After Carlsbad, CA-based Verdezyne disclosed last month that it plans to raise more than $15 million in venture funding, I arranged to sit down with Damien Perriman, the company’s vice president of business development.

As it turns out, the startup that was founded in 2005 as CODA Genomics has essentially re-engineered itself over the past 18 months. The company overhauled its core business strategy, recruited a new CEO, E. William Radany, along with a new management team, changed its name, and moved its headquarters from Orange County to Carlsbad, CA, about 28 miles north of San Diego. In changing its name to Verdezyne, the company created an identity that is better aligned with its revised focus on the “green design” of biofuels and industrial chemicals.

The company initially was focused on technology spun out from UC Irvine that used specialized computer algorithms to design synthetic DNA. The company offered its services in Computationally Optimized DNA Assembly, or CODA, to help drug discovery teams at pharmaceutical customers like Eli Lilly and Genentech design synthetic genes that could be used to maximize the production of certain proteins for their biotech drug manufacturing processes.

Perriman, who joined Verdezyne in February, tells me, “Our investors made a decision in 2008 that we could make a lot more money by doing the production ourselves.”

With its extensive experience in computational biology and bioinformatics, Verdezyne saw the value in creating high-diversity libraries of genes, so that various genes could be inserted into fast-dividing yeast cells (and other micro-organisms), essentially programming the microbes to produce enzymes it would not otherwise produce. Verdezyne landed a federal grant last month to help build out its genomic library.

“We prefer to work with yeast,” Perriman says, “but we can work with any fungi or bacterial organism.”

The company, which now has 26 employees, has identified three primary markets for its technology.

The first and most obvious target is an …Next Page »

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We hope to make this a regular feature in our Xconomy cities. It’s a look at small financings of private companies in tech, life sciences, and cleantech. These are deals in the roughly $100,000 to $1 million range, and they’re increasingly where the action is for local entrepreneurs, yet they’re often harder to track than the bigger deals we tend to report on.

And there were at least 12 of these smaller financings in the Northwest in October (see table below), according to ChubbyBrain, a New York-based information services company tracking VC, angel, and other investments in private companies. ChubbyBrain gets its data from regulatory filings, user submissions, and other sources, and this is the second monthly installment of “under the radar” deals in the Seattle area (you can see the previous deals for September here). The data didn’t include the investors or the stage of financing.

A few quick observations: Like the previous month, most of the financings were in Washington (7 out of 12), but a significant number (5) were in Oregon. Most were equity deals (7), with the rest (5) being debt financings. The majority of financings (9) were in software, Internet, or tech, while a much smaller number (3) were in life sciences and healthcare, and no cleantech or energy deals made the list.

If nothing else, these lists are a cool way to hear about emerging startups we otherwise wouldn’t know about. For example, I’ve heard of Teranode, Nearlyweds, and 1000Museums before, but Zapproved and Intellisist are completely new to me.

Here are the 12 “under the radar” deals from last month:

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It wasn’t so much the predictions as the discussion that was most interesting at last night’s annual predictions dinner, organized by the Washington Technology Industry Association. Will Twitter be acquired in 2010, and why? Who will have the dominant cloud computing platform in the next couple of years? What kind of startup are you looking to build or finance, and which areas are you staying away from?

A panel of Seattle-area tech entrepreneurs and investors gamely took the bait and had some lively exchanges over the course of an hour. OK, these guys all know each other, and we’ll take what they say with a grain of salt since it’s a public forum—but here were some of the most interesting points they made. (You can read more comprehensive recaps of the panel on Brier Dudley’s blog at the Seattle Times, and soon on TechFlash by moderator John Cook.)

