapeutics, a developer of so-called “stapled peptide” drugs, the company has taken investments from the VC arms of four Big Pharmas (Eli Lilly, GlaxoSmithKline, Novartis, and Roche) and has two of them (Novartis and Glaxo) represented on its board of directors, according to the company.

“By applying Monsanto’s research-based approach to innovation in agriculture to evaluating new life sciences technologies, we’ll be able to access technology platforms and deep expertise right from the beginning of the company building process,” Jean-Francois Formela, a partner at Atlas, said in a statement. “The collaboration is truly synergistic and leverages each group’s core competency and expertise.”

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With March Madness officially over, Forbes is feeding the thirst for some statistical gamesmanship with its latest “Midas List,” an attempt to rank the country’s top 100 venture capitalists. The Seattle area has just one entry on the list: Madrona Venture Group‘s Matt McIlwain, at No. 75—in fact, there were more women in the rankings than people from the Puget Sound region. Forbes cited, of course, the huge $2.25 billion purchase of Isilon Systems by EMC, along with the 2008 acquisitions of World Wide Packets and Farecast.

The Forbes rankings are based on both data and subjective factors. You can check out the full methodology statement, which acknowledges “blind spots” in record-keeping. Shorter version: They analyzed exits of $200 million or more during the past five years for venture-financed companies in the U.S., Europe and Israel (Asia will be part of a separate list). That data also was weighted, for example giving higher scores to earlier-stage investments, and an expert panel chimed in with some less mathematical judgments.

I’d think that with a five-year timeline, we might see more local VCs mentioned, but maybe the dollar threshold is the key. Please feel free to register any complaints with the methodology, oversights, or general displeasure with this particular bit of media click-bait in the comments. Also, prepare for a horrifyingly intrusive rollover video ad on the Forbes site.

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AT&T’s blockbuster $39 billion bid for Bellevue, WA-based T-Mobile is easily among the biggest stories of this year in Seattle-area tech. But the deal won’t be consummated for a year or more as government regulators consider the massive industry consolidation at stake.

As you’d expect, there’s been a fair bit of teeth-gnashing associated with the buyout—losing a headquarters operation in an area where you’ve led for so long can feel like a very bad omen. So now that the news has had some time to sink in, we wanted to ask some of Seattle’s mobile-industry veterans for their take on what the deal means for this region.

My first conversation was with venture capitalist Tom Huseby, managing partner at SeaPoint Ventures and a venture partner with Voyager Capital, Oak Investment Partners, and Covera Ventures. He’s a wireless-industry veteran, from his co-founder days at cellular-antenna company Metawave up through board positions with startups like Ground Truth, Ontela (now Photobucket), and Zumobi. And for anyone who wants a really engaging history lesson on the rise of wireless in the Seattle area, check out this 2008 interview that Huseby did with my colleague Greg Huang.

This time, however, I was asking Huseby to look forward.

First of all, he says that while T-Mobile’s sale isn’t great for wireless innovation in the Seattle area, it’s also not as bad as everyone thinks. A primary thing that’s lost in such a change is the ability for entrepreneurs and investors to get in front of a CEO or other top officers, and the close relationships built up over years of sharing a home base.

“It’s really nice to deal with people who know where you live and you know where they live. There’s a home-field advantage, without a doubt, in the startup world,” Huseby says. “We’ve had the benefit of all working together over many, many years. People come to startups, and they go to the carriers, and they come back to startups. There’s a nice interdependency that’s built up, and that’s missing. On the other hand, I’ve never seen a startup succeed that didn’t go get on a plane and sell something.”

In other words, the buyout is something that entrepreneurs and investors can adjust to with a bit more work. Another factor making the change easier to deal with is the amount of experience and talent in the area, a lot of which could stay put. When the deal was announced, AT&T said “the combined company will continue to have a strong employee and operations base in the Seattle area.” Huseby notes that the job base won’t likely be just administrative and back-office work, either, because there are lots of talented people in the area working in important areas such as product development.

