Long hours, breakneck deadlines, high stakes, and conflicting advice—it’s all part of the package when entrepreneurs submit a few months of their life to an incubator program in hopes of creating the next big thing. Not surprisingly, some groups crumble under the pressure, says TechStars Seattle director Andy Sack.

“The number one risk facing your company—whatever your business is—is internal combustion. That means team breakdown,” Sack said last night at a preview of the Mirosoft Kinect Accelerator program in Seattle.

Microsoft is partnering with TechStars for the three-month accelerator, which will be housed in Microsoft offices in the South Lake Union neighborhood—right next to Amazon headquarters.

Teams that qualify for the program will be developing businesses that use the Kinect on the Xbox 360 video game console and the Windows operating system. They’ll get access to a star-studded cast of mentors, including people inside Microsoft who are pushing some of the boundaries of the Kinect device, and a $20,000 investment from TechStars in exchange for 6 percent of the company.

Applications are due by tomorrow (Feb. 8), and hundreds have already poured in, with ideas ranging from advertising and entertainment to healthcare, education, and even manufacturing. The final 10 proto-companies to make the accelerator will begin their work in Seattle on April 2.

Sack and 2011 TechStars Seattle alum Russell Benaroya, co-founder and CEO of EveryMove, were on hand to give possible accelerator applicants an idea of what’s required to thrive in a TechStars-style program. They didn’t pull any punches, describing an intense experience that doesn’t always end well.

“There is nowhere to hide when you are surrounded by nine other teams that are, while collaborateive, also competitive,” Benaroya said.

One unnamed team in the last TechStars Seattle group “blew up” on the first day, Benaroya said. Another, LikeBright, broke apart shortly after the program’s Demo Day in November and has regrouped with one of the original founders taking on a new technical partner, Sack said.

Even groups without significant internal conflicts can run through huge changes to their idea or approach at a dizzying pace, and face what Sack called “mentor whiplash” from getting opposing advice from seasoned entrepreneurs and investors helping out with the program.

It’s the entrepreneurs’ job, Sack said, to take all the criticism and advice, but make their own decision about the best path for their startup. That instantly reminded me of this recent story about TechStars Seattle 2011 grad Romotive, which said a lot of mentors didn’t think their concept for a smartphone-driven toy robot would fly until a campaign on Kickstarter showed significant support for the idea.

But I don’t want to give the impression that their advice was all a huge buzzkill. It was candid advice for people considering taking the plunge into an intense experience that can hone their ideas into viable businesses. Seven of the 10 TechStars Seattle companies from last year have already raised financing, Sack said, with another apparently on its way. That includes Benaroya’s company EveryMove, an online platform where workers can earn rewards for healthy behavior—it’s raised $1.5 million so far, and is on track to make about $500,000 in revenue this year, he said.

“I guarantee you will put in more energy and effort—I don’t know if I’ll say more than you ever have in your life … but we are going to have fun while we work hard,” said Dave Malcolm, a former Microsoftie and TechStars mentor who is directing the Kinect Accelerator.

Here’s a short video of Microsoft’s JP Wollersheim showing off the Kinect hardware with Windows via the iClone 3D animation software from a company called Reallusion.

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Founder’s Co-op, the Seattle-based early stage investment group headed by Andy Sack and Chris DeVore, has closed its second fund at just under $8 million. That’s a significant step up from the first Founder’s Co-op fund, which DeVore says was about $2.5 million—a shift that reflects both the growth of Seattle’s startup scene, and a decision have more reserve capital on hand for follow-on investments.

Founder’s Co-op operates on an interesting model, one that Sack has described as a “peer-to-peer, seed-stage fund” drawing from a wide pool of investors and entrepreneurs. As the name reflects, Founder’s Co-op touts its ties to experienced startup hands around the region—just about anyone you can think of in the Seattle area, and a few from beyond the region, are listed among the nearly 60 “mentors” on the website. The number of limited partners involved in the new fund is big, with 66 investors listed on the regulatory filing.

“We think of Founder’s Co-op as a platform—not just for me and Andy to do stuff, but for a whole community of folks who have a track record in the startup community,” DeVore says.

Founder’s also is connected to the Seattle TechStars program, which Sack directs, and the fund has stocked an office building in the bustling South Lake Union neighborhood with portfolio companies. Typical early investments are in the $100,000-$200,000 range, which leads to between $500,000-$750,000 over the long run, DeVore says.

Notable investments so far include Sparkbuy, the comparison-shopping startup acquired last year by Google; healthcare marketing startup Appature; gamification startup BigDoor Media; and Urban Airship, the Portland, OR-based app services startup.

The fresh SEC filing for the new fund indicates the new pool could grow to $10 million, but DeVore says this will likely be the final fundraising for fund No. 2. Nearly $3 million was originally raised in late 2010 as an inside round from the limited partners in the first fund, and some of that money has been committed. The balance of $5 million was added more recently, reflecting an expanded pool of investors, DeVore says. Founder’s Co-op probably won’t raise another fund until 2013 or so, he says.

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The biggest story of the past week on the Seattle tech innovation beat was surely the Demo Day for TechStars Seattle, the second-ever class of entrepreneurs to graduate from the bootcamp program in the Emerald City. Hundreds packed the venue to see the pitches, and were treated to some really solid and exciting pitches from hot new proto-companies.

I put together the most comprehensive rundown anywhere of the action, with snapshots of each company and their presentation, along with comments from TechStars CEO and founder David Cohen. And we followed up with a recap from Cohen and Seattle TechStars director Andy Sack, with some thoughts on the big trends we’re seeing in these startups, the incubator movement, and the Seattle startup scene.

Elsewhere around town, it was a pretty busy week:

—RealNetworks hired a new CEO: Thomas Nielsen, a former Adobe executive who most recently was in charge of Photoshop and other imaging software products. RealNetworks founder Rob Glaser told me that he was excited to bring on a really strong product executive in Nielsen, who also has worked at Microsoft earlier in his career. Nielsen’s first official day on the job is today.

—Zillow reported its third-quarter earnings, the online real-estate listing company’s second report since going public this summer. Zillow showed revenue growth, but lost money for the quarter on a new headquarters move. Zillow also reported that it had acquired Diverse Solutions, a real-estate marketing company.