The panel was split 3 to 2, with the narrow majority guessing Twitter will get bought next year. Andy Sack of seed-stage fund Founder’s Co-op predicted Twitter will make more money than Facebook in 2010 (surprising, given the current disparity in the other direction). Glenn Kelman, the CEO of Redfin, an online real estate firm, said Twitter should charge for search (as it has begun to do in partnerships with Google and Bing). Kelly Smith from Curious Office and the startup Pressplane argued that Twitter could be “absorbed by a big company,” but “it’s going to go nowhere.” By the end of the evening, Sack was predicting that Microsoft would buy Twitter next year.

There was a consensus that 2010 could be a big year for acquisitions. Bill Bryant of Draper Fisher Jurvetson boldly predicted that Amazon will buy Netflix, Blockbuster, and Hulu, while opening brick and mortar “Amazon media stores.” Greg Gottesman from Madrona Venture Group said Cisco might buy EMC (for VMware) and Seattle-based F5 Networks, while Microsoft might buy Research In Motion, the maker of the BlackBerry smartphone. Sack predicted Adobe would pick up Seattle photo-editing startup Picnik. Rupert Murdoch (News Corp.) would buy Seattle’s Cheezburger Network, and someone would buy Redfin.

Looking back on 2009 for a minute, the big deals that were questioned by the panel included Adobe’s acquisition of Omniture (Gottesman said it just didn’t make sense strategically) and …Next Page »

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Seattle-based venture capital firm Maveron has been in the news a lot this month. There have been reports about its latest stealth startup, which is a new type of e-commerce play. Another report from VentureWire said Maveron will be selling its shares in Motley Fool—a deal that will generate cash for Maveron, which led a $26.5 million financing of the online investing website in 1999. And then, just yesterday, I got a press release about Maveron expanding to San Francisco and Silicon Valley.

The VC firm, co-founded by Howard Schultz of Starbucks fame, is used to this sort of attention. But the San Francisco news was a bit confusing to me, because Maveron has been active in the Bay Area for a long time. As usual, the interesting stuff is in the follow-up. I had a chance to connect yesterday with Dan Levitan, a fellow co-founder of Maveron and the mastermind of the firm’s consumer-focused investment strategy. Besides the new San Francisco office, I also asked Levitan about the Seattle e-commerce startup his team is currently building; his outlook and themes in the consumer tech space; and his first fateful meeting with Schultz back in the early 1990s.

First, some basic stats. Maveron was founded in 1998 by Levitan and Schultz, and is best known for its early investments in eBay, drugstore.com, Shutterfly, and Cranium. Its current portfolio companies—there are 22 active around the U.S.—include Potbelly Sandwich Works, Pinkberry, LiveMocha, and Altius Education. The venture firm has about $750 million under management.

Levitan explained that opening Maveron’s San Francisco office has been a two-year process, but it doesn’t signify any shift in the firm’s geographic focus. “I don’t see this announcement as anything more than opening an office where we’ve already done business,” he said. “We’re one firm with two offices.”

The San Francisco office is headed by Amy Errett, a veteran of Olivia.com and E*Trade, who was announced as a Maveron partner last year. She is joined by new principal Ben Choi, who was previously with Storm Ventures, In-Q-Tel, and RRE Ventures. As Levitan puts it, instead of Errett flying up to Seattle four times a month, she’ll fly up three times a month (and the Seattle team will fly down the fourth week).

But Levitan emphasized that he’s looking in his own backyard for new investments as much as ever. “Seattle is an economy and region that’s very rich with groundbreaking, innovative consumer companies,” he said, pointing out obvious examples like Starbucks, Nordstrom, Amazon, and Costco. One less obvious company he mentioned was online real estate broker Redfin, which isn’t in …Next Page »

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Drug development programs got extended at two San Diego life sciences companies, while others had some good news on the fund-raising front. We wrap it all up for you here.

—Fate Therapeutics, a startup working to supply “industrialized” stem cells for the pharmaceutical industry without using embryos, said it raised $30 million in venture capital. That brings the total amount raised by the San Diego-based company to about $50 million since its inception two years ago.

