Seattle-based Principle Power, a company focused on offshore wind energy, announced today it has received a $750,000 grant from the U.S. Department of Energy to develop water power technologies. Principle Power is working with the National Renewable Energy Lab and Marine Innovation and Technology on the project, which seeks to incorporate wave energy generation into the company’s floating support structures for wind turbines.

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

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

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

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

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

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

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

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

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

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The Seattle area is known for its technology giants like Microsoft, Amazon, Boeing, and RealNetworks. It’s also known for its popular tech startups like Zillow, Wetpaint, Pet Holdings (I Can Has Cheezburger), iLike, and Big Fish Games. But there are dozens of other sizable tech companies operating behind the scenes, quietly executing on their vision to change the world. You don’t see these companies mentioned in the media very much. They generally aren’t built on large venture funding rounds, and they tend to be not very flashy. That’s why I call them unsung heroes.

I’m going to point out five of them here. This is not a “Top 5″ list, and it’s not the end of the story—it’s just the beginning. Here are my (admittedly arbitrary) criteria. I looked for privately held companies with tremendous engineering talent and a strong influence on their particular market—proportional to their size and the amount of attention they get. I looked across different tech sectors like Internet, business software, consulting services, gaming, and entertainment. I also looked for companies that have weathered the recession to this point and have kept charging forward. Lastly, I wanted companies that mainstream readers may not have heard about lately.

The problem with a list like this, of course, is that it’s subjective. There are plenty of other companies around town that could be on the list—and I want to hear about those too. But for now, here’s a snapshot of five Seattle-area companies that are quietly delivering the goods:

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Jetstream Software (Kirkland, WA)
Mike Moskowitz, CEO

This 15-year old applications development firm makes software products for big companies and startups alike. Its list of customers includes Microsoft, Intel, IBM, F5 Networks, Captaris, SnapIn Software, HouseValues, and the University of Washington. In fact, if you pick any prominent organization around town, there’s a good chance Jetstream has done work for them. The company has developed tools for Microsoft that shipped with Office and Windows Media Center, for example. And the firm often serves as the entire development team for Web startups, say, that want to create a user interface or product. The 25-person company, largely made up of senior engineers, works on projects across software publishing, …Next Page »

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One of MIT’s leading business professors, Richard Locke, came to Seattle yesterday to talk about the “S” word. Yes, we’ve been hearing a lot about sustainability lately, in the context of technology and business. Big companies like Microsoft, Amazon, and Boeing are talking seriously about the issue. Smaller Seattle-area companies like Verdiem, Powerit Solutions, and R.W. Beck have been making progress in important areas like energy efficiency and water management. To Locke, and many others, sustainability is much more than a corporate buzzword.

Locke is deputy dean of the MIT Sloan School of Management, and a professor of entrepreneurship and political science at MIT, based in Cambridge, MA. His research specialties include labor standards and practices, global entrepreneurship, and sustainable businesses. I sat down with him at the Westin Hotel downtown to get his perspective on Northwest companies’ green initiatives, and their possible partnerships with MIT. Locke was coming from meetings with Intel in the Portland area the previous day (the Santa Clara, CA-based chipmaker has manufacturing and development facilities in Hillsboro, OR). His other meetings in Seattle included a stop at Amazon to speak to Sloan School alums about the changing face of MBA education, and about sustainability in the corporate realm.

Locke defines sustainability broadly as “using resources today in a way that permits future generations to use them as well.” By this he means not just natural resources—energy, materials, water—but also social resources like people, jobs, and standards. “Let’s redefine sustainability in such a way that we can show the opportunities available, not just the constraints,” he says. “Once you broaden the definition, you expand the scope for individuals and organizations to try to do something about it.” (As I understand it, this definition of sustainability could include managing employees so they don’t burn out, creating jobs that last, and establishing fair labor standards that endure.)

Take Intel, for instance. Locke says the company is pursuing a series of initiatives to reduce its carbon footprint, improve its supply chain efficiency, and reshape the way it uses energy, water, and people. “Are there ways they can make, for example, new chips that might require less energy? They’re having a very interesting internal discussion about chip speed versus energy consumption. I find it fascinating that a large company in an extremely competitive sector, that still does manufacturing in …Next Page »

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A group of about 40 Taiwanese businessmen and scientists, who were in the U.S. to learn about how best to commercialize technologies from the lab, were treated last Thursday to a University of Washington panel of three veterans of the process, who shared their experiences and the lessons they’ve learned.

The panel consisted of serial entrepreneur and cleantech consultant Jeff Canin, neurological surgery and pediatric dentistry professor Pierre Mourad, and bioengineering professor Buddy Ratner. All three have been involved in several companies spun out of technology developed at UW, ranging from designing ultrasound toothbrushes to reprogramming skin cells into cells that can rebuild a heart after a heart attack, to improving how long beer can be stored without going bad (”one of the most important industries on this planet,” Ratner asserted).

Here were my Top 10 takeaways from the panel, which was moderated by Janis Machala of UW TechTransfer.

