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

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

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

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

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

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There’s lots of buzz in the startup community about agile software development; there are software programs, books, and seminars on the topic, and even huge firms like IBM are now touting their “agile development solutions”. The general idea is to create a team and a software process that is flexible, quick, and adaptive to feedback from the market. Put stuff out there, collect feedback on what works, kill what doesn’t, improve what does, rinse and repeat.

But there’s a parallel trend occurring in the early stage technology market that hasn’t been talked about much. Programs like TechStars, Y Combinator, and Founder’s Co-op have been pioneering what I like to call agile organizational development. These “initiator” organizations provide founding entrepreneurs with an incredibly compressed calendar of iterative feedback on all aspects of their company. The feedback comes from a broad network experienced entrepreneurs who serve as mentors in these programs, and it comes often, regularly, and relentlessly.

Mentors in these programs provide feedback on the startup’s team, 30 second pitch, fund raising pitch, positioning, product, pricing—on just about every aspect of the organization. Some of the feedback is contradictory—just like market feedback can be. The TechStars program even has a name for the confusion that results from conflicting advice: “mentor whiplash”.

The net effect of all this mentor input is a set of organizations that adapt to market feedback much more nimbly than startup organizations of the past. This feedback cycle and the entrepreneurs’ response is what I’m calling agile organizational development, and my bet is that the companies that embrace it are much more likely to succeed than those that don’t.

These programs are all relatively new, and there aren’t any books or seminars on the topic yet—but I’m betting there will be.

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“People say if you fail in Seattle, you’re screwed,” said Marcelo Calbucci. “If you fail in the Bay Area, you just have a badge of honor.”

We were at the TechStars reunion event in Seattle last week, listening to early-stage investors Brad Feld, Andy Sack, Steve Hall, Greg Gottesman, Shawn Broderick, and Chris Sheehan speak about entrepreneurship and the tech startup scene in their respective cities. Calbucci, the founder of Seattle 2.0 and Sampa (which folded in August), was asking the panelists about how the tolerance of failure, whether real or perceived, affects a region’s culture of innovation.

It’s a deep question, and it continues the discussion of startup cultures in different cities that I highlighted last week. It’s also part of a debate on failure that has been going on since long before I wrote about it in Xconomy last January. There seem to be two camps. Most entrepreneurs I’ve talked to feel there is a stigma associated with having a failed startup in Seattle. Most venture capitalists, not so much. But it’s a much broader issue than just Seattle. My colleague Bruce talked with a Web 2.0 startup founder in San Diego last week who said his first failure, earlier this year, “was truly a painful experience, and I’m still not over it.” And meanwhile, Brad Feld, the co-founder of TechStars and Foundry Group in Boulder, CO, had some provocative things to say about the failure aspect of Boston’s culture.

But first, Andy Sack of Seattle’s Founder’s Co-op gave his perspective on having failed at his last startup, Judy’s Book, after having had three successes prior to that. “As much as you teach entrepreneurship, as much as there’s supply of capital out there, really when push comes to shove, entrepreneurship comes from within,” he said. “I couldn’t take a job at any of the big companies. We’ve been through the tech boom of the ‘90s. We’re just coming off of a major hiccup. I’d say right now, early-stage investors in Seattle have retreated some; venture capital has retreated some, they’re focused primarily on their portfolio. That said, you [Calbucci] failed and went out and started your own thing. I failed and went out and started my own thing. Because we didn’t know any better. The entrepreneurs that don’t know any better, they just go do it again.”

Greg Gottesman of Seattle-based Madrona Venture Group is one of those VCs who says he doesn’t see failure as a black mark. “My sense in this community is, to people who matter most, I don’t think failure is a huge negative,” he said. “There are certain types of failures, like failure of integrity—that’s hard to recover from. But failure of a startup, just speaking with all my partners, that’s not a negative. We talk about that as a learning experience. It’s just another piece of the puzzle.”