—Cadence Pharmaceuticals (NASDAQ: CADX) said the FDA has delayed its review of the San Diego company’s intravenous pain reliever by three months, to Feb. 12. Cadence provided additional data to the FDA after an advisory panel raised concerns about liver damage from excessive doses of acetaminophen. But Cadence said it remains confident it will win FDA approval of its drug, which contains acetaminophen.

—Carlsbad, CA-based Isis Pharmaceuticals (NASDAQ: ISIS) and its Big Pharma partner, Genzyme (NASDAQ: GENZ), have extended the timeline for their much-anticipated cholesterol-lowering drug by nearly a year. The companies reported encouraging results from a clinical trial, but noted that four out of 34 patients saw their liver enzymes increase to three times normal, a sign of potential liver damage. The companies plan to tinker with the dose of the injectible drug in future trials.

—San Diego-based NextImage Medical, a developer of a Web-based system for scheduling and managing diagnostic imaging services, reporting raising $5 million in a venture round led by Chrysalis Ventures of Louisville, KY.

—San Diego-based Altair Therapeutics, a company developing inhalable drugs to block inflammatory proteins involved in asthma and other respiratory diseases, has closed on the second part of a Series A venture financing, bringing the total amount raises this year to $17 million.

—San Diego-based Cyntellect, which makes work stations used by biotechs for cell analysis, purification, and processing, raised $15.5 million so far in a secondary round that aims to raise a total of $18.6 million, according to a recent regulatory filing.

—GenVault, a Carlsbad, CA-based company that markets dry-storage technologies that allow scientists to store biological samples at room temperature, said it expects to break even by the end of next year. The startup has raised about $32 million so far.

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Seattle-based Voyager Capital has participated in a $5 million investment in 1020, the San Francisco developer of Placecast, a location-based advertising and marketing platform, according to a report in TechCrunch. Quatrex Capital and Onset Ventures also participated in the Series B funding, which will be used to accelerate Placecast’s technology development. Placecast’s algorithms combine data across the Web, mobile, e-mail, and Wi-Fi to try to maximize relevance for advertisers and publishers. In an interview with Xconomy last year, Voyager co-founder Enrique Godreau mentioned 1020 as an example of an intriguingly mainstream mobile startup.

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San Diego’s NextImage Medical, Inc., which has developed a Web-based system for scheduling and managing diagnostic imaging services, says it has raised $5 million in Series A funding in a round led by Chrysalis Ventures of Louisville, KY. Liz Griggs founded NextImage Medical last year as a way to provide high-quality, low-cost radiology services, either through insurers, self-insured employers, or direct-to-consumer. A statement from NextImage Medical says Griggs previously was the founder of New Jersey-based One Call Medical, a radiology preferred provider organization (PPO) that was sold in 2003 for $115 million.

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I had an opportunity to sit down recently (along with several other journalists) for an informal chat with Ellen Pao, a partner at Kleiner Perkins Caufield & Byers and a member of the famed Menlo Park, CA, venture firm’s GreenTech investment team.

Pao was in town to be the keynote speaker at the inaugural Cleantech San Diego Showcase, an event the non-profit industry group intends to hold four times a year as a way of calling attention to emerging green technologies and the local companies developing them. Pao provided an overview of KPCB’s GreenTech team, which consists of 20 partners in the United States and China. The firm has invested about $680 million over the past five years in nearly 50 startup companies, most of which remain in stealth mode.

Pao was gracious, but not especially forthcoming. For example, she told us that KPCB’s greentech investments include funding San Diego-based V-Vehicle Co., which announced plans earlier this year to build a new line of “environmentally friendly and fuel-efficient” cars in Northeastern Louisiana. The green aspect of the V-Vehicle’s design apparently figures in the startup’s request for a $250 million low-interest loan under the Department of Energy’s Advanced Technology Vehicle Manufacturing program. But V-Vehicle has not explained publicly how or why its car is eco-friendly, which has led to conflicting media reports (with some describing it as an electric vehicle). But Pao declined to explain why V-Vehicle is green, saying KPCB doesn’t talk about portfolio companies that are still in stealth mode—even though partners John Doerr and Ray Lane participated in a news conference that Gov. Bobby Jindal of Louisiana held in June to announce the state’s support for the project.