—Money-losing wireless broadband provider Clearwire also reported its financials, which were largely a replay of some selected results the company had pre-released a little earlier to stop a stock slide. Clearwire is still burning through cash, but not quite as fast, and says it’s added some subscribers.

—Speaking of market doldrums, the turmoil on Wall Street is weighing on some Washington state tech companies that want to go public. In particular, we’re talking about traffic-data provider Inrix and semiconductor laser manufacturer nLight Photonics. Both have IPOs in the cards, but the current markets aren’t making that a smart move right now, so they’re waiting it out. A question mark is RFID maker Impinj, which filed its registration paperwork but hasn’t updated the file since July.

—Facebook is feeling pretty bullish on hiring prospects in the Seattle market—enough so that it’s upgrading its Seattle engineering office to a new space with roughly twice the room. Facebook Seattle, the company’s most significant engineering office outside its Palo Alto, CA headquarters, is now up to about 60 people.

—Thousands of people attended the first-ever Seattle Interactive Conference, which featured lots of great talks like this update on social in search from Bing chief Stefan Weitz. He says it’s clear from the data that, when seeking opinions or answers to questions, people crave other people in search. And Bing’s close connection with Facebook is something it’s still touting as an answer to that need.

—It’s the debate that never goes away for entrepreneurs: Finish school, or take the plunge and start your company? The folks at Gist (now part of Research in Motion) put together this handy infographic detailing some of the stats behind that age-old question.

—We had a Twitter chat with Kabir Shahani from Appature, the Seattle-based medical industry digital marketing startup, about the opportunity his company is tackling as it tries to help bring an old-school industry into the 21st centuray. Kabir’s going to represent Seattle—quite ably, I’m sure—at Xconomy’s 6×6 event Dec. 1, where we get people together to talk about six big ideas from the six cities we cover.

—And finally, we checked in with Seattle’s Hark, an online sound-clip library that had a pretty impressive milestone to report: People have listened to sound clips on its site 1 billion times since late 2008. That’s a load of movie quotes, speeches, and other assorted noises—but it adds up to real money. As CEO David Aronchick told us, Hark’s now a profitable business, and doesn’t see any need to raise money on the horizon.

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If you want a glimpse at the leading edge of tech startups, TechStars Demo Day is a fine place to go prospecting. In just 60 minutes of total pitch time, you’ve got a damn good idea of the industries, customers, ideas, and technologies that top entrepreneurs and investors think are ripe for innovation.

And the accelerator phenomenon itself is certainly part of that picture. Organizers say attendance at pitch day was up significantly this year, as was the number of applicants—700 startups vying for just 10 spots, compared with 400 in 2010′s inaugural Seattle class. That growth comes as we’ve seen a big spike in the overall incubator/accelerator scene nationally, with increasing competition for getting into the top programs.

I’ve already posted the most complete rundown anywhere of Seattle Demo Day 2011, and you can also find quick snapshots, links, and founder contacts at this handy page put together by the group.

Today, we’re throwing in some extra insight from the head honchos themselves: TechStars CEO and founder David Cohen and TechStars Seattle director Andy Sack, who we interviewed right after the pitches wrapped up Thursday night.

One clear trend in the companies presenting in this year’s class, Cohen said, is the use of social media as platforms to build businesses that could have some substance, coming up with “new and interesting ways to actually monetize” all that sharing.

“So companies like Bluebox or Vizify are taking advantage of this proliferation of consumer data and the sharing that’s going on to drive that value back to businesses,” Cohen said. “That’s certainly a trend that continues to be the case. I think four years ago, it was all the social stuff coming out. This is the actual application of it for business.

David Cohen

Another reflection of the mood of investors is the presence of “very real businesses that have very clear revenue models—things like EveryMove. There’s a lot of money being spent in health care. Those guys are tapping into that,” Cohen said. “I think what investors want today are businesses that have a revenue model that they can understand, but that take advantage of the cool, hot, new, and social to really leverage it.”

“The other trend that you’re going to see more and more of—I know TechStars is looking at it—is the area I would call human-computer interaction. Broadly, I would throw robots into that, which you saw with Romotive,” Cohen said.

“You take this guy,” he said, holding up a smartphone, “that we’ve all spent money on, and you figure out other cool stuff to do with it. Or you take the iTouch that your kid has and you figure out how to … Next Page »

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David Cohen has seen this movie before. As the founder and CEO of TechStars, he knows that the first year in any city is about building community, making impressions, and proving the model. Then things get turned up a notch.

“Year one is a lot of excitement, the town really supports it,” Cohen said. “People come out to the first Demo Day and they see it for the first time as a finished product, and people talk about it. Year two, you get a much bigger audience. I’ve seen that pattern everywhere.”

Seattle is no exception. The second-ever TechStars Seattle Demo Day, held Thursday afternoon, saw attendance way up, with 350 or more investors, entrepreneurs, and insiders flocking to the SoDo neighborhood to see some of the hottest startups in town. The competition was fiercer, with 700 applicants for just 10 spots, compared with 400 a year ago.

And the money was flowing faster—as of Thursday’s demos, nine of the 10 proto-companies already started raising financing rounds, TechStars Seattle director Andy Sack said.

“Last year, the companies coming out of TechStars 90 days after Demo Day had successfully raised over $2.5 million,” Sack said. “This year, coming into Demo Day, the companies have already raised over $3.5 million.”

Here’s a rundown of the 10 companies that showed themselves off Thursday evening, with some key notes from the presentations. We’ll have more from Cohen later, as he looks at the trends in companies and incubators overall, and some more thoughts from Sack on year two of the Seattle TechStars experience.

Beamit Mobile
Tagline: Enables convenient international money transfers from the U.S. to a mobile phone abroad
Beamit is targeting the huge market of international remissions—the money that immigrants send back to friends and relatives in their home countries once they get to America and start earning cash. That amounts to $325 billion globally each year, CEO Matt Oppenheimer said, with 80 percent handled outside the traditional banking system.