So how does Seattle’s tolerance of failure differ from, say, Boston’s or Silicon Valley’s? Feld, who has been investing nationally for 15 years, said, “I actually believe that the shtick of ‘failure as a badge of honor’ is really great shtick. I’ve failed a lot. It’s hard to fail. Failure impacts a person in …Next Page »

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I was chatting with a couple of local investors at the TechStars (seed fund and mentorship program) event in Seattle on Wednesday. They thought the VC panel discussion of the startup climate and culture in different cities around the country was boring. If you’re an entrepreneur or investor, they said, that’s just where you are, and you deal with it.

But au contraire, mon frère—as a journalist and outside observer—I view those comparisons across different innovation clusters and their respective histories as a way to generate some good stories and insights. On the panel, there were certainly some constructive (and at times controversial) things said about the entrepreneurial climate in Seattle, Boston, and Boulder.

Here are a few edited highlights from the panelists, several of whom bring an outside perspective to their current cities:

Brad Feld of TechStars and Foundry Group gave a brief history of the startup scene in Boulder, CO—useful for any city with entrepreneurial aspirations. “When I showed up in ’95, what I found was on the software side you had a lot of smart engineering talent but you didn’t have much else. A handful of entrepreneurial companies in storage and cable infrastructure. Not much in the way of entrepreneurial executive leadership other than from these pockets. In the mid-90s, because of the counter-culture community—and the Internet was purpose-built for places like Boulder—you had a lot of people who were independent, very smart, doing their own things suddenly intersecting with a medium that allows you to be anywhere. It’s 100,000 people plus 25,000 college students. A pretty small town, but it has the largest percentage, per capita, in the United States of computer scientists and PhDs. Yet there wasn’t a broad wave of entrepreneurial experience,” Feld said.

“In the mid-to-late 90s, there was huge activity around the Internet. Anybody with a pulse could get a company started. The predictable thing eventually happened, there was a lot of wreckage. But from ‘95-2001, Boulder had imported a lot of executive talent—CEOs, VP sales, engineering leadership. We also had a lot of entrepreneurs who had one or two companies in that cycle. So by 2003, people were starting to come back and get re-engaged in entrepreneurial activity. There were probably 50-plus people that made $10 million or more, so there was enough of an angel community. There was critical mass around this. But what was missing was something that tied the community together. There was the endless cocktail party circuit of entrepreneurs. Eventually people got bored and stopped going.”

That led David Cohen, Feld, and others to form TechStars in Boulder. “It cemented this notion of first-time entrepreneurial activity is the core of the ecosystem. What was needed was fresh meat into the system. We got a lot of new, young people into the community,” Feld said. “The other thing was that one of the hardest things for first-time entrepreneurs is to have an engaged relationship with an experienced entrepreneur. We found we were creating this thing that integrated the whole value chain of entrepreneurs. It really energized the existing entrepreneurial activity around a thing.”

Chris Sheehan of CommonAngels then gave his thoughts on the Boston innovation scene. [Disclosure: Chris is on Xconomy’s board.] “In the IT ecosystem in Boston, there are a number of things going on,” Sheehan said. “It’s a wonderful place for universities and colleges. MIT has been the granddaddy in terms of the entrepreneurial ecosystem. But what I’m seeing is a fresh set of energy coming …Next Page »

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My head is exploding trying to keep up with all the tech-business events going on around Seattle these days. Here’s a quick guide to the most prominent ones on my brain, in the hopes of saving you some stress (and keeping you up to date):

—Last night’s “Women in Tech” event from TechFlash was a smash hit, with a first-rate panel and networking. You can check out recaps of the event here and here. Yes, the crowd was predominantly women. I’m surprised more tech guys weren’t there to soak up the diverse perspectives and add their own input (or to get a date).

—Tonight’s panel on “the changing face of venture capital” at the University of Washington (computer science and engineering) should provide some spirited discussion of the unique challenges that investors and entrepreneurs are facing in the current climate. It’s an all-star lineup of local VCs: Mark Ashida from OVP, Greg Gottesman from Madrona, Ron Howell from WRF Capital, Bill McAleer from Voyager, and Cam Myhrvold from Ignition.