Pao said KPCB’s cleantech investments are divided among startups that are focused in a variety of green categories, including energy efficiency, cars and transportation, batteries (especially companies developing new energy storage capabilities for electric utilities), renewable energy, and “carbon management and sequestration,” i.e., technologies for preventing carbon dioxide from wafting into the atmosphere by capturing the gas and piping it underground.

“There’s a lot of passion around trying to solve the global warming problem,” Pao said. “We’re looking, though, for big solutions. We have some projects, and we think it’s a big opportunity once there is a price on carbon.” She was referring to a “cap and trade” proposal put forward by the Obama Administration that would set strict limits on pollution that causes …Next Page »

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

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

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

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

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

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Just when I thought venture deals, especially for software and tech companies, had headed south for the winter (or longer), the Northwest erupted with a slew of financings in the past week.

—But first, some serious biotech. Kirkland, WA-based OVP Venture Partners led a $30 million Series B round for Fate Therapeutics, a San Diego-based stem cell company with ties to the University of Washington, as Luke reported. Existing investors Arch Venture Partners, Polaris Venture Partners, and Venrock Associates also participated in the funding, as well as three strategic corporate investors—Astellas Venture Management and Genzyme Ventures were named.

—Seattle-based DocuSign, a maker of software to automate and control the process of electronic signatures, received a strategic investment from Second Century Ventures, the VC fund of the National Association of Realtors. The funding amount was undisclosed, but the money will be used to accelerate and extend DocuSign’s efforts with real estate customers.

—Beaverton, OR-based Avnera pulled in an $8 million equity round from undisclosed investors, according to a regulatory filing. The company’s previous investors include Bessemer Venture Partners, Redpoint Ventures, Jafco Ventures, Intel Capital, and DAG Ventures. Avnera was founded in 2004, and designs novel chips for wireless audio applications.

—Seattle stealth startup Doxo raised $5.25 million in equity financing, according to a regulatory filing and media reports. The investors were not disclosed, but David Feinleib of Mohr Davidow Ventures was listed on the SEC form as a director.

—Bellevue, WA-based Enroute Systems, a developer of software that helps companies manage their parcel-shipping logistics, closed a Series A funding round worth $810,000 from Keiretsu Forum, Zino Society, Puget Sound Venture Club, and angel investors. Next up, Enroute is looking …Next Page »

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Seattle-based DocuSign announced today it has received a strategic investment from Second Century Ventures, the VC fund of the National Association of Realtors. The amount was undisclosed, but the cash will be used to speed up and extend DocuSign’s efforts with residential and commercial real estate customers. DocuSign was founded in 2003 and makes software to automate and control the process of electronic signatures.

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Tom Huseby says he’s finally able to go home and not worry about seeing his family’s savings stuffed under his mattress. “The panic is over,” he says. “All of a sudden, things are getting a lot better. It doesn’t feel much better now, but it is.”

Huseby, a noted Seattle-based venture capitalist with SeaPoint Ventures, Oak Investment Partners, Hunt Ventures, and Voyager Capital (and the Godfather of what we’ve been calling the “Qpass mafia”), was giving his 30,000-foot view of the economic landscape and VC market at today’s Mobile Northwest 2009 conference in Seattle. He also drilled down into some of the most pressing challenges in the mobile space, as well as what the startup opportunities are. Just a few highlights here:

“Unemployment is going to slow growth across any consumer business. If you’re in mobile, I hate to tell you, but you’re in the consumer business. I do think there will be liquidity in mobile startups,” Huseby says. “Most startups are going to have to earn it the old-fashioned way, they’ll have to grow over a long time. You’re going to have to survive during a roller coaster ride. Every single company will have to go rushing to the bottom, and then do the slow, clanking ride to the top.”