What will make things harder overall for innovation in the wireless sector is the plain fact that there will now be one less carrier chasing new ideas. That, of course, will be a major focus for the federal … Next Page »

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Would Pete Townshend get an injection into his inner ears to save his hearing? After at least 50 years in Rock n’ Roll, it’s probably too late to save the legendary songwriter’s hearing, but San Diego-based Otonomy today announced data that suggests its lead drug candidate could help people recover from hearing loss caused by “noise trauma.”

In data presented by Otonomy at this week’s 34th MidWinter Meeting of the Association for Research in Otolaryngology, the San Diego startup says a single injection of OTO-104, a sustained-release gel formulation of the corticosteroid dexamethasone, provided significant protection against both noise-induced and chemotherapy-induced hearing loss. Otonomy says pre-clinical studies showed positive results when the treatment was given before noise trauma, and also was shown to promote recovery from noise-induced hearing loss several days afterward.

“Most importantly, these results lend support to the potential utility of OTO-104 in protecting cancer patients from a damaging side effect of chemotherapy,” says Carl LeBel, Otonomy’s chief scientific officer. The compound also holds “the promise for treating individuals exposed to excessive noise on the battlefield or in the workplace,” LeBel says. “We look forward to advancing OTO-104 into clinical trials for these patients.”

The findings also indicate that OTO-104 has potential applications beyond Meniere’s disease, the company’s initial targeted disease. Meniere’s is an imbalance of the inner ear fluid that leads to episodes of severe dizziness, vertigo, and gradual hearing loss. As Luke has reported, Otonomy was founded in 2008 by Avalon Ventures’ Jay Lichter to develop innovative therapeutics for diseases and disorders of the ear.

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Venture capitalists and venture-backed CEOs are feeling more optimistic about 2011, according to the fifth annual outlook survey being released today by the National Venture Capital Association and Dow Jones VentureSource. The most recent “Venture View” survey is based on responses from more than 330 VCs and 180 executives that were collected nationwide at the beginning of December.

With investors returning to the public markets (the Standard & Poor’s 500 stock index is up 11 percent this year, and more than 80 percent since March 2009), two-thirds of the VCs say they expect to see more venture-backed companies going public in 2011. Venture capitalists also predict that venture firms also will invest more capital in the coming year—which is a good thing, since more than two-thirds of the CEOs say they plan to pursue additional funding in 2011.

Venture-backed chief executives say they expect to hire more, sell more, and (of course) get paid more in 2011.

The survey suggests that VCs are gaining confidence in the improvement of their industry, and in the recovery of the U.S. economy in general.

At this time last year, the survey showed that venture capitalists were only cautiously optimistic. “The market was so troubled in 2009, the sentiment was that things had to get better in 2010,” says NVCA President Mark Heesen in a statement. “The improving exit market and a renewed excitement in the IT sector have engendered a confidence among VCs and the CEOs of the companies in which we invest that promises to propel the startup community forward in 2011.”

VCs were less confident, though, about their own prospects for fund-raising—which poses a concern for the industry’s well-being. When asked “How will U.S. venture capital fund-raising fare in 2011?” 38 percent of the VCs said they expect fund-raising to increase, while 32 percent expect it to decrease, and 30 percent anticipate that fund-raising will remain unchanged. Nearly half (48 percent) said they expect to see more … Next Page »

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In a page taken from the discount retailing playbook, San Diego’s Trius Therapeutics slashed the proposed price of its pending IPO by roughly 60 percent and increased the number of shares it is offering by 67 percent.

Trius now plans to offer at least 10 million shares at $5 apiece, after initially planning to sell six million shares at a price range between $12 and $14 a share, according to Renaissance Capital, which tracks IPOs. The biotech, which was founded in 2004, plans to use the proceeds to complete late-stage clinical trials of its antibiotic, torezolid phosphate.

As Luke reported last year, the company’s lead antibiotic candidate is from the same class of compounds as Pfizer’s linezolid (Zyvox), which represents a billion-dollar-plus market. Trius, which says it has a technology platform for creating a class of similar molecules, says its torezolid phosphate represents an improved alternative, a pill that can be taken at a lower dose, over a shorter period of time, and be given once a day instead of twice.