—Also tonight is the Clean Tech Open’s Pacific Northwest Regional Awards gala at the ACT Theater in downtown Seattle. Gov. Chris Gregoire is giving the keynote address, and will be followed by the announcement of three Northwest finalist winners (cleantech companies) who will then move on to a Western regional competition.

—Next week brings NWEN’s “Entrepreneur University” on Nov. 5 at the Bellevue Hyatt. It’s an all-day extravaganza about starting, growing, and managing your own company. Don’t miss the talks by Jennifer Mintz Clark, Andy Sack, and the Bacon Salt guys, or the “Entrepreneur Idol” pitch competition. (I’ll be there as one of the judges.)

—That same afternoon, on Nov. 5, Microsoft chief research and strategy officer Craig Mundie is speaking at UW, as part of the computer science and engineering department’s Distinguished Lecturer Series. Mundie will talk about how software and information technology can help solve our most pressing global challenges and reshape scientific exploration. (I’ll need to go quantum so I can be in two places at once that day.)

—On Nov. 6, the Washington Biotechnology & Biomedical Association (WBBA) is holding its annual meeting at the Sheraton Hotel downtown. Elias Zerhouni, the former director of the National Institutes of Health, is giving the keynote.

—A bit further out, Nov. 18 is the night of the Washington Technology Industry Association’s annual “predictions” dinner event at the Grand Hyatt in Seattle. John Cook of TechFlash will put some of the usual VC/entrepreneur suspects on the spot about their thoughts on 2010. On a separate note, WTIA recently announced that applications are now open for its 2010 Industry Achievement Awards, which will take place on March 4.

—Last but not least, Xconomy is organizing an evening on “The Future of Search and Information Discovery” (and Seattle’s role in shaping it) on Nov. 30, at the University of Washington (Walker-Ames Room in Kane Hall). We’ll get Google and Microsoft to share the stage, and surround them with some compelling VCs and startups, to talk about the technical problems and business opportunities in Web search, real-time information discovery, social media, and user interfaces.

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TechStars, the startup incubation and seed investment fund based in Boulder, CO, and Boston (as of this year), is holding its annual reunion event in Seattle on November 4. (See a couple of local VC blogs here and here.)

As part of the event, a number of TechStars companies that are raising money will make pitches to investors. There will also be a panel discussion on angel and venture investment trends, featuring Brad Feld of TechStars and Foundry Group; Andy Sack from Founder’s Co-op; Steve Hall from Vulcan Capital; David Cohen from TechStars; Greg Gottesman from Madrona Venture Group; and Chris Sheehan from CommonAngels. (Full disclosure: Chris is a member of Xconomy’s board of directors.)

Last February, when Brad Feld spoke to a crowd of tech entrepreneurs and investors in Seattle, there was some hopeful speculation in the crowd about whether TechStars might set up operations in the Northwest in the future. Nothing new on that front, but this reunion event in two weeks can’t hurt for down the road.

It sounds like the event is invitation-only, and meant for local angel investors and VCs. We’re looking forward to a stellar gathering, and will see what comes of it.

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[Updated 9/30/09 2:15 pm. See below.] Seattle-based Founder’s Co-op, the seed-stage fund run by Andy Sack and Chris DeVore, has been busy as of late. The peer-to-peer angel group has made two startup investments that have come to light this month. The financial details of the deals haven’t been announced, but something interesting may be brewing here.

Here are the two Seattle-area startups that have been funded:

—Nearlyweds, led by Porter Bayne and John Scrofano, is a maker of “social wedding software.” The company, which has been in business since 2007, designs personalized wedding websites for couples for a flat fee. DeVore announced the investment on his blog yesterday. The amount wasn’t disclosed, but Founder’s Co-op typically invests $250,000 or less.