Beamit seeks to make those transfers easier and cheaper by using mobile devices and the Internet as a platofrm. People in the U.S. will be able to send money to a virtual wallet in another country online or through a mobile app, which the recipient could either spend from their device or cash out at a traditional transfer office.

The first test market is the Philippines. Beamit can make transfers free for its most loyal customers, Oppenheimer said, which implies that Beamit makes money on fees of some kind. The startup already has closed a $750,000 convertible note, and is raising a Series A round.

Bluebox Now
Tagline: Turning brand advertising into daily viral campaigns.
The former employees of Pelago, which was acquired by Groupon, have a platform that allows retailers and other brands that offer loyalty or rewards programs to increase consumer spending by offering casual games as a hook, rather than dry, boring email campaigns.

The loyalty market has more than 2 billion memberships, but two-thirds of them (66 percent) are inactive, co-founder Chad Reed said. Early tests show the concept has shown a ten-fold increase in the use of loyalty programs, Reed said.

Customers include Murphy USA, which operates gas stations like those seen at Wal-Mart locations, and Caesar’s Entertainment, the casino company. Bluebox Now is raising a $500,000 round, with $100,000 already committed as of the presentation.

EveryMove
Tagline: Rewarding and inspiring people to a healthier lifestyle.
One of the health-minded startups on stage Thursday, EveryMove seeks to connect consumers with rewards from their employers, health insurers, and other brands by collecting, tracking, and visualizing health-related data. So, if a user checks into their gym via Foursquare and completes a series of runs via Runkeeper, they could qualify for a discount from their insurance company.

In one of the most energetic presentations of the day, co-founder Russell Benaroya pitched this as a social movement, a huge business opportunity, and a no-lose proposition for everyone involved. Advertisers get targeted access to health-conscious people, employers and insurers and … Next Page »

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Lighter Capital, Seattle’s newly rebranded revenue-based financing startup, is trying to drum up more applications from “weird stuff that makes money” by promising it will lend up to $500,000 to at least one company that applies in August. The winner has to fit Lighter Capital’s requirements—generally speaking, companies that have “a proven revenue model and healthy gross margins.” Lighter Capital is led by CEO Andy Sack and VP Randall Lucas, who says the startup has invested more than $1.1 million in the past six months, and is on track to nearly double that pace.

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Electronic Arts is betting that the creative minds at Seattle’s PopCap Games can help the console stalwart tackle social network gaming leader Zynga. That’s why EA paid $750 million up front, with incentives to add another $550 million, to acquire the 9-year-old casual game company last week. The deal had been rumored for a few weeks, after PopCap publicly toyed with the idea of going public this year.

Intellectual Ventures, the patent licensing and invention firm headed by Nathan Myhrvold, took a big step in its battle against a pair of overseas memory manufacturers by filing a complaint with the International Trade Commission. The ITC action asks international regulators to keep shipments of the contested memory products out of the U.S. Also named was a long list of companies that build, market, or sell products with the contested components, including household names like Hewlett-Packard and Best Buy.

Ignition Partners‘ new managing director Frank Artale sees the Seattle startup scene maturing, with more repeat entrepreneurs and stronger bridges being built between new companies and the software giants that often gobble up innovative startups. That’s just one of the insights I gleaned in an interview with Artale, who is now back in the Seattle area for work after spending some years in Silicon Valley.

What’s in a name? Plenty for Seattle’s Lighter Capital, the newly rechristened alternative finance startup formerly known as RevenueLoan. Co-founder Andy Sack explained the thinking behind this name change, which signals a broader focus and easier applications for entrepreneurs.

There’s now video of a recent discussion about the future of the Internet by Qi Lu, head of online services Microsoft (NASDAQ: MSFT) at the company’s New England Research and Development Center. Xconomy helped put the event together back in May, and now you can go for a deep dive with the guy that Steve Ballmer personally recruited away from Yahoo.

The folks at CB Insights rounded up national venture capital activity through the second quarter, and the Seattle scene was looking a little sleepy compared to other regions. If you look at the share of dollars invested, Washington ventures made up about 2 percent of the national total—a ratio that was steady over the previous two quarters, but represents a 50 percent dropoff when compared to a year earlier. Massachusetts showed noticeable growth in this particular statistic.

We had two great guest columns. Well-known Seattle entrepreneur Jeremy Jaech gives you the rundown on all the “hidden gems” at the University of Washington, where he’s doing a kind of entrepreneur-in-residence gig. And Tom Ranken of the Washington Clean Technology Alliance dissects a new report that shows the pace of job growth in cleantech—there are more than 31,000 cleantech jobs in the Seattle area alone, ranking No. 13 among large metro areas.

Deals aplenty: LiveMocha, Telecom Transport Management, and RootMetrics raised cash; so did Swype; Ground Truth merged with Boston’s Umber Systems to become Mobile Intelligence Solutions; Lockerz acquired AddtoAny.

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Premium goat-milk ice cream. Bouncy-house rentals for kids’ parties. Electronic medical records for psychiatrists. None of these sound like your textbook target for early stage investors, who are often found hunting consumer tech startups that can turn into billion-dollar home runs.

For ubiquitous Seattle investor and entrepreneur Andy Sack, that’s precisely the point. Those three very different businesses are companies supported by RevenueLoan, the alternative financing startup that Sack unveiled about a year ago in his mission to disrupt the traditional investment market. These days, Sack is repositioning RevenueLoan as Lighter Capital—a name change that he says reflects a broader focus and an overall attitude that’s much less buttoned-down than your average bank or venture capitalist.

I stopped by Sack’s Founder’s Co-op/Seattle TechStars office recently to get a better idea of what the changes will entail, and what the first year has been like for one of the more prominent experiments with an emerging investment model known as revenue-based financing.

Check out Xconomy’s story from last year for a more exhaustive rundown of how it all works, but here’s the short version: Revenue-based financing is a loan that’s repaid by sending investors a slice of top-line revenue, typically in the 1-10 percent range, up to a hard cap of three-to-fivefold return on investment. So, in exchange for taking no equity stake in the startup, an investor can make money without an IPO or acquisition. For Seattle-based Lighter Capital, loans typically top out at $500,000. The company was started with $6 million from Voyager Capital, Summit Capital, and Founder’s Co-op, and Sack says Lighter Capital might look to raise more money in a year or so.