10. Bringing together money, talented managers, and good engineers is difficult.

9. Some of the stereotypes of scientists and business people have an unfortunate basis in truth. Ratner pointed out that many scientists can be tremendously naive, and often don’t realize that the technology they have is not a product—and that a lot has to be done to bridge that gap.

8. Mourad said (and the other panelists agreed) that the most important element to a successful company is the relationships between all the people involved. Citing the company that spun out of the ultrasound toothbrush technology, he said that even though the company raised about $23 million, infighting between management and the board destroyed the technologically very sound company.

7. Mourad cautioned that even though business people have all the money, “Treat tech people nicely,” to succeed.

6. Canin said that to be a good entrepreneur, a scientist or engineer must have a lot of …Next Page »

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With the start of real summer weather in the Northwest, we’ve seen some good deal action heating up in Internet software, biotech, and energy in the past week.

—Seattle-based consulting firm R.W. Beck is being acquired by government contractor SAIC (NYSE: SAI) in San Diego for $155 million. It’s one of the Northwest’s bigger tech deals of the past year. R.W. Beck’s 550 employees (125 in Seattle) won’t be relocating, and Beck CEO Russ Stepp says the deal will help his company pursue larger projects in areas like energy and water management, while also helping SAIC take smart grid and modeling technologies into utility markets.

—Bothell, WA-based OncoGenex (NASDAQ: OGXI), a developer of cancer drugs, reached agreements to raise $9.5 million from institutional investors through a registered stock offering, as Luke reported. In May, the company presented data showing its prostate cancer drug, OGX-011, helped men live a median time of about 7 months longer when combined with chemotherapy, as compared to chemo alone.

—Portland, OR-based Internet startup AboutUs closed $1.2 million from Seattle-based Voyager Capital and other investors. This tranche closing rounds out the company’s Series A funding and includes $1 million from Voyager (fulfilling its previous $2.5 million commitment). AboutUs focuses on information discovery and sharing online.

—Seattle-based Blue Marble Energy has raised an undisclosed amount of Series A funding from unnamed investors, as Eric reported. The company is working on ways to convert algae and waste into useful chemicals and renewable fuel. In April, Blue Marble Energy closed approximately $1 million out of a $2 million equity offering, according to a regulatory filing.

—Bio Architecture Lab, a Seattle-based University of Washington spinout, raised $3.4 million in equity funding out of a $6 million offering. The investors were not disclosed. The stealth startup, which raised $1.5 million from X/Seed Capital last year, is using synthetic biology and computational enzyme design to make biofuels and renewable chemicals from relatively cheap, sustainable biomass sources.

—Kirkland, WA-based OVP Venture Partners led a $15 million Series C investment in San Francisco-based Limerick BioPharma. The other investors include Arch Venture Partners, Sevin Rosen Funds, and Altitude Funds. It’s a new portfolio company for OVP, and managing director Chad Waite has joined Limerick’s board.

—Portland, OR-based Blackbox Republic, a niche social network, has raised $1 million in seed funding from angel investors. Blackbox is led by former Jive Software exec Sam Lawrence. The company is targeting the sex positive community, and wants to fill the void between Facebook and Match.com.

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It may be one of the great untold success stories of the Seattle technology scene. For the past decade, R.W. Beck, an engineering and business consulting firm, has been quietly making a name for itself in key technical areas like energy and water management.

Now the Seattle-based firm with 550 employees is becoming part of the closely guarded empire of SAIC (NYSE: SAI), the government contractor also known as Science Applications International Corporation. The companies did not disclose financial terms under the agreement they announced two weeks ago. But Xconomy has learned from a source familiar with the deal that the price was $155 million.

That amounts to 1.5 percent of SAIC’s $10.1 billion in annual revenue, and it seems unlikely SAIC will interpret R.W. Beck’s price tag as a “material event” requiring disclosure. Still, at $155 million, the deal represents one of the biggest acquisitions—if not the biggest—of a Seattle-area firm since Bellevue, WA-based SnapIn Software was bought by Nuance for $180 million last summer.

Even though SAIC’s core business is contract research and engineering, R.W. Beck’s focus on energy and water infrastructure represents a somewhat unusual foray into civil engineering for the San Diego conglomerate, which generates most of its revenue from defense and intelligence contracts. (A more characteristic deal for SAIC was last week’s acquisition of Atlan, a cybersecurity product testing firm based in McLean, VA, that specializes in validating cryptographic modules, including software and hardware components, to meet federal standards.)

If nothing else, though, SAIC has been extraordinarily adept at catching the big waves in government contracting—and right now, energy is huge. One of the biggest clues to SAIC’s plans for R.W. Beck was a contract that my colleague Bruce Bigelow noted in February, which basically pre-qualifies SAIC to compete for energy conservation contracts throughout the federal government.

Another noteworthy energy-related deal that SAIC landed was a $14.9 million contract to develop economical methods for making JP-8 grade jet fuel from algae. It turns out the Pentagon is interested in developing alternative sources for all that jet fuel that U.S. military aircraft use.