In terms of startup opportunities, it helps to think in terms of what wireless carriers need. Huseby calls himself “fairly carrier-centric.” As he puts it, they are big customers that are predictable (once you understand them) and they generate huge amounts of cash. He laid out the top three challenges for carriers today—absolutely critical to understand if you’re an entrepreneur trying to get their attention with a new product.

—Bandwidth. There’s “tremendous pressure on carriers” to provide more bandwidth to support people’s exploding need for data connectivity wherever they go, Huseby says.

—Costs of bandwidth. “Oh my God, how are you going to pay for it?” he asks. With such a competitive market, Huseby thinks costs for consumers will actually go down. “I think they’re not going to get the money from us, they’re going to have to get it from advertising. Advertising revenue will absolutely help pay for the bandwidth.” (The problem is that mobile advertising revenue is still relatively small and doesn’t usually go to carriers.)

—Holding onto consumers. “If they’re going to pay for it with advertising, they need to get a much firmer grip on their customers,” Huseby says. He sees this as a crucial issue for the coming decade. “The next viral social network has to work hard to make [ad revenues] accrue to them. Carriers have to be very conscious of the demographics of their customers. They have to get their customers anchored in.”

After his talk, I had a chance to ask Huseby about some other areas of interest, like mobile search. He says he’s generally staying out of that space, but is looking at location-based services from the perspective of retail stores and local advertising.

We’ll have more from the conference soon, so watch this space.

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A consumer tech company has scored one of the bigger equity financing rounds in the Portland area this fall. Beaverton, OR-based Avnera, a fabless semiconductor company that makes chips for wireless audio applications, has raised about $8 million in equity financing out of a total offering of $10 million, according to a regulatory filing with the SEC. The investors in the current round were not specified, and e-mails seeking confirmation of the deal sent to Avnera and previous investors were not immediately returned.

Before the latest round, Avnera had raised about $42 million in funding. Its original investors include Bessemer Venture Partners, Redpoint Ventures, and Jafco Ventures. Other investors joined in later rounds, including Intel Capital, DAG Ventures, Altien Limited, Panasonic Ventures, Polycom, and BestBuy. Most recently, Avnera raised a $14.7 million Series C round in September 2007.

The current filing lists as company directors Rob Chandra and Umesh Padval of Bessemer, John Walecka of Redpoint, and John Miner, formerly of Intel Capital (now with Pivotal Investments).

Avnera was founded in 2004, and is led by CEO, chairman, and co-founder Manpreet Khaira. Its technology involves advanced circuit design techniques to put things like radio frequency electronics, power management systems, audio data converters, and programmable signal processors onto a single silicon chip. That can help make audio accessories cheaper and have better sound quality in computers, iPods, home entertainment systems, and mobile devices. Avnera’s customers include Logitech, Creative, Panasonic, Vizio, and Sanyo.

Back in June, Eric Rosenfeld of Capybara Ventures and the Oregon Angel Fund told Xconomy that Avnera was one of the leading lights in Portland’s semiconductor scene. “They’re doing very well,” he said at the time. “Hopefully they’ll be the one that revives people’s confidence locally.”

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When Tom Clancy introduced a panel discussion yesterday at a forum on analytics software, the founder of San Diego’s Tao Venture Partners said the forum was “founded four years ago by people who had an interest in seeing San Diego get established as a leading cluster in the analytics space.”

The forum, which is sponsored by the San Diego Software Industry Council, offers an annual snapshot of local developments in a booming industry that has become crucial to business intelligence, data storage and management, and complex decision-making.