Trius has raised more than $68 million in venture funding from Kleiner Perkins Caufield & Byers, Sofinnova Venture Partners, InterWest Partners, Versant Ventures, and Prism Venture Partners, according to VentureWire. The venture investors do not appear to be selling shares in the initial offering.

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San Diego has learned from years of painful experience that being the hometown of a corporate headquarters is an insecure relationship that depends entirely on the fidelity of the company’s CEO. So it seemed inevitable that San Diego-based V-Vehicle would move its headquarters to the San Francisco Bay Area after the wheels came off the automotive startup on March 24th.

That was the fateful Wednesday when the U.S. Department of Energy rejected V-Vehicle’s application for $320 million in loans ($70 million for engineering and $250 million for manufacturing) under the agency’s Advanced Technology Vehicle Manufacturing program.

The DOE decision appeared to take V-Vehicle by surprise. Within a week, founding CEO Frank Varasano left the company—along with Horst Metz, the vice president of assembly operations. Ray Lane, V-Vehicle’s founding chairman and a managing partner at Kleiner Perkins Caufield Byers, stepped in as interim CEO. So it seemed it was only a matter of time until V-Vehicle moved its headquarters from San Diego, where Varasano lives, to someplace near Lane’s office in Menlo Park, CA.

V-Vehicle Headquarters

Something like that still seems likely to happen. Lane continues to run the four-year-old startup on an interim basis from Menlo Park, while Kleiner Perkins conducts an active search for a replacement CEO, according to David Langness, a spokesman for V-Vehicle in Los Angeles. Langness tells me that most of V-Vehicle’s corporate functions, including finance and operations, remain at the startup’s leased office space in downtown San Diego’s East Village.

V-Vehicle has raised about $87 million in venture funding, and Kleiner Perkins (which also is backing electric carmaker Fisker Automotive of Irvine, CA) is not the only big-name involved. Other prominent investors include the billionaire oilman T. Boone Pickens (who was calling for a switch to natural gas-powered vehicles), and Google Ventures. But the VC money represents only a fraction of V-Vehicle’s capital requirements, so the Energy Department’s rejection has pushed the startup to the precipice. The company still needs the federal loans, along with almost $90 million in Louisiana state and local government financing, to build its automotive assembly plant in Northeastern Louisiana.

Lane, who was the president and COO at Oracle before joining Kleiner Perkins, travels frequently between Menlo Park and San Diego, as well as Monroe, LA, where V-Vehicle still hopes to refurbish a shuttered plant, and Detroit, where the company also maintains an office. Tom Matano, the celebrated Mazda designer who was recruited as V-Vehicle’s director of design, continues to work … Next Page »

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San Diego’s life sciences community and angel investors are watching transfixed as investigators unfold the suspicious death of La Jolla resident John G. Watson. We also saw some huge funding deals over the past week, and we’ve summarized it all for you here:

—Carlsbad, CA-based Regulus Therapeutics announced a lucrative partnership with Sanofi-Aventis, the Paris-based pharma giant, to discover, develop, and someday co-market microRNA drugs. Sanofi agreed to pay Regulus as much as $750 million in milestone payments, eclipsing the $600 million deal Regulus struck with GlaxoSmithKline in 2008.

—Kent Keigwin, a 59-year-old financial advisor, appeared in a San Diego County Superior Court yesterday to face identify theft, grand theft and forgery charges. San Diego Police say Keigwin posed as John G. Watson, a retired biotech executive and local angel investor, and illegally transferred $7.5 million out of Watson’s brokerage account. Watson, who was 65, was found dead in his La Jolla home on June 8.

—San Diego’s Neurocrine Biosciences (NASDAQ: NBIX) granted worldwide rights to experimental diabetes drugs to German drug maker Boehringer Ingelheim in a deal that could be worth as much as $225 million. In a separate deal, the U.S. drug giant Abbott Laboratories agreed to pay Neurocrine up … Next Page »

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San Diego’s SmartDrive Systems, which uses video recording technology and web-based services to help reduce the operating costs of motor vehicle fleets, says in an amended regulatory filing that it has expanded its targeted funding to $28.5 million. The company, which has more than 350 worldwide employees, disclosed plans in December to raise as much as $25 million—after raising $12 million in October. In its latest filing, SmartDrive says it has raised $12 million so far.