—BigDoor Media, led by Zango founder Keith Smith, is still under wraps, but its website says it’s “building a completely new, automated content monetization platform for online publishers.” According to a regulatory filing on Sep. 1, BigDoor received $250,000 in equity funding, and Andy Sack (a former Zango board member) is listed on the form as a director. Smith, reached by e-mail on Sep. 1, declined to comment, saying the company is still in stealth mode.

I’m wondering if these latest investments represent a new kind of early-stage venture funding. I haven’t confirmed this yet with Sack or DeVore (neither would comment on the deal structure for this story), or with the startups in question. But earlier this summer, DeVore posted some intriguing thoughts on his blog about a type of investment model called royalty based financing (RBF).

DeVore described the model as “secured lending, but rather than requiring a fixed coupon and repayment period, the lender obtains a claim on a fixed percentage of gross revenues until an agreed-upon multiple of invested capital (typically 3 – 5x) is returned. RBF investors trade steeper default, timing and rate of return risk for richer potential returns than those offered by traditional business lending.”

So it sounds like the idea is to trade equity in the company for a certain amount of revenue per year—of course, this approach only works for post-revenue startups. DeVore went on to talk about “bringing the RBF approach to riskier, earlier-stage investing, where investors retain an equity position as an option on a future liquidity event, while receiving a portion of the expected return in the form of cash flows.”

Back in June, a related post in GigaOm said of such an approach, “In the middle ground between bankruptcy and an IPO, where millions of small businesses reside, it would provide a return for investors. That compares with today, which finds them stuck, waiting for a big payout that may never come.”

In DeVore’s post, he said his group was looking into the new investment model. “We’re trying it on for size, and—at least for some of our investments—this model may wind up being a better fit than the traditional venture approach,” he wrote. “Most of all, we love the idea of breaking the mold in our industry—early-stage investing—in the same way we hope our companies shake up the status quo in theirs.”

I could see this model working with Nearlyweds, which offers a paid service and has been in business for a while. But BigDoor Media is pre-revenue, so the fit isn’t as clear. I will have more on royalty based financing soon, as it pertains to the broader investment community, so watch this space.

[This paragraph added after speaking with Founder's Co-op.] Reached by phone about Nearlyweds, DeVore confirmed the investment was less than $250,000. He couldn’t comment on the deal structure, but it sounds like Nearlyweds has a compelling offering in the wedding software space that fits well with Founder’s investment strategy. “It doesn’t feel like existing free products have hit the nail on the head,” DeVore said. “They can create a step function in quality, and in what share of the market they have.”

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Seattle-based LookStat, which develops Web-based analytics, workflow automation, and earnings tracking software for the microstock photography industry, says it has closed a $500,000 Series A financing round from Founder’s Co-op and individual investors in the Seattle and San Francisco areas. Xconomy broke the preliminary news of the funding (but not the amount) last month, while reporting on a talk by investor Andy Sack of Founder’s Co-op.

To get the details, I met with LookStat’s co-founder and CEO, Rahul Pathak, a few weeks ago. Pathak was previously vice president of product management at Judy’s Book in Seattle (which Sack founded), and also spent time in the San Francisco Bay Area as a co-founder of Quova, and Boston as an MIT alum in computer science. LookStat focuses on microstock photos, which are cheap images provided on the Internet by a wide range of photographers, including hobbyists. “Microstock is growing like crazy,” Pathak said, “but it’s still very early days.” In particular, there haven’t been dedicated tools for automating workflow and telling microstock contributors (photographers) which kinds of photos are selling where, for instance. “Nobody’s approached it from a technical perspective,” he said.

Pathak and fellow co-founder Casey Zednick, LookStat’s chief technology officer, consider themselves “early innovators” in the microstock market, which Pathak says totaled about $200 million in 2007, and is expected to become a $600 million market in 2010 and 2011 (out of an overall commercial stock photography market of $2 billion).

The startup’s Web platform is now in public beta trials. As Pathak explains, “We want to sell tools to people. Rather than mine for gold, let’s sell the picks and shovels. It played to our strengths better as technologists.”