The first year has seen 10 deals on a range of companies. About half of them have some kind of technology focus, such as lead generation or software-as-a-service—”stuff that is just never going to be a huge company, but solves a real problem for a set of customers,” Sack says.

One early investment was in Valant Medical Solutions, which helps psychiatrists and other mental health professionals streamline their administrative burden by shifting things like patient records, prescribing, and billing to Web-based software. The Seattle-based company was started by a pair of brothers: psychiatrist David Lischner and software developer Ben Lischner.

“It’s a niche,” Sack says. “They might get huge, but it’s more likely they end up at a $5 million-a-year, $10 million-a-year business.”

Other investments include Mimja, which operates a Web-based lead generation and rental company for those big bouncy houses that kids (and adults) like to hop around in; and Laloo’s, whose … Next Page »

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How does one of the world’s hottest web properties keep up with insane user growth, continue adding features, and still keep the whole thing held together? To hear the head honchos of Facebook tell it, the answer isn’t to just vacuum up all the engineers you can find. Instead, founder and CEO Mark Zuckerberg and engineering head Mike Schroepfer say they want to maintain a healthy growth rate of about 60 percent, and spread the work around to everybody—including summer interns.

That was one of the highlights of Zuckerberg’s visit last week to the Facebook Seattle office, a team of about 40 coders who represent the social networking giant’s only significant engineering hub outside of California. The reason for Zuckerberg’s visit was a Q&A with developers, which was quickly decoded as a recruiting event for the growing Seattle outpost. He also told reporters that the company would be rolling out an “awesome” new feature this week, one developed out of Seattle.

Rumors chased down by TechCrunch and Mashable say the update is Skype-based video chat—something that could make the Internet phone company’s acquisition by Microsoft look once again like a better deal than it seemed at first blush.

Also making headlines in the past week or so at Xconomy Seattle:

—Coincidentally, I also had this profile of Seattle startup Likester, which is culling Facebook data to provide a look at how the social network’s “Like” button correlates to social trends in the outside world. Founder Kevin McCarthy got some fun publicity for using that data to successfully predict the winner of “American Idol,” and he’s also hoping the 2012 presidential election cycle will draw some eyeballs and users. But McCarthy also sees tons more sophisticated uses down the road, including serious e-commerce applications.

—RevenueLoan, the Seattle-based alternative financing startup for entrepreneurs, is rejiggering its name and overall mission to have a wider footprint. Founder and CEO Andy Sack says the company’s new name, Lighter Capital, reflects both the less-starchy attitude of the principals and its hope to make raising money easier for small companies. RevenueLoans, in which lenders get a share of future profits, will remain a product, but Sack hints that more offerings are ahead for his startup.

—Seattle’s PressPlane landed a nearly $3.5 million investment for Zapd, its smartphone-based website creating software. PressPlane also runs Inkd, an online design service. The whole thing is helmed by Kelly Smith of Curious Office, who says Zapd is hoping to thrive in a world where websites are “impulsive, alive, social and easy.” The round was led by Madrona Venture Group and included RealNetworks founder Rob Glaser.

—Rounding out the news, we saw digital puzzle startup Puzzazz raise about $400,000 in angel investment; California IT security company BeyondTrust buying software from Likewise Software of Bellevue, WA; and Madrona and Amazon returning as investors for New York-based video production startup Animoto’s $25 million C round.

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RevenueLoan, an alternative financing service for entrepreneurs, is changing its name and broadening its focus. Founder and CEO Andy Sack writes about the name change and hints at the larger implications in this blog post, which says the Seattle-based startup’s team has “realized there’s a lot more opportunity to disrupt the small business growth capital and lending incumbents.”
RevenueLoan debuted about a year ago, centered around an investment approach known as revenue-based financing. Basically, investors get a portion of future revenues in exchange for their capital, rather than equity or debt to a traditional bank. As Sack wrote a bit earlier on his blog, he’d determined that a change was in order because that particular investment vehicle was likely “a product and not a company.”
RevenueLoan previously raised $6 million from Voyager Capital, Summit Capital, and Founder’s Co-op, the seed-stage firm helmed by Sack and Chris DeVore.

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As the Web becomes more social, will search start to whither as a primary means for consumers to access the Internet? That’s been suggested by some folks in the tech world, as the rise of Facebook begins to create a dynamic layer on top of the “regular” Web that isn’t fully reachable by Google’s crawlers.

To get an update on the thinking behind this debate, we convened a couple of Seattle entrepreneurs who spend a lot of time researching and discussing the consumer Web: Rand Fishkin of SEOmoz and Ben Elowitz of Wetpaint. The result was a long, lively back-and-forth that generated some acquisition advice for Google, speculation about Facebook’s search deal with Bing, and interesting questions about which behemoth is scarier as the main filter of our information.

There was plenty more good stuff in the past week or so on the Xconomy Seattle tech beat, even with a short holiday week:

—Bob Buderi checked in from Boston with an exclusive update to Polaris Ventures closing down its Seattle office. Turns out the change is part of a broader move to expand in California, with general partner Brian Chee relocating to head up a coming-soon office in Palo Alto. Polaris co-founder Steve Arnold plans to continue working from Seattle, the firm said.

—I took a look at the story behind the HackStars program, a new-to-Seattle feature of the TechStars startup accelerator. HackStars recruits a pool of people who can code, design, and hack their way through projects that TechStars companies need some help with. If it works out, they might even wind up with a job—or a co-founder’s stake. That’s what happened with Sam Herbert of ADstruc, who unwittingly helped start HackStars by getting rejected from the main program and then brought on as a bit of extra technical help.

—Trinity Ventures led a $10 million investment in Act-On Software, an online marketing company based in Beaveron, OR. Previous investors Voyager Capital and U.S. Venture Partners were back for this round, which was based on a valuation of about $40 million—”a substantial step up,” according to founder and CEO Raghu Raghavan. It’s a nice Northwest success story: Raghavan started Act-On after leaving his previous company, Responsys, which relocated to California. He’s been vocal about staying in Oregon, saying there’s no reason to think a tech startup has to move south to succeed.