When I reached R.W. Beck president and CEO Russ Stepp last week, he said the deal with SAIC is expected to close on August 1. He had no comment on its size, but did speak freely about what the deal means to both sides.

First of all, the acquisition does not mean R.W. Beck employees will be relocating en masse to San Diego, nor will there be downsizing of the firm’s business operations, Stepp says. Most employees …Next Page »

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Taking a sip from a kitchen faucet rarely causes someone’s heart to pound or adrenaline to flow, but for millions around the world, drinking the local water is just another version of Russian roulette. With every mouthful of water, people in developing countries imbibe bacteria and viruses that can and often do cause lethal diseases, especially in children. According to the World Health Organization, diarrheal diseases from impure water kill 4,100 children every day.

Seattle-based PATH is one of many organizations that seek to alleviate the poor health conditions found around the world. Distributing vaccines, educating about AIDS, and improving general healthcare in underserved parts of the world are all part of PATH’s mandate. In 2008, using a grant from the Laird Norton Family Foundation, PATH began exploring ways of using commercial water-purifying technology for small villages and towns. “We did a broad outreach and looked at different ideas,” said Kendra Chappell, manager of the pure water project at PATH. Eventually, PATH decided to partner with Seattle-based Cascade Designs, a company that makes camping equipment. Cascade, with money from the U.S. Defense Department, had developed a cheap and clean method of water purification through a process called electro-chlorination. “It was a good match,” Chappell said.

The purifier created by Cascade uses electricity to create chlorine, which quickly kills parasites, bacteria, and viruses. Salt is added to the unclean water, and then the mixture is zapped by a few volts of electricity. (The electricity breaks the salt into its component elements of sodium and chlorine.) “It turns brine into a powerful disinfectant,” said Laura McLaughlin, an environmental engineer and project manager at Cascade. The system carefully measures the amount of chlorine generated, so that only enough is made to clean the water—not so much that the water becomes undrinkable. “Our system is geared toward providing the right dose,” McLaughlin said.

Other methods of water purification are not usually as thorough or effective. Water filters cannot keep out viruses because they are much smaller than bacteria, and even iodine cannot kill all …Next Page »

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“Biotechnology” and “water purification” aren’t usually themes that you hear mentioned in the same sentence. There are plenty of biotech startups aiming to use cutting-edge molecular approaches like RNA interference (RNAi) to develop profitable new drugs—but fewer people, if any, talk about how these technologies might help people in developing countries where safe drinking water is in short supply. Indeed, at first blush, the idea that molecules as fragile as snippets of RNA could be used on an industrial scale to kill pathogens in water seems farfetched.

But that’s exactly what a Somerville, MA-based startup called 349Q hopes to do. In stealth mode until last week, the company has now begun talking to reporters about its plans, which call for identifying genes common to the main species of dangerous microbes found in water, then engineering viruses that could manufacture RNA strands capable of shutting down the microbes’ basic metabolic processes. The company’s technology, for which it has obtained provisional patents, grows out of work in the laboratory of Claudia Gunsch, a microbial engineering expert in the Civil and Environmental Engineering department at Duke University in Durham, NC. Mark Modzelewski, a cleantech and venture capital veteran based in Somerville (and an Xconomy guest essayist), is handling the company’s fundraising and business development.

With supplies of fresh, clean water chronically limited around the world, water purification is obviously an area crying out for new technological solutions. In a Technology Review interview published last week, prominent Silicon Valley venture capitalist Steve Jurvetson called water purification “a trillion-dollar opportunity” and said the water industry exhibits “probably the biggest mismatch between a screaming, enormous market and a lack of technology innovation I’ve ever seen.”

There’s no shortage of technologies for purifying contaminated water—they include distillation, carbon filtration, membrane filtration, ultraviolet irradiation, reverse osmosis, and ion exchange. But all have their shortcomings, ranging from high cost and high energy consumption to low flow rates.

Modzelewski says he has spent years on the lookout for a new water purification technology that merits a venture capital investment. Over breakfast last week, he laid out his criteria for such a technology: “It needed to cost the same as anything we have now; it needed to be very easy to attach to current water-treatment systems, without requiring any expensive retrofitting; and it had to be completely different.”

The idea that RNA interference might provide a solution is new, radical, and largely untested. A lot of the drama in pharmaceutical research on RNA interference is around how to shepherd RNA molecules past all the blood-borne enzymes that would normally chew them up and deliver them safely into cells, where they can then disrupt the activity of targeted genes. Delivering the molecules inside the body has been such a preoccupation for researchers, according to Duke’s Gunsch, that there wasn’t any data on whether they could be disseminated to microbes through water.