Since Robert Hecht-Nielsen founded HNC Software here in 1986, the number of companies that focus on analytics software in San Diego has mushroomed, with more than 100 companies specializing in neural networking, data mining, pattern recognition, and related algorithms and technologies for analyzing data. Yet Clancy and local experts who discussed “opportunities in analytics” lamented that San Diego’s standing as the birthplace of some key companies and technologies has gone largely unrecognized. Among the examples cited:

— HNC, which specialized in technology to analyze credit card transactions, was acquired for $810 million in 2002 by Fair Isaac and Co. and integrated with the Minneapolis, MN-company’s credit-scoring business.

—Urchin Software, a suburban San Diego Web analytics company that developed an assortment of tools for measuring website usage, page views, and other statistics, was acquired by Google in 2005 for an estimated $30 million. Seven months later, Google renamed its Urchin business Google Analytics, and made analytics tools available to Web users for free.

—WebSideStory, a San Diego company that developed website traffic analysis tools, rebranded itself as Visual Sciences in 2007 and was acquired later that same year for $394 million by Utah-based Omniture. (Last month, Omniture was itself acquired by San Jose, CA-based Adobe Systems in a $1.8 billion deal.)

—Carlsbad, CA-based analytics software developer Keylime Software was acquired for $9.5 million in 2003 by Pasadena, CA-based Overture, an advertising distribution network that was later acquired by Yahoo for $1.6 billion.

Such deals reflect a surging awareness of the value of data, says Stephen Coggeshall, a co-founder and chief technology officer for San Diego-based ID Analytics, which uses advanced analytics to search credit databases for telltale signs of identity theft. In terms of technology innovations that will likely lead to forming new companies, Coggeshall says …Next Page »

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Seattle-based Doxo, a stealthy tech startup, has raised $5.25 million in equity financing, according to a regulatory filing. The funding was reported by Northwest Innovation and TechFlash. The investors were not disclosed, but David Feinleib of Silicon Valley-based Mohr Davidow Ventures is listed on the SEC form as a director. Doxo was started by members of the “Qpass mafia” (former executives at Seattle-based Qpass), including Steve Shivers and Roger Parks.

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Well, this does nothing to change the downward trend of early-stage software financings, but it’s good news nonetheless. Seattle-based Redfin, the online real estate broker and information discovery service, has announced a $10 million Series D funding, led by new investor Greylock Partners, the Silicon Valley venture firm formerly based in the Boston area. Existing investors Madrona Venture Group, Draper Fisher Jurvetson, Vulcan Capital, and The Hillman Company also participated in the round, which brings Redfin’s total funding to $30.8 million.

Redfin says it will use the cash “to scale its infrastructure for delivering extremely high levels of customer service, to expand into new markets and to invest in research and development.”

By most accounts, the company has had a very strong year, even as the real estate market has contracted and valuations have fallen. Redfin has generated its first profits, shipped what it says is the highest-rated iPhone app for real estate, and increased its website visits by more than 200 percent.

Glenn Kelman, Redfin’s CEO, talked about the significance of the new funding, and hinted at a goal of taking the company public. “Greylock’s experience developing some of the Internet’s most recognized consumer brands as well as its appetite for building large-scale public companies are a perfect fit for our ambitions,” Kelman said in a statement. “We believe that our ability to invest in technology and our consumer-first commitment give us a shot at reinventing a very fragmented, sales-driven real estate industry.”

Redfin was founded in 2002 and serves home buyers and sellers with real-estate listings, maps, analytics, tax records, and other information. Besides Seattle, it has operations in California, New York, Maryland, Massachusetts, Virginia, Washington DC, and other metro areas. Redfin recently rolled out a new version of its website, which includes near-real-time data and photos of recent home sales, as well as links to blog discussions of listings, all on a national scale.

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San Diego-based Cyntellect , which makes work stations used by biotechs for cell analysis, purification, and processing, has raised $15.5 million so far in a secondary round that aims to raise a total of $18.6 million, according to a recent regulatory filing.