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Founders of venture-backed startups should be building their business to go public through an IPO, but it is far more likely they will get acquired instead, according to former investment banker Steve Fletcher, who is now a managing director in the San Francisco office of GCA Savvian Advisors.

Fletcher, who was a keynote speaker this morning at the Red Herring North America 2010 conference in San Diego, says financial markets have fundamentally shifted away from small cap IPOs. Last year, the median IPO raised $107 million, and as Fletcher puts it, “The days of the $30 million IPO are largely gone.”

The mix of venture-backed IPOs also has changed, says Fletcher. The number of tech IPOs, which was by far the biggest sector not long ago, shrank to 25 percent of the total in 2009, Fletcher says. Healthcare IPOs accounted for 37 percent of last year’s total and “other”—which was primarily cleantech IPOs—made up 38 percent and represented the biggest technology sector. Fletcher was an investment banker at Goldman Sachs for nine years before joining GCA Savvian, an investment banking advisory firm formed in the 2008 merger of Japan’s GCA and the U.S. firm Savvian advisors.

There have been a total of 21 venture-backed IPOs so far this year—including Carlsbad, CA-based MaxLinear—in comparison to 264 in 2000 and 70 in 1990. “We’re now on a pace for 40 IPOs this year, so it’s just a fundamentally different market,” Fletcher says. (Three other companies in the San Diego area that have filed for IPOs are still waiting in the pipeline: Trius Therapeutics, Prometheus Laboratories, and Fallbrook Technologies.)

In contrast, though, Fletcher says there have been far more venture-backed mergers and acquisitions in recent years. In 2009, when there were just eight IPOs, he says there were 326 M&A deals involving venture-backed companies. In 2008, there were 7 IPOs and 380 M&As, and in 2007—before the recession—there were 78 IPOs and 483 M&A deals.

At a time when the market metrics for IPOs tend to be discouraging, Fletcher says the indicators for corporate buyouts are looking good: The S&P 500 has gained 75 percent this year, and companies also have more available cash after cutting dividends, cutting their stock buy-backs, and cutting their employees. “When you combine [the availability of] much … Next Page »

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Have we turned the corner on the recession? That was the big question for the out-of-town venture capital partners—including two from the San Francisco Bay Area—who came to San Diego last week to offer their perspective on the post-collapse generation of venture capital and technology innovation.

“One thing that’s clear is that the other side of that corner is not going to be the same,” said Emily Mendell, vice president of strategic affairs with the National Venture Capital Association in Washington, DC. Mendell also came to town to moderate the breakfast discussion organized by the San Diego Venture Group, also featured Bryan Roberts, a Venrock partner in San Francisco; David Dreesen, a Battery Ventures partner in Menlo Park, CA; and Mike Dodd, a venture partner at Austin Ventures in Austin, TX.

So what did these VCs say about a rebound? Dreesen and Dodd said “yes” when they thought the question was whether the overall economy had turned the corner. But all three VCs said “no” when Mendell clarified her question to ask whether the venture capital industry itself is rebounding.

“The Valley [Silicon Valley] is red-hot for early stage deals,” said Dodd, who oversees mostly Web-enabled consumer and online media deals at Austin Ventures. VC investing also has developed some interesting themes in certain sectors, such as Internet startups, which have become much cheaper to develop and much easier to bootstrap. But the fundamental problems remain: There is still little exit activity among venture-funded startups, “and just too much money running around,” Dodd said.

Cleantech also has been a robust sector for VC investing, accounting for over 30 percent—or about $1.7 billion—of the venture capital that was invested nationwide during the first quarter, according to Dreesen, who oversees much of Battery Ventures’ cleantech deals. But Dreesen added, “There really hasn’t been a shakeout in cleantech,” where he estimates $30 billion has been invested since 2005.

So does he see a bubble in cleantech?