That’s the experiment Gunsch and Sara Morey, a PhD candidate in her lab, first tried last year. They filled a sample of water with a strain of fungus that had been engineered to produce a particular yellow protein. They then added RNA snippets that had been custom-sequenced to silence the gene responsible for the protein’s production. The water’s color changed instantly—indicating that …Next Page »

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If you follow Xconomy you might remember a story I wrote a year ago called “Invention Machine and the Case of the Boxed-Up Box Spring.” That piece talked about Goldfire Innovator, the expert-system software for product engineers made by Boston-based Invention Machine, and how mattress manufacturer Leggett & Platt had used the system to solve the age-old problem of how to fit a box spring into a box small enough to ship. I had such a good time visiting Invention Machine that I decided to go back recently and find out what the company has been up to lately. Little did I know that I’d get siphoned into a story about low-flow toilets.

But before I bowl you over with that tale, an update on Invention Machine itself. While a lot of business software companies around town are purging employees to deal with declining demand, Invention Machine saw record sales in the fourth quarter of 2008 and hasn’t had to cut anyone from its staff of 200, according to CEO Mark Atkins.

That could be because in a tight economy, companies see more need than ever for a tool like Goldfire Innovator, which is designed to help product-development teams be more efficient. The software—the latest version of which debuted in January—isn’t designed to replace real engineers. But the reality is that for any organization where the engineering staff is already shrinking, technologies that help the remaining staff work more effectively are at a premium.

“The last thing I want to do is tell you that if you bring our product in, for every seat you license you can knock out three people,” says Atkins. “Given the recessionary economics, [companies] have made their cuts, and what I’m trying to say is that in spite of those cuts, they still have the same demands, if not greater pressures, to get products out to market…What the product will do…is help you assess causes and effects that are creating hurdles to evolving a product. It will help you identify materials that could be substituted to make a product less expensive and more eco-friendly. It will help your manpower get to where they want to go much faster.”

To conserve cash, Atkins says Invention Machine plans to move out of its lofty 39th-floor headquarters at the Prudential Center in search of a better deal on rent elsewhere in the city. But business prospects are generally positive, he says—in fact, he’s forecasting double-digit growth for the year. “Even assuming no improvement in the economy in 2009, we are not having layoffs here.”

And while he hesitates to take comfort in other companies’ distress, Atkins says Invention Machine’s success “is all coming about because manufacturers are under the gun now. There’s a greater urgency to incorporate our product and gain efficiency through sustainable innovation. It was on [companies'] agendas before, but they weren’t moving in the accelerated way that we’re seeing over the last few months.”

To illustrate how organizations are actually using Invention Machine’s tools to innovate, the company put me in touch with Dave Pierson, senior design engineer at the Manufacturing Advocacy and Growth Network (MAGNET) in Cleveland, OH. This quasi-public group provides Ohio companies with engineering expertise and help adopting modern manufacturing and product-development technologies. Pierson told me about a project he completed last fall with a local entrepreneur named Wally Berry, who had come up with an idea for combating the water-conservation nightmare created by failing toilet flappers.

If you’ve ever looked inside a standard toilet tank, you probably know that when you depress the flush lever, it pulls a chain that raises a rubber or plastic flapper, letting the water in the tank rush through the hole leading to the bowl. The problem with flappers is that the longer they sit underwater, they more likely they are to warp or stiffen, resulting in a leaking seal. Pierson said Berry learned about this problem the hard way, after he got a $600 water bill for his unoccupied vacation home out West—the result, he ultimately discovered, of a single failed flapper.

With water becoming a scarce resource, especially in the Southwest, Berry thought he’d hit on a lucrative business idea: come up with a way to keep flappers from failing. His first concept was for a motor that would be placed inside a toilet tank, where it would …Next Page »

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We hear a lot about the bioengineered enzymes, switch grass, and multiple feedstocks needed to provide the massive amounts of raw material for the clean energy era. Another key ingredient is water—and lots of it. So after launching clean energy firms in recent years, entrepreneur Aaron Mandell started Cambridge, MA-based Oasys Water last year. Oasys, which announced a $10 million financing last month, is commercializing desalinization technology that he hopes will curb shortages of drinking water in the U.S. and abroad.

Mandell has co-founded alternative energy firms GreatPoint Energy and AltaRock Energy. GreatPoint Energy, based in Cambridge, requires lots of water in its process to turn coal and other feedstocks into natural gas. AltaRock, headquartered in Sausalito, CA, with an office in Seattle, plans to pump cold water deep into the ground where geothermal heat would turn it into steam to power electricity-generating turbines.

“If you look at a lot of alternative energy processes, they are more water intensive than a lot of traditional energy processes,” Mandell, CEO of Oasys Water, says. “So water becomes as much of a valuable energy resource as coal, or oil, or natural gas.”

Mandell formed Oasys last June with technology invented at Yale University and seed money from GreatPoint Ventures, a Cambridge venture development firm where he is a managing partner and co-founder. Xconomy noted last month that Oasys raised $10 million in a first round of venture financing led by Flagship Ventures of Cambridge, Advanced Technology Ventures in Waltham, MA, and Silicon Valley’s Draper Fisher Jurvetson.