Cyntellect says its instruments are used in life sciences research, biopharmaceutical production, stem cell research, and drug discovery. The company says its cytometers provide scientists with rapid, high-quality imaging and analysis of cells in every well of a 384-well microplate array. Cyntellect says its instruments can scan an entire well while maintaining consistent illumination for accurate cell identification from the center to the well edge. The company’s product line also includes an automated system for cultivating cell lines used in biopharmaceutical manufacturing.

The current venture round consists of equity investments and convertible warrants, according to the filing. Cyntellect was founded in 1997, and earlier investors in the company include Bru II Venture Capital Fund, Iceland Genomics Ventures, Sigma-Aldrich, Sumitomo, and Third Security, according to VentureWire.

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[Updated 11/18/09, see below] This post is about how to get a better deal from VCs investing in your first round of financing. It is also about how to make the deal into a win-win. The idea for the post came from an exchange with @bakespace about some of the resources for entrepreneurs on FastIgnite.

This is About Series A Deals

Seed investments can be all over the map in terms of size ($50K – $1M+), structure (convertible debt or common/preferred equity), valuation, and investor rights. It’s hard to make generalizations about seed deals.

First-money-in Series A deals, on the other hand, tend to be much more cookie-cutter. Before we talk about why this is the case, let’s put a rough definition around the types of Series A financings I’m referring to:

• Not much has been raised previously—at most a few hundred thousands and ideally nothing.

• The product has not been (fully) built.

• The size of the round is at least $3M but preferably larger.

• You are talking to professional VCs with funds > $100M.

These deals tend be cookie-cutter because they are driven more by the cap table (the list of shareholders in a startup and how many shares they own) than by what the company might be worth independently.

What is Your Startup Worth?

This is a question entrepreneurs think a lot about. They come up with all kinds of arguments for justifying their notion of value pre-funding. The trouble is, most of the arguments are bogus because they miss an important point: a company that needs several million dollars today to build a business is not worth much at all without the dollars.

Say the goal is to stick a flag on top of Everest. You are a great alpinist but you have no money for the expedition. Your friend Bob loves what you do, happens to be excited about you climbing Everest and has tons of dough. Which is more important? Your ability to climb or the financing? You ability to climb is certainly scarcer and hence commands a certain premium, but in the end it’s a partnership. Money without an alpinist can’t get to Everest. An alpinist without funding can’t get to Everest either. It is the combination of the scarce talent (climbing) and the resources to make this talent productive (the dollars) that creates the value.

The Series A Valuation Process

What this means for your Series A deal is that, to a large extent, the value of your company is going to be reverse-engineered from the cap table. Here is how this works:

1. You and your investors agree you need $X ($3M, for example)

2. The investors want to own a certain percentage post-financing (I%) (2 x 20% = 40%, for example if two VCs are syndicating the deal)

3. The post-money valuation is now $X/I% or $3M/40% = $7.5M

4. You negotiate the size of the option pool (P%) (25%, for example)

5. Your true pre-money valuation (what the founders’ stake is worth) is $X*[(1-I%-P%)/I%] or $2,625,000.

There are two things to notice about this process. First, at no point did it require justifying the value of the startup. Second, the margin for negotiation is somewhat limited as (a) the option pool size should be budget-driven and (b) most investors, rightly or wrongly, are pretty set on the percentage ownership they require. (The reasons for this have to do with the business models of venture firms—which are too complicated to cover here.)

Without meaningful deal competition, you’ll be unlikely to affect the investor(s) target ownership percentage. So if you really want to get your VCs to take a lower percentage, you’ll have to work a lot harder to generate interest from multiple firms. Either that, or you’ll have to …Next Page »

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Healthcare deals are going one way, tech deals another. That’s my read from the past week in the Northwest, where we’ve seen some of the biggest biotech deals around, even as a prominent Seattle tech venture firm (and software financings in general) head south.