—Just before Groupon filed its IPO paperwork, a couple of Seattle players in the crowded online deals sector announced they were combining forces. We’re talking about Tippr acquiring DealPop, which was formerly part of WhitePages.com. Tippr’s strategy involves going heavily after online publishers, rather than working directly with merchants, as Groupon has done. Not to be outdone, Groupon came back the same day with some pre-IPO news: It’s partnering with Bellevue, WA’s Expedia (NASDAQ: EXPE) to provide travel discounts.

—Luke took a trip over to the new Bill and Melinda Gates Foundation headquarters for a preview tour, which included a speech from BillG, a smattering of local notables, and—seriously—a gospel choir singing “Lean on Me.” Oh, and amazing architecture, which Luke captured with some great snaps from his Windows Phone 7 device (coincidence).

—Briefly: Intellectual Ventures signed up a two-way licensing deal with Boise, ID-based Micron Technology; online property-tax challenge service ValueAppeal added $1.6 million in financing; and Clearwire (NASDAQ: CLWR) continued its makeover by shifting about 700 customer service workers to a vendor.

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Last year, the organizers of TechStars in Boulder, CO, decided to try a little experiment. Already stocked with 10 teams of entrepreneurs working on their proto-companies, the startup boot-camp saw a niche for extra hands to help knock out some of the startups’ technical projects.

So David Cohen, TechStars’ founder and CEO, brought in a young software developer and aspiring entrepreneur named Sam Herbert, who had applied to TechStars but didn’t make the cut for that year’s class. The TechStars brass gave Herbert a small stipend and let him circulate through the system, to see what kind of work might be available.If it works out, they figured, he could even wind up working for one of the companies.

“Two weeks into the program, he was recruited by one of the teams,” says Nicole Glaros, managing director of TechStars Boulder. “That’s when we were like, ‘Hmm … maybe this has a little bit more legs than we thought.’”

For Herbert, that open-ended engineering gig turned into a co-founder’s position with ADstruc, a venture-backed New York City-based outdoor advertising startup. “The last thing I thought would happen was I would be living in New York a year [later],” Herbert says. “But man, I’m so glad that happened. It’s been an adventure, and I just hope it keeps on going.”

And for TechStars, the experiment became HackStars—a recruiting program that puts entrepreneurial techies into a talent pool to help the accelerator’s fledgling companies tackle their projects, and maybe even land a new job.

The HackStars program, already in place at TechStars in New York and Boulder, is now making its debut in Seattle, where TechStars recently closed applications for a second class of entrepreneurs. Developers and designers in HackStars get the same $6,000 per-person stipend given to the co-founders of hosted startups. But they also get a chance to try the startup life even if they don’t have their own idea or team. As Seattle TechStars director Andy Sack wrote on his blog, it amounts to a way for techies to “hack into TechStars.”

Of course, software jockeys of all types are in high demand these days, both nationally and here in Seattle. We’ve talked about this situation many times at Xconomy, examining the relatively low rate of in-state college degrees, the continued growth of local tech behemoths and startups, and the many Bay Area companies establishing Seattle-area footprints to lure away talent from Microsoft, Amazon, and others.

The labor market for technical talent is also hot in Boulder, Glaros says. So why would an engineer give up nearly sure-fire job prospects for a few grand and three months of long hours with no … Next Page »

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It takes a village to raise a startup. TechStars, and other mentor-driven accelerators, understand this. Experienced entrepreneurs understand this. Investors understand this. New entrepreneurs often do not understand this; and those new entrepreneurs that do understand it often don’t know who they need in their village or how to work with them once they figure it out.

The composition of a startup’s village will depend on the individual needs and personality of the startup, but a common thread will be a network of formal and informal advisors—business advisors, technical advisors, legal advisors, personal advisors. If you’re Andy Sack, Rich Barton, Dan Shapiro or Dave Schappell, then you are an easy phone call (probably speed dial) away from a beer with the top minds in startup ecosystem. If you’re new to the tech startup world, then you need to get busy building your network with folks who can help you. Whether you’ve already found someone willing to spend time with you or are still looking, here are some tips for making the most of their help. As both an advisor and an advisee, I hope to learn something new from your comments as well.

1) Know why a particular advisor is a good fit for you. Early on, it’s tempting to want to talk to any potential advisors who will listen. Resist that urge. Have an understanding of why, specifically, you think it’s valuable to talk to this person. What is it in their current for prior experience that makes them a good fit for you. Do they have relevant expertise within your market, with your technology, with your customers, with potential strategic partners. The person you want to talk to should agree with your assessment. Remember, too, that every good advisor won’t be a good advisor for you. It has to be a good fit on both sides and if it’s not, then don’t force it; close the loop and move on.

2) Go after the correct “tier.” This is corollary to number 1), above… and may sound elitist… but get over it. You may think you want an audience with a hotshot in your space but keep in mind a couple of important things. The nearer the stratosphere an advisor is, the less time (and patience) they’ll have for you. And, if you don’t have your ducks in a pretty straight row then your one chance to make an impression may be squandered. Coupled with the effort it will take to get a warm introduction into them and the long wait to get on their calendar (could be two months or more), this is often a losing proposition. And don’t be surprised when your top-tier advisor’s assistant e-mails you the day before your long-awaited meeting to reschedule because “something has come up.” Also, top-tier folks are just not gonna have much time to spend with you, so you’d do well to think of them as connectors to other people and resources. As such, they will likely be cautious about referring entrepreneurs that they hardly know and/or aren’t confident are ready to risk their reputation on. So keep your powder dry. Work your way up. As your startup (and you) progresses you’ll naturally be ready for more and more top-tier help. It’s not a literal hierarchy and it’s not a caste system, but there are circles of trust and circles of influence; as your network expands and you gain the confidence of experienced people, then your circles will expand and will eventually overlap with higher and higher tiers. In the mean time, you may be better served working with folks closer to earth but with more time and energy to spend with you.