“Well, when you’ve got $30 billion going in, you’d like to see at least $30 billion coming out,” Dreesen said. He estimated an investment like that would have to generate something like $120 billion in total return on investments to justify the risks, which seems unlikely. “I think cleantech as a sector is not going to do well,” Dreesen said, “although we think there are opportunities that are going to do well.”

Roberts, who oversees investments in life sciences and health IT at Venrock, said the … Next Page »

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We turned up some recent funding deals for several San Diego life sciences, including venture funding for a medical device startup, and financing deals for one company developing anti-cancer drugs and another developing medical diagnostics. Here’s a rundown of what I found:

—Access Scientific, a San Diego-based medical device startup, has collected more than $2.6 million in a secondary venture round that aims to raise a total of more than $2.9 million, according to a recent regulatory filing. The company moved to San Diego after it was formed in New York two years ago by David Geliebter, managing partner of Carrot Capital Healthcare Ventures. He had licensed core technology from Yale University and other patent holders for a faster, safer, and easier vascular insertion device. Access says its “Wand” is designed to reduce the risks associated with inserting a small flexible tube (cannula) into blood vessels. Geliebter also assembled the startup’s management team, most of who had previously worked with Venetec International, a San Diego medical device company acquired in 2006 for $166 million. Access, which raised $5.5 million in 2008, identifies San Diego serial entrepreneur Jim Sweeney, CEO of PatientSafe Solutions, as an investor. ASI Investors, an affiliate of private equity firm Wasserstein & Co. also is an investor, and a presumed investor, RLH Enterprises, has a representative on its board of directors.

—San Diego-based Cylene Pharmaceuticals, an anti-cancer drug developer, has raised $6.1 million in a round that targets $14 million in debt, options, and equity, according to a recent regulatory filing. The biotech has raised a total of $77 million since it was founded more than a decade ago. Cylene raised the largest portion of that—$44 million—more than three years ago in a Series C financing co-led by HBM BioVentures (Cayman) and Lilly Ventures. Previous investors include Sanderling Ventures, Novartis BioVenture Fund, RCT BioVentures West, IngleWood Ventures, Coastview Capital, BioVentures Investors, Mitsui Venture Partners, Viterbi Group, Celgene, and Morningside Technologies.

—Ridge Diagnostics, a San Diego medical diagnostics startup previously known as Precision BioLaboratory, has raised $577,000 in an intended $3 million round of debt, options, and securities, according to a regulatory filing. Ridge says it tests blood samples, using diagnostic assays and a proprietary library of biomarkers to analyze and diagnose Major Depressive Disorder (MDD) and other neuropsychiatric disorders. Ridge was founded in 2006, and received initial funding from a National Science Foundation grant and a $250,000 strategic growth loan from the North Carolina Biotechnology Center. (The company’s operations were divided between San Diego and Research Triangle Park, NC, at the time.) The company also has received investment funding from Hale BioPharma Ventures and KI Investment Holdings.

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San Diego has a new semiconductor startup, courtesy of venture funding from the Bay Area. San Diego-based Pervasive, a fabless semiconductor design company that is focused on smart grid applications, raised $6 million from investors, according to a recent filing with securities regulators.

The startup’s founding president and CEO is Reza Mirkhani, a former director of marketing for RF tuners at San Diego-based Entropic Communications. He was previously an executive vice president of marketing for a company called Integrated RF Devices, and a senior marketing manager at Fremont, CA-based Centillium Communications, according to his LinkedIn profile.

Mirkhani’s profile also describes Pervasive as a fabless semiconductor company with 22 employees that is focused on designing and developing system-on-a-chip solutions for the smart grid market.

Pervasive’s filing with the federal Securities and Exchange Commission does not identify investors, but it lists Rohini Chakravarthy, a partner in the Menlo Park, CA, office of New Enterprise Associates, and Lip-Bu Tan, founder and chairman of Walden International, a San Francisco-based venture investor.

The filing also identifies Shahin Hedayat, the co-founder and former president and chief technical officer of Centillium Communications, as a Pervasive director. Centillium was acquired in July 2008 by Shelton, CT-based TranSwitch (NASDAQ: TXCC) in a deal valued at nearly $43 million.

Hedayat is now chairman of Santa Clara, CA-based Beceem Communications.

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