The next steps for the company are to expand its site and give photographers more detailed sales information about, for example, which categories of photos are selling at which time of year. From Sack’s perspective, LookStat represents a “proven team with a capital-efficient operating model” in a “fast-growing niche market.” Pathak didn’t give any specifics about revenue models, but it’s safe to say LookStat is looking to collect a fee for its tools in a wide-open and highly targeted market. We’ll be watching closely to see how it performs in a difficult sales climate.

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Sitting in the cockpit of a brand new 2010 Chevy Camaro SS (red paint job with 6-speed manual transmission), Rob Einaudi probably has better things to do than talk to the media. But I reached Einaudi, the editor-in-chief of CarDomain.com, yesterday at the New York International Auto Show, where he was taking this particular sports car for a spin. “Everyone’s looking at us,” he said.

Everyone back in Seattle is also wondering how his local company, CarDomain, will fare in its merger with Los Angeles-based StreetFire.net. The all-stock deal was announced on Wednesday, and the combined company, called CarDomain Network, will be run by CEO Glenn Rogers from StreetFire, while CarDomain founder Alex Algard will have say about long-range strategy as its chairman. For now, the two websites and their respective teams will remain separate. CarDomain currently has a dozen employees, and StreetFire’s staff is about the same size; both teams have undergone layoffs in recent months.

“The plan is to keep basically the status quo,” said Einaudi, who has both editorial and business development duties at CarDomain. “For the first 60 days, we’ll feel things out a little. There will probably be minor adjustments and some redundancies…We’ll streamline both sites a bit.”

From a business standpoint, the deal makes a lot of sense, as CarDomain.com and StreetFire.net complement each other’s strengths. As Einaudi puts it, “It’s a perfectly natural fit. We’d started to build out video but hadn’t gotten traction. They’d started to build out a community but hadn’t gotten traction. It’s a perfect marriage.” He adds that there is no big change in business strategy planned, but now “their ad sales guys can sell across CarDomain, and our ad sales guy can sell across StreetFire.”

CarDomain also generates revenue by connecting car sellers and shoppers through its online auto marketplace, powered by Vast.com, which it rolled out last June. This is an important area to watch, as it is much closer to the point of sale for cars, so it might be more straightforward for CarDomain to capture revenue through this site. Seattle-based startup Frugal Mechanic, a product search engine for auto parts, fits this mold and got funded two months ago when it was already on the brink of cashflow break-even. (CarDomain is a partner of Frugal’s.)

But with the auto industry imploding, and consumer websites facing harsh financial realities (especially Web 2.0 community sites that depend on advertising revenue), it looks to be an uphill climb. Einaudi said he couldn’t speak for consumer Internet companies as a whole. “But in automotive, there are a lot of sites dropping like flies,” he said, citing as an example ForbesAutos.com, which shut down last November. “People are having trouble monetizing content, and keeping auto content alive.”

I’m reminded of early-stage tech investor Andy Sack’s prognostications at a financing forum last month: “There’s going to be a great washout of Web 2.0 investments. There’ll be a lot of carnage.” Indeed, for CarDomain and its former rival, banding together may be the best chance they’ve got to survive.

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‘Tis the season for Seattle startup awards. This week, the finalists have been announced for two separate sets of techie awards—one local, one national. If nothing else, the awards call much-deserved attention to the efforts of some very busy companies around town that we follow closely here at Xconomy.

—Finalists for Marcelo Calbucci’s Seattle 2.0 awards were announced in 10 different categories. (I was a judge for every category except for one, startup blogs, because Xconomy is one of the finalists. Thanks to everyone who nominated us.) Photo-editing startup Picnik leads the way, as a finalist in four categories. The ceremony, at which the winners will be named, is happening on May 7 at the Pacific Science Center in Seattle, and you can cast your votes here.

Best startup: DreamBox Learning, Picnik, Redfin, Wetpaint

Best bootstrapped startup: Appature, BigOven, Picnik, Urbanspoon

Best startup CEO: Andy Liu (BuddyTV), Glenn Kelman (Redfin), Jonathan Sposato (Picnik), Matt Hulett (mPire/Widgetbucks)

Best startup technologist: Chris Hahn (Appature), Greg Harrison (mPire/Widgetbucks), Joe Heitzeberg (WhitePages), Nat Brown (iLike)

Best startup product designer: Jenny Lam (Jackson Fish Market), Keith Harper (Inkd), Peter Roman (Picnik)

Best venture capitalist: Bill Bryant (Draper Fisher Jurvetson), Bill McAleer (Voyager Capital), Matt McIlwain (Madrona Venture Group), Nick Hanauer (Second Avenue Partners)

Best angel investor: Andy Sack (Founder’s Co-op), Bill Bryant (Draper Fisher Jurvetson), Geoff Entress (Voyager Capital), Mike Koss (Startpad)

Best service provider to startups: Adam Philipp (Axios Law Group), Craig Sherman (Wilson Sonsini Goodrich & Rosati), Shannon Swift (Swift HR Solutions)

Best blog about startups: Startup Whisperer (Matt Hulett), TechFlash (John Cook, Todd Bishop, Eric Engleman), Xconomy Seattle (Greg Huang, Luke Timmerman)

Best social event for startups: Ignite Seattle (Brady Forrest), Lunch 2.0 (Josh Maher), nPost Networking (Nathan Kaiser), Open Coffee (Andy Sack)

—CNET’s Webware 100 award nominees were announced (all 300 of them), also in 10 different categories across the Internet and Web 2.0 sector. Not counting some more established technologies from the likes of Microsoft and Amazon (like Amazon Web Services, Silverlight, and Windows Live Sync), here are the Seattle-area startups we found nominated in their respective categories. Winners will be announced on April 19. Vote here.

Audio & Music: iLike

Commerce: Farecast, Zillow

Communication: Jott

Photo & Video: Picnik

Productivity: Blist, LiquidPlanner

Search & Reference: eHow, Evri

Social Networking & Publishing: Wetpaint

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First of all, the terms “downturn” and “recession” don’t do justice to the current climate, says early-stage tech investor Andy Sack. As he puts it, “This is the seminal event of our lifetimes. This is our World War II. I guarantee I’ll be talking to my grandchildren about the Depression of 2009-10: ‘Make sure you save.’”

Sack was speaking at the MIT Enterprise Forum Venture Lab event in downtown Seattle last night. He was joined by Michelle Jacobson Goldberg, a partner at Bellevue, WA-based Ignition Partners who is on the board of Mpire (maker of Widgetbucks), Visible Technologies, and SEOmoz. The room was packed with scores of entrepreneurs looking for financing advice. “It’s ugly out there, and raising money has never been f-ing harder,” Sack told them.

What’s interesting is that both Ignition and Founder’s Co-op, Sack’s seed-stage fund with Chris DeVore, have made investments in the past 90 days. Founder’s Co-op has made bets on Frugal Mechanic; LookStat, an analytics and workflow-automation startup focused on the microstock photography industry (this was news to me); and a new smartphone company that hasn’t been announced yet. Meanwhile, Ignition announced earlier this week that it has led a $10 million investment in Silicon Valley-based Zenprise, a mobile-management software firm.

Goldberg and Sack spoke for about an hour on their perspective as investors, what startups need to know to get funded these days, and what the hot (and not so hot) areas of investment are. Here’s my top 10 list of takeaways:

10. Valuations are way down. “Anything that’s early, if you used to raise $3 million, you might raise $1 million now,” Sack says. And count on a similar calculation for the valuation, he adds.

9. Investors are seeing more pitches than ever. “There’s been an incredible amount of deal flow,” Goldberg says. To which Sack adds, “Deals are getting done, but more slowly and with a higher bar…Deals getting done really have to resonate with a customer base.”

8. Your next financing is your last. “Everyone wants to see your break-even plan,” says Sack. “Financing risk is higher than technology risk.” And Goldberg adds, “Take the money …Next Page »