3) Be respectful of time. Know what you want to get out of the time an advisor spends with you. Be concise and specific. It’s easy to spend an hour chewing the fat about your new sliced bread machine, but that’s not a good use of their time or your own for that matter. Ask for 30 minutes instead of 60. Pick a coffee shop within short walking distance of your advisor’s home or office, or ask them to choose the meeting place. As the scheduled end of your meeting or phone call approaches, offer them a graceful exit.

4) Don’t be disagreeable. You don’t have to agree with what an advisor has to say about you, your startup, your product, your market, or your strategy but don’t assume that they are … Next Page »

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One of the most important decisions anyone makes is deciding where to live. Lucky for me, that decision has already been made. Since I’ll be graduating soon with an MBA from the MIT Sloan School of Management, I thought it would be great to head out West to where the software revolution began: the emerald city of Seattle, WA.

Now, I understand what some of you may be thinking: why the heck would anyone want to live in Seattle? I mean, doesn’t it rain like 10,000 inches per year? And aren’t they just a bunch of granola eating, rock band wannabes? What kind of job opportunities exist out in Seattle anyway?

I recently had the opportunity to help organize a “Seattle Tech Trek” for some of my MIT classmates (as well as the Harvard Business School, who helped set up a “startup mixer”). While many of us have roots in the technology scene, a large majority are obsessed about tech startups. Most are interested in either a) working for a small technology company, or b) starting our own venture (and if anyone is looking for good talent, please e-mail me for a list of resumes). Approximately 30 of us made the trip from Boston out to the Pacific Northwest and toured some of the area’s premier technology companies, both large and small.

I realize some of you may be biased toward the East Coast, especially since the majority of readers reside in Boston where Xconomy got started. But, I want you to keep an open mind especially if you’ve never been out West before. What follows is my “elevator pitch” for those who are contemplating whether they should move to Seattle, post-MBA.

First, and probably most obvious, Seattle is home to some of the most innovative technology companies. Yeah, sure, there are the “old timers” such as Microsoft, Amazon, and Expedia. I mean, everyone knows about those guys, right? Well, yeah—but there are also some up-and-comers which some of you may have never heard about: Impinj (RFID semiconductors), Farecast (travel, sold to Microsoft for $115 million), Isilon Systems (storage, acquired by EMC for over $2 billion), Big Fish Games (online games), DocuSign (digital signatures), AdReady (online display ads), Tableau Software (Web data), PayScale (salary data), Picnik (photos, acquired by Google), and Off & Away (travel deals). While the Bay Area may host its fair share of startups, rest assured Seattle is doing its best to stay in the running.

And, speaking of the Bay area, look at all the Silicon Valley companies who are opening offices in Seattle. Facebook recently opened an engineering center (currently the only other office besides its headquarters in the Valley), while Google, Cisco, Adobe, and Salesforce.com all have satellite offices in Seattle as well. There’s probably a host of others I’m forgetting, but these stand out to me. (Side note: my MIT Sloan colleagues also put together a “Silicon Valley Tech Trek” as noted here by MIT Entrepreneurship Center director, Bill Aulet. )

Second, and probably most important, is the Pacific Northwest “entrepreneurial … Next Page »

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It’s pretty impressive what a few startup teams can accomplish in 90 days with a lot of hard work, mentorship, and late-night Maker’s Mark bourbon-fueled sessions. But their real journey is just beginning—and it will be a long one.

That’s my main takeaway from TechStars Seattle’s first “demo day” on Thursday. The seed-stage mentorship program—which started in Boulder, CO, and has since expanded to Boston, Seattle, and New York—accepted 10 startup teams (out of hundreds of applicants) for its inaugural Seattle program this fall. It’s part of a growing effort by local entrepreneurs and investors to foster more support for technology startups in the Northwest.

Andy Sack, head of TechStars Seattle, said the business plans being presented exceeded his expectations in terms of quality. He implored the investors in the audience (nearly 200 strong) to “get to know the teams—and write checks.” After all, demo day is all about hooking up the program’s startups with active angel investors and venture capitalists, who are all chasing the next big thing.

But the bigger goal, Sack told the crowd, is to build larger and more successful local businesses—and ultimately provide some big exits for investors, which should in turn expand the startup ecosystem. “You’re playing for the future,” he said. “Live the dream of what Seattle looks like in five years.”

My first impressions: Very polished pitches. High-energy crowd and presenters. Beautiful venue (The Triple Door). Bigger ideas than you might expect, but also a clear focus on how to make money. Lots of work still to be done.

Reactions from others in the audience: High-quality presentations, ahead of the other inaugural TechStars classes. The companies came a long way in the past few weeks. Mostly “execution plays” and not new ideas. I used to hear these ideas every day as a VC. Some pitches were for tools, not companies. Consumer Web is very noisy, and it’s hard to extract a signal. Founding teams are solid (many from Microsoft, Google). It’s very early for these businesses.

Here are a few thoughts on each company (you can also read TechStars founder David Cohen’s synopsis here). The bullet points are based on my personal impressions and, in some cases, comments from outside sources:

Highlighter
Founders: Josh Mullineaux, Matt Blancarte, Nate Whitehill
Idea: Help bloggers and publishers engage with readers by enabling the latter to highlight text, post comments, and share content online.
Tagline: Highlight, comment, and share on any device.
Analysis: Needs to continue building an elegant service that publishers really value, and that enough readers want to use. Distribution will be key if you’re charging publishers for analytics, and using contextual advertising.

Cabin Fever Toys
Founder: Adam Tratt
Idea: Motion-sensing stuffed animals (Zoomigos) and rewards to get kids to play outdoors, away from screens.
Tagline: Technology should make it more fun to go outside and play.
Analysis: I don’t think technology will solve our child obesity problem, but Zoomigos might be really fun. If so, it could be a hit. But that’s what it has to be to succeed—a hit. I don’t see health clubs, clinics, or insurance companies helping them sell this.

GoMiles.com
Founders: Michael Komanitsky, Marc Kamaka
Idea: Help travelers manage their disparate mileage reward programs and book award travel.
Tagline: Take control of your frequent flyer miles.
Analysis: Lots of competitors, but a pretty interesting Web interface that helps business and family travelers earn points faster. If it catches on, it could be big. But quite a few sites have … Next Page »

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[Correction: 7:40 am 11/1/10] Last night was the big night—we gathered some of the biggest names in Northwest financing for Xconomy’s “VC Crossfire” event, at Amazon’s new headquarters in Seattle’s South Lake Union neighborhood.