Mandell’s explanation of Oasys’ technology brought me back …Next Page »

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One of the distinguished panelists for our upcoming Xconomy Forum on March 26 (The Rise of Cleantech in the Northwest) is Mark Aggar, director of environmental technology strategy for Microsoft. Aggar has been at his current post for just about a year, having come over from the Windows Server product planning group to be part of the sustainability team run by chief environmental strategist Rob Bernard.

I spoke with Aggar yesterday to get his thoughts on Microsoft’s role in advancing energy efficiency and sustainable technologies. A native of England, Aggar has been in the IT industry for 20 years, having cut his teeth on network software at Portland, OR-based NCD before joining Microsoft in 1999. Aggar and the sustainability team work on ways to reduce the environmental footprint of IT, as well as how IT can help the environment. All told, they work closely with about 100 other people from different divisions within Microsoft such as Windows Server, Data Center Services, and Dynamics (a business management tool).

Aggar’s concerns range from making PCs, processors, and data centers more energy-efficient, to making car-pool transportation easier to arrange, to using sensors and intelligent monitoring software “to identify where big-value opportunities are,” he says. That means thinking about how everything from office buildings to large corporate campuses to the national electricity grid operate, and how to improve them using IT.

Here are a few of Aggar’s personal areas of interest (it’s not yet clear to me how much, if anything, Microsoft is doing in each of these areas—we’ll have to grill him on March 26):

—Building management. “We see a lot of potential in dramatically driving up the efficiency of office buildings,” he says. That includes using “smart systems” to continuously evaluate a building’s energy usage and other factors.

—Smart grids. “With new renewables coming onto the grid, you really have to be more integrated with the actual consumers of the energy,” says Aggar. Installing sensors and communications technology (plus software to coordinate it all) and being able to respond to energy demands in real-time is crucial to improving efficiency.

—Water management. “This may not be such a big deal in the Northwest right now, but it will be in 20 to 30 years’ time,” he says. “You could dramatically change the amount of water with more intelligent use, like not having sprinklers running when it’s raining.” Aggar points out that agriculture uses 70 percent of the world’s freshwater resources, and a lot of that gets wasted. Smarter monitoring systems could help.

—Electric vehicles. “Electric cars are an environmental paradox,” he says. “If you’re not careful, you’ll create more CO2, and have to build more roads,” because it might increase the number of drivers out there. Getting people to share vehicles instead is a huge opportunity, he says. Social software, combined with location and scheduling technologies, could help people carpool.

So how might Microsoft help with all of this? “We have a strong role to play in ensuring our products are both energy efficient and have minimal impact on the environment,” Aggar says. “We have very broad reach into all elements of people’s lives—homes, businesses. We have the platforms and the technologies to help accelerate systems to help us live a more sustainable life. Plus it’s the right thing to do. And there are a lot of people at Microsoft who feel that way.”

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Oasys Water, a Cambridge, MA-based startup, has wrapped up a $10 million financing led by venture firms Advanced Technology Ventures, Draper Fisher Jurvetson, and Flagship Ventures to develop its technology for converting salt water into potable drinking water, the Boston Globe reported over the weekend. Oasys tells the daily broadsheet that its forward osmosis technology, initially developed at Yale University, uses 90 percent less energy and costs about a third or half as much as current desalinization methods that rely on reverse osmosis. (Update at 9:30 am: Here’s a link to the official announcement released after this post was published.)

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This morning, I stopped by the panel on venture capital in cleantech, at the Renewable Energy Finance Forum-West conference at the Grand Hyatt in downtown Seattle. It was moderated by Nancy Floyd of Nth Power and Michael Butler of Seattle-based Cascadia Capital (who’s an Xconomist). The panelists were Raj Atluru of Draper Fisher Jurvetson, Anup Jacob of Virgin Green Fund, and Brad Zenger of Pivotal Investments.

The panelists were optimistic, but also grounded in reality. They touched on their investment strategy, how they position themselves against the cleantech-deal competition, and their favorite areas of investments. Here are my quick Top 10 takeaways from the session:

10. Record investment levels in energy. New records were set in the third quarter for investment in cleantech, with $2.6 billion invested globally, $1.8 billion of that in North America, according to Butler of Cascadia Capital.

9. Cleantech isn’t a sector. It’s many different sectors with very different markets. To name just a few: solar, wind, geothermal, other renewables, biofuels, energy efficiency, green buildings, smart grid, waste, recycling, water.

8. Solar is king. The king is dead. Long live the king. Solar energy has been receiving more than 40 percent of cleantech investments. Yet none of the panelists talked about solar as being their most exciting plays. “We’ve placed our bets in solar already,” said Atluru of Draper Fisher Jurvetson. “You’re going to see solar drop off. People are moving into other categories.” Yet there are clearly still opportunities, as production costs are falling, said Zenger of Pivotal Investments.

7. Biofuels 2.0 is “emerging from the ashes,” said Butler. After the high-profile problems of Seattle-based Imperium Renewables, next-generation biofuels are starting to come on, though the panelists expressed caution because of the high fixed costs needed to build refineries and other infrastructure.