—Bothell, WA-based Alder Biopharmaceuticals scored one of the biggest biotech partnerships of the year, as Luke reported today. The company has formed a collaboration with Bristol-Myers Squibb (NYSE: BMY) to develop Alder’s experimental rheumatoid arthritis drug, ALD518, and the deal could be worth more than $1 billion. In exchange for granting Bristol a worldwide exclusive license to develop ALD518 for all uses except cancer, Alder will get $85 million upfront, as much as $764 million in development and regulatory milestone payments, sales-related milestone payments that could exceed $200 million, and royalties on product sales.

—I took a look at the venture and debt financings for Washington companies last month (and the previous two months), and concluded that large investments in software startups aren’t coming back anytime soon. The data, courtesy of New York-based ChubbyBrain, shows most of the money is in healthcare and life sciences.

—Kirkland, WA-based Clearwire has secured an additional investment of $1.5 billion from Sprint, Comcast, Time Warner Cable, and Intel, as first reported by the Wall Street Journal. Google, a previous investor, is not participating in the round. The money will support Clearwire’s (NASDAQ: CLWR) deployment of its WiMax broadband network.

—Verathon, a Bothell, WA-based maker of ultrasound technology, has been acquired by Sarasota, FL-based Roper Industries (NYSE: ROP) as part of a pair of transactions worth a combined $356 million, as Luke reported. The price of Verathon’s sale by itself was not announced. The company develops a 3-D diagnostic imaging tool that helps doctors diagnose bladder disorders.

—One of Seattle’s most prominent tech VC firms will not be raising another fund or making new investments. Len Jordan of Frazier Technology Ventures confirmed the news as he announced he’s moving to Madrona Venture Group at the beginning of next year.

—Bellevue, WA-based Light Sciences Oncology has lined up $35 million in follow-up financing to develop its drug-device treatment for cancer, as Luke reported. The investors weren’t disclosed, but the deal gives Light Sciences the right to access a $23.3 million line of credit, and $11.8 million more if investors choose to exercise warrants. The company raised $40 million from undisclosed VCs last year.

—Seattle startup Movaya Wireless has been acquired by Digby, a mobile commerce firm based in Austin, TX, for an undisclosed price. Movaya was founded in 2006 by Phil Yerkes and Stanley Wang, and focuses on making digital goods storefront applications for the iPhone, Android, and mobile Web platforms. The company’s development team in China will serve as the basis for Digby’s operations in Asia.

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Early-stage software and IT deals are a scarce breed these days. That’s my initial take from looking at the October funding numbers for Washington state, courtesy of ChubbyBrain, a New York-based information services company that makes tools for investors, startups, and entrepreneurs.

According to ChubbyBrain’s stats, Washington tech, life sciences, and cleantech companies raised a total of $69.75 million last month—down from $84.9 million in September, but still up from $51.4 million in August. There were six venture deals in October, worth a total of $59 million (see below), to go along with three debt financings (a total of $8.35 million) and an unattributed financing round of $2.4 million.

The venture deals were dominated by a $30 million Series A round for Integrated Diagnostics, Lee Hood’s early disease detection startup, and a $22.5 million financing for PopCap Games, the 10-year-old company’s first outside funding round. Looking at the past three months, it’s clear that large early-stage software deals aren’t coming back anytime soon. (You really have to look at the sub-$1 million deals to get an idea of the activity in software and IT, at least in the Northwest.)

In addition to the VC deals, there were three debt financings in the ChubbyBrain stats (and previously reported in Xconomy): Kennewick, WA-based solar developer Infinia raised $3.25 million; Seattle-based lab automation company Teranode raised $900,000; and Kirkland, WA-based health-tracking firm Veratect raised $4.2 million. Lastly, Spring Wireless, a Brazilian company that set up North American headquarters in Seattle early this year, raised an unattributed round of financing worth $2.4 million.

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