The panelists consisted of some of the region’s top financiers and technology entrepreneurs—including Bob Nelsen of Arch Venture Partners; Tom Alberg of Madrona Venture Group; Andy Sack of TechStars Seattle, Founder’s Co-op, and RevenueLoan; and Christopher Henney, the co-founder of Immunex, Icos, and Dendreon. And the “fearsome foursome” were certainly not shy when it came to the more grilling questions from our Xconomy Seattle editor Luke Timmerman, and national IT editor Greg Huang, who flew in from his new digs in Boston especially for this event.

The talk of the evening centered around the changing venture capital modelas a new wave of technology startups seek financing. How will innovative startups get funded in the future now that venture capital is declining as a financial asset class? Is the venture capital model as we know it reaching the end of its existence? Will traditional VC funding be replaced by angels, super angels, or micro-VCs? What can we do in the Pacific Northwest to finance—and foster—innovation?

No silver bullet for financing of innovation emerged, but there were a number of constructive ideas floated. Here are some highlights from the discussion, edited for length and clarity.

Xconomy: Is the venture capital model still relevant today, or even necessary?

Bob Nelsen: If you look at the data, 20 percent of GDP is comprised of venture capital [Correction: 7:40 am, 11/1/10. An earlier version said it was 40 percent]. Everywhere in the world we are admired—even worshiped—from the other countries that want to get our innovative infrastructure, and want to figure out how to fund companies the way we do them here. It’s the future of our country, it’s what creates our productivity gains, and we are in somewhat danger of losing our edge there as we tax it more—if we don’t somewhat fertilize the ground that we’re basing it on. There’s no other finance structure that I’m aware of that can put the startup capital in that venture does.

Xconomy's VC Crossfire event at Amazon's new South Lake Union headquarters.

X: We’ve seen the costs of getting tech startups going come down significantly in the past few years, but is there really a different story here in biotech?

Christopher Henney: As a pharmaceutical company, we live in an entirely different world—these numbers, $200,000 doesn’t mean anything for us. Venture capital as it existed 40 years ago, essentially doesn’t exist anymore. In the early days in the ’80s, most funds that invested in the biotech space were composed of wealthy individuals or wealthy families who were diversifying looking for winners—there was not real time construction on the amount of time the money was there. So we were able to start research companies. Nobody wants to pay for research anymore—that’s one of the problems in the biotech space. I think many people think that research is for the federal government.

Angels, really for me, have no place in the biotech space because they’re just going to lose their shirts, because when the professional money goes in—as it’s going to—they’re going to get wiped out, so they should just stay away.

X: Is the phenomenon of the “super angel” overrated? Are these the new players on the block, or are VCs still the people who can build big companies?

Andy Sack: There is a phenomenon of super angels—in pretty much every major tech market there appears to be a super angel fund of some type. In venture, the funds are larger, and in those venture funds, there are some people who lack specific entrepreneurial experience. In the class of super angels, the trend that you’re seeing is entrepreneurs who have had some degree of success and want to be helpful to the next generation and, almost by default, you end up in a situation where it’s almost more performance-oriented.

There are some real differences between super angels and venture capital, and there’s definitely a phenomenon with super angels, and I think it’s a good thing—more players, seed stage. Companies need stage-specific funding, so it makes most sense if you’re raising between $500,000 and a million bucks, it makes the most sense to get angels or super angels.

X: If you look at the VC returns from the past decade, they are really lousy. What are you guys doing now to get your house in order, and how many firms will be going away?

BN: You’re not going to see so many firms go out of business. You are seeing some partners are going away. It’s hard to kill a venture fund, but it’s easy to kill a venture partner.

X: How might bootstrapping, super angels, and micro-VC be disruptive to traditional VC?

BN: I think it’s rebranding. Super angels have always been around—it happened in the ’70s, it happened in the ’80s, it happened in the ’90s, and now it’s being rebranded as super angels. It’s not clear to people who are outside of the industry how fast it’s contracting.

Firms are getting smaller. Even the big firms are going from a billion to $300 million. Basically early stage is becoming much more popular now, amongst limited partners, so now the next stage … Next Page »

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A couple of sizable deals crossed the Seattle biotech news desk this week, and one of the Northwest’s main venture firms eagerly awaited its first IPO in a long time.

—Omeros (NASDAQ: OMER), the Seattle biotech company, pulled in $25 million through an unusual deal that pooled $20 million from billionaire Paul Allen’s Vulcan Capital along with $5 million from the state’s Life Sciences Discovery Fund. The money is to help Omeros continue its quest to make it possible for drug developers to make treatments against more than 100 currently inaccessible protein targets.

—Seattle-based Immune Design said this week it has struck its first Big Pharma partnership, by providing AstraZeneca’s MedImmune unit with the right to use an immune-boosting compound to boost the effectiveness of a vaccine candidate against respiratory syncytial virus. Full terms of the deal aren’t being disclosed, although Immune Design says it stands to get as much as $212 million in development and sales-based milestones.

—I profiled a new IT startup with an interesting idea for helping Big Pharma and biotech companies better engage with patients online. The company, Corengi, is seeking to build a Wikipedia-style site in which patients with Type 2 diabetes can share information about clinical trials, with an eye toward encouraging more people to participate and speed up the notoriously slow process. If Corengi can make this work in diabetes, it has its sights set on other helping pharma companies recruit patients with other diseases too.

—Kirkland, WA-based OVP Venture Partners is eagerly awaiting news from the IPO front on one of its portfolio companies, Mountain View, CA-based Complete Genomics. This company, which offers a low-cost genome sequencing service to researchers, said it hopes to price its shares at a range of $12 to $14. One of its rivals in the faster/cheaper gene sequencing field, Menlo Park, CA-based Pacific Biosciences (NASDAQ: PACB), completed its IPO this week at $16 a share, which showed that at least some investors want in on this new wave of genomic technology.