6. Smart grid is getting a lot of attention from info-tech investors, in part because it’s capital-efficient. Waste, water, and recycling aren’t getting as much investment as they deserve, but that may change given the enormous market opportunities worldwide.

5. Because of the downturn, investors are much more cautious about cleantech and other technologies. “We have to sacrifice growth to get to cash flow,” said Jacob of Virgin Green Fund. “We’re only doing deals with revenues and cash flows. We’re very focused on market risk.” Larger energy projects, ones that swing for the fences, may suffer for the next couple years, said Atluru. Also, he said, time horizons for exits have increased to 7-9 years, up from 5-7 years not too long ago.

4. It’s a time of great opportunity. “The needle has moved from optimism to skepticism in cleantech. We’re looking for big winners… and not shying away from failure,” said Atluru. “We expect to see 30 percent [of our companies] not make it. If they all succeed, we’re not taking enough risk.” Zenger, of Pivotal Investments, added, “This is a great time to work with customers. A new company carries its own oxygen and doesn’t depend on the greater markets.”

3. Declining oil and natural gas prices may lead to less investment in certain energy technologies like waste gasification and wind power.

2. Entrepreneurship in the U.S. and around the world is very strong. The energy sector “has globalized really, really quickly,” said Atluru. “The enthusiasm of entrepreneurs in this sector is an order of magnitude higher than any other sector. We’re seeing entrepreneurs who have done it in other sectors, and they’re not going back.” And the panelists agreed that entrepreneurs are ahead of investors when it comes to dealing with the economic downturn.

1. A final thought to the audience. “Don’t give up,” said Zenger. “This is the time to invest in the next cycle.”

[The filing of this story was delayed by a drained laptop battery and lack of power outlets. I'm sure there's a renewable energy lesson in there somewhere---Eds.]

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Even with the upheaval in the financial markets, there was no shortage of deals and other news from the Northwest in the past week. Biotech, software, media, and renewable-energy ventures were all represented.

—Seattle-based Cocrystal Discovery raised a $10 million venture round, as Luke reported. The round was led by The Frost Group, based in Miami, FL. Cocrystal plans to develop small-molecule drugs that stop viruses from replicating, initially focusing on hepatitis C and influenza.

—It was a busy week in Microsoft land. The Redmond, WA software giant officially opened its New England research lab in Cambridge, MA (which is now up to 33 full-time researchers), as Wade reported. Microsoft also teamed up with Seattle-based Cray to market a small, inexpensive ($25K) supercomputer that runs on Windows. Oh, and it pulled those TV ads featuring Jerry Seinfeld and Bill Gates, and unveiled its “I’m a PC” ad campaign featuring celebrities and regular people who use Microsoft products.

—Luke wrote about the departure of veteran tech journalists John Cook and Todd Bishop from the Seattle P-I, and their new home at the Puget Sound Business Journal. The PSBJ is creating a new website to cover technology news in the region; the site will launch in the coming weeks.

—Gilead Sciences, which is based in Foster City, CA, but has R&D offices in Seattle, failed to win FDA approval for its inhalable antibiotic for cystic fibrosis, as Luke reported. It is a blow to Gilead, which will need to either run an additional study or do further analysis of existing data before its drug can be cleared for sale.

—The U.S. Department of Energy awarded contracts to three teams of water-power researchers in the Northwest: Oregon State University and the University of Washington ($1.25 million), Public Utility District #1 of Snohomish County based in Everett, WA ($600,000), and Pacific Energy Ventures, based in Portland, OR ($500,000). The grants will support development and testing of wave and tidal energy technologies.

—The Seattle startup community has seen some interesting comings and goings. While Italian startup-design firm H-Farm has opened an office in town, and is one of the backers of social-shopping site Wishpot, two other startups have recently left town for San Francisco: DocVerse, which makes collaborative-document software, and Chatterous, a “multi-channel communication” service.

—Investors from Voyager Capital, Cascadia Capital, and McKinsey & Co. advised caution in the face of the Wall Street market meltdown. Alternative energy and cleantech may get hit hardest, they said, but with belts tightening, all companies big and small should think twice before trying to raise money.

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Halosource, the Bothell, WA-based maker of water purification technology for the developing world, has raised $11.5 million in venture financing. The investors include Origo Sino India, Unilever Technology Ventures and others. The company has gained some serious momentum in the last year in India, as we wrote about earlier this month. It has now established partnerships in China and Brazil to bring its low-cost purification technique to a wider group of customers.

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A million people in India are getting clean, cheap drinking water every day because of technology from a little company in Bothell, WA, that few people in the Northwest have ever heard of.

The company, Halosource, has started getting traction in the Indian market this year with its technology that makes water safe to drink. About 200,000 water purifiers have been sold there that use the company’s proprietary method for killing bacteria and viruses, through a partnership with Eureka Forbes, according to Halosource CEO John Kaestle.

The problem of contaminated drinking water—and the business opportunity for anyone who can solve it—is enormous. About one-fifth of people on Earth lack access to safe drinking water, a condition that led to the death of 2.2 million people in 2004, according to the United Nations. The global market for consumer products to purify the basic human necessity is worth an estimated $18 billion, according to market research firm Frost & Sullivan. Tackling that market is no small goal for a venture-backed company with about 100 employees.

To get its products adopted in the market, Halosource has formed partnerships with local companies in India, China, and Brazil. The technology can come in various formats, but has gained popularity in India with a simple product that the emerging middle class can afford.

“This is a whole new product class addressing a need for a whole new consumer class,” says Andrew Clews, Halosource’s vice president for marketing and business development, in an interview at the company’s office.

The problem with bad drinking water isn’t new. Boiling water effectively kills bugs, but is time-consuming and expensive. Carbon-filtering systems (think Brita) filter out dirt, and sediment particles, but can’t kill bacteria and viruses that make people ill with diarrhea, dysentery, and numerous other nasty ailments. Chlorine tablets work, but make water taste bad.

Newer technologies like reverse osmosis or ultraviolet lights in water tanks are becoming available in China and India, Clews says, but they can cost $200 to $350 for a home system, and depend on reliable water pressure and electricity. That’s not realistic in large parts of those countries, Kaestle says.

That’s where Halosource enters. Its proprietary technology is in a cartridge about the size of a yo-yo, at the bottom of a jug. Water in the jug (about the size of a Gatorade cooler) flows down thanks to gravity. It passes through the cartridge, which is filled with polystyrene beads coated with bromine, a chemical with the germ-killing punch of chlorine but without the foul taste.

All bacteria and viruses are killed on contact in seconds. No indoor plumbing or water pressure is needed. No electricity. It can take muddy water from a drainage ditch, or a rooftop, and in tandem with a sediment filter from another company, can produce water safe enough to drink, Kaestle says.

The cost? Consumers can buy the jug-and-cartridge product, called AquaSure, for about $40 to $60. Replacement cartridges cost $7 to $10, and typically need to be replaced every six months.

Andy Dale, managing director at Buerk Dale Victor, a Seattle-based venture capital firm that is one of the company’s early backers, says the progress at the company in the last couple years has been “incredible.”

“Here you’ve got a relatively small Seattle company that is dead center in solving one of the biggest global problems there is,” Dale says. “They’re making their mark in their industry.”

The technology has caught the attention of folks at the Program for Appropriate Technology in Health (PATH) in Seattle, a Gates Foundation-funded nonprofit devoted to fostering new technologies to solve health …Next Page »

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Seattle-based Clear Water Compliance Services, a water-treatment company, announced it has acquired KI Environmental Services, a consulting firm based in Richmond, BC. Though the terms of the deal were not disclosed, the acquisition should help Clear Water gain customers in British Columbia.

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Energy innovation and investing are exploding right now. Technological breakthroughs are seen as perhaps the greatest hope to solving our dire energy challenge. However, what is often overlooked is the link between finding or creating new sources of energy and the effects on food and water.

Indeed, if you think of energy as a coin, the flip side is water and food. The scary thing is that food and water are both lower on Maslow’s hierarchy of human needs—i.e., they are more fundamental to human survival. Yet, the current rush to create new sources of energy—including “clean” energy—may have potentially disastrous tradeoffs on our food and water supplies. Going forward, trading off energy creation for water—meaning creating new sources of energy that depend on heavy use of water, as many do—will be less and less acceptable. That’s why the most exciting opportunities in energy entrepreneurship and investment lie in strategies that create more water or energy without adversely affecting the other.

The Linkage of Energy and Water

At a fundamental level, we can think of the greatest and greenest energy producer in the world—the leaf—and observe through the process of photosynthesis that energy, water, and food are an interrelated system. But let’s also look at some other examples:

• Biomass—This is the most obvious source of tension between food, water, and energy today. Corn as a feedstock for ethanol has been a contributor to the dramatic rise in prices of this commodity and hence food (although the exact amount of its effect can be debated). The development of cellulosic ethanol will go a long way toward alleviating this tension by eliminating the dependence on corn or other foodstuffs for ethanol production. But there are also other, more subtle elements to the equation that add new sources of tension. Ethanol production from plants requires substantial amounts of water—and it must be clean, fresh water, which is the most precious kind. Biomass has been the poster child for the tension between alternative energy and water/food but it is far from alone.

• Nuclear—Traditionally, nuclear power plants have been built near large sources of water to promote cost-effective cooling.

• Enhanced Oil Recovery—After initial production starts to slow down, oil wells traditionally have been flooded with water to boost pressure and improve oil recovery. This made excellent economic sense in the past, and will be even more economically attractive with the new price levels for oil.

• New Heavy Oil Recovery—Heavy oil is viscous, harder to recover, and less economically attractive than the normal light sweet crude oil that is the standard today because of its costs of extraction and refinement. Driven by attractive new price levels and national security concerns, Canada is developing a large amount of this huge potential energy source in what is known as the “Tar Sands.” The increasingly preferred method to extract heavy oil a process called SAGD (steam assisted gravity drainage), which uses prodigious amounts of water.

These are only a few examples, but they illustrate the tight relationship between energy, food, and, especially, water today—a relationship that often forces painful tradeoffs when we try to produce more energy. But there are no laws of nature I am aware of that make this tradeoff necessary in perpetuity.

The Next Wave for Energy Innovation and the Future Focus for Productive Long-Term Energy Investing

I am often asked by investors and entrepreneurs, “What do you like with regard to the energy space?” My answer is twofold:

1. Water and,

2. Any company that decouples energy and food/water. The company should produce or save energy without adversely affecting the water and/or food supply.

Water has been overlooked as an area for entrepreneurship and investment for good reason: it is a very challenging arena. Water is similar to energy in its diversity and the magnitude of challenges it presents (see What’s Wrong with Energy Investing Part II)—and it has even more conservative ultimate users and buyers. Nonetheless, water’s time in the limelight has come, and many companies built around clean water technology that couldn’t get a second look a year ago now are drawing tremendous interest. Often these companies have been around for over a decade because that is how long it has taken such ventures in the past to get traction. In addition, new companies like NanoPur, a venture involving the use of novel carbon nanotube technology to improve the energy efficiency and cost effectiveness of desalination (and a finalist for the recent MIT Clean Energy Entrepreneurship Prize backed by NSTAR and the U.S. Department of Energy), are springing up with much higher frequency. The new economics of water make companies that increase the supply of clean water a compelling value proposition that will only increase over time. While there may be alternative energy sources and fuels, there really is no substitute for clean water.

The second point I raised above is really a necessary condition for building sustainable energy companies in the future. Only a year or so ago, venture capitalists routinely asked each new potential investment company about its India and China strategies. Similarly, for energy companies, the question will be, “What effect will the venture have on food and water?” Those companies that can decouple the tradeoffs between the two will be interesting, and those that do not, will not be attractive investments. Even existing, well-managed energy companies are now closely examining this issue, which will only increase in importance. An example of a potentially exciting new company in this regard is another finalist from the aforementioned MIT Energy Prize competition: Sequesco. This team of three PhDs plans to develop genetically modified non-photosynthetic bacteria (an approach different than photosynthesis-based algae production) to more efficiently convert harmful CO2 into biomass fuel. This is a double play (i.e., it decreases CO2 emissions and increases energy supplies) without negative ramifications on water or food—at least that we know of yet.

In summary, trading off water for energy is a devastatingly bad idea, for as wise old Benjamin Franklin said, “When the well is dry, we learn the value of water.” In the first stage of energy innovation, we began to deplete the well. But in the second stage, beginning now, we must move on from this folly and find more intelligent solutions.

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Attention entrepreneurs: it isn’t always about the technology. Often the real innovation lies in the distribution or business model. Take the problem of providing clean drinking water in developing countries. The technology needed to make individual water supplies safe isn’t rocket science—it ranges from purifier packets of chlorine to special containers that use sunlight to kill microbes.

Yet, across the globe some 2 million people die every year from drinking contaminated water, the vast majority of them children under 5. What’s more, every year there are 4 billion episodes of water-induced diarrheal disease, which causes malnutrition and makes kids miss school, with serious economic consequences and systemic effects on quality of life. In poor areas, boiling and refrigerating water often falls by the wayside because it consumes too much energy and time, and there are few, if any, alternatives.

Enter Sarah Bird, a graduate student in MIT’s Technology and Policy Program and founder of SaafWater (pronounced “Soff”-water—saaf is the Hindi and Urdu word for “clean”). Her company is creating a distribution model for getting safe, clean drinking water to urban areas in developing nations. Her first stop: Karachi, Pakistan’s bustling capital city of 15 million.

Bird, who previously studied mechanical engineering at the University of Cambridge in the UK, was a runner-up in the MIT $100K entrepreneurship competition last year. She and her partners won $10K to help start the company. SaafWater was incorporated in Delaware last June and in Pakistan as a subsidiary, and has raised $50K in angel investment. After spending last summer in Karachi putting the product together, building local partnerships, and lining up suppliers, Bird is ready to take the plunge, moving there next month to run full-time operations.

So what does it take to get such an enterprise off the ground? What are the financial and operational challenges? I caught up with Bird last week after she had spent yet another all-nighter finishing her Master’s thesis.

Xconomy: So give us the elevator pitch for your company…

Bird: SaafWater is a for-profit social enterprise that provides affordable clean water to the urban poor. We provide a daily dose of chlorine as an affordable option through a high-quality, direct sales network provided by saleswomen who go door to door, and live in the same neighborhood as their customers.

Xconomy: Why focus on Pakistan? What is the state of the water supply there?

Bird: Around 250,000 children die each year in Pakistan from drinking unsafe water. I got involved in 2006 when Dr. Aamir Khan, the president of InterActive Research and Development, an organization in Karachi focused on problems of public health, approached the D-Lab at MIT, where I was a research assistant. The idea for the company was hatched …Next Page »

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