—Mitch Gold, the CEO of Seattle-based Dendreon (NASDAQ: [[ticker:DNDN]) had some political statements to share at last week’s annual meeting of the Washington Biotechnology & Biomedical Association, which was combined with the Governor’s Life Sciences Summit. He talked about taxes, education, and a whole bunch of other things.

—One of the big things I’ve been getting ready for this week is Xconomy Seattle’s “VC Crossfire” event at Amazon. My colleague Greg Huang is in town to co-moderate this panel, which features Bob Nelsen, Tom Alberg, Andy Sack, and Chris Henney. These guys have a ton of experience in financing innovation in both tech and life sciences, so we’re eager to hear their thoughts on where this is going now that the venture capital model is under siege.

—And lastly, Ken Myer contributed a thoughtful editorial about how even in the downturn, when so many people are out of work, technology leaders often still find it hard to recruit top-notch people in technical fields of science and engineering. So, Myer contends, the state needs to stick to get more serious about inspiring young kids to pursue careers in these fields.

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There might not be anyone else in Seattle pursuing more tech startup ideas, through more different financial avenues, than Andy Sack. He’s one of the key players at three organizations that seek to invest and help foster more high-impact tech companies in Seattle—Founder’s Co-op, TechStars, and RevenueLoan. And now he’s agreed to share his latest insights (and get grilled) on how innovation gets financed at the next big Xconomy Seattle event on October 28: “VC Crossfire.“

Sack will join a star-studded lineup of speakers: Tom Alberg of Madrona Venture Group, Bob Nelsen of Arch Venture Partners, and Chris Henney, the co-founder of Immunex, Icos, and Dendreon. (Martin Tobias of Tippr had previously been part of the group, but because of an unexpected conflict, he will not be able to make it.)

We’re bringing these folks together at Amazon’s new headquarters in South Lake Union to talk about something that affects everybody in the innovation community—how innovative companies can get the money they need to grow when venture capital is increasingly hard to find.

Right after the panel, we have added a new feature called “The Soapbox.” This will be an opportunity for a few investors and entrepreneurs to describe one clear idea for financing innovative startups at a time when a lot of investors are still licking their wounds from the economic downturn.

Three great speakers have agreed to take on this challenge of stepping up to the mike. They are Bill Harding of Bonanza, an online marketplace for niche products, which raised what some might call a micro-VC round last spring; Tom Clement, the founder of Pathway Medical Technologies and co-founder of Wings, a medical device angel investing network; and Kabir Shahani, the co-founder and CEO of Appature, a health IT company that bootstrapped its way to profitability and then raised $3.5 million of venture capital from Madrona and Ignition Partners. Our hope is that these quick presentations give the audience a basic introduction to a potentially transformative idea, which serves as a great conversation starter for the networking portion of the evening.

There are still a few tickets left if you are looking to attend this event and haven’t registered. So go ahead and steer your browser to the registration page. See you there on October 28.

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All this talk about “The Social Network,” and Mark Zuckerberg this and that, got me thinking. What if they made a movie about a technology company that’s doing something really innovative now?

A modest company that’s expanding nationally and helping to set the agenda and culture for a new generation of techie entrepreneurs…One with deep connections to many of the top investors and venture capitalists around the country…

OK, I chose TechStars, the seed-stage investment and mentoring company, mostly because I think Robert De Niro could do a fantastic Shawn Broderick (head of TechStars Boston). I’m sure I’m not alone. Plus I’ve met or seen most of the TechStars folks in person, so I have some sense of their style and mannerisms.

Sadly, Hollywood’s not going to green-light this one unless TechStars makes it big—and a whole lot of backstabbing occurs—but here goes.

This is who I would cast in the key roles of “TechStars: The Movie.” We even have an A-list producer/director (see below). Now we just need a script, perhaps involving AngelGate and/or Y Combinator…

David Cohen (founder and CEO), played by Jon Favreau (photo: Thomas Crenshaw):

Brad Feld (co-founder), played by Seth Rogen (photo: Phil Konstantin):

Nicole Glaros (general manager), played by Mary-Louise Parker (photo: Gage Skidmore):

Shawn Broderick (Boston director), played by Robert De Niro (photo: Petr Novák, Wikipedia):

Andy Sack (Seattle director—photo: Randy Stewart), played by Michael Douglas (photo: Stephen P. Weaver, U.S. Navy):

David Tisch (New York director), played by Shia LaBeouf (photo: Nicolas Genin):

Jared Polis (co-founder), played by Peter Sarsgaard (photo: Patrick McBryde):

David Brown (co-founder), played by J.J. Abrams (photo: David Shankbone):

[Celebrity photos courtesy of Wikimedia Commons]

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It’s a shame I’m moving away from this neighborhood. South Lake Union in Seattle, I mean. Because just three blocks away from my soon-to-be-former apartment, the next big startup experiment is about to begin.

TechStars, the seed-stage investment fund and mentorship program started in Boulder, CO, and now in Boston, is about to open in Seattle on August 16—one month from today. The 10 teams have been selected, and the office space at 511 Boren Avenue North is in its final stages of preparation.

The office is smack-dab in the middle of the newly opened Amazon.com campus, which should provide plenty of cross-fertilization opportunities between the incoming tech startups and the e-commerce giant. (The building is owned by a holdout who wouldn’t sell to Paul Allen’s Vulcan.)

I got a quick tour of the TechStars space from Chris DeVore of Founder’s Co-op (see photos below). Founder’s Co-op, the local seed-stage fund, will be moving from its office on Eastlake into the TechStars office as well. So will TechStars Seattle director Andy Sack’s new company, RevenueLoan. Together, the organizations and their companies will comprise about 60 people spread out among two floors (2nd floor and basement) and a total of about 14,000 square feet. DeVore and the team are currently arranging for things like broadband access, via a local microwave tower (Comcast doesn’t serve the building—probably a good thing). Ah, startup life.

The best part: a previous tenant was planning to have a speakeasy of some sort in the basement, so there’s a great bar and cocktail party area (see second photo below). Even better, possibly, is the fact that the bunker right next to the office is apparently some wealthy individual’s private man cave, complete with sports car(s), no windows, and security cameras outside (no photos of that space yet, unfortunately). Suffice to say, the parties on this block should be something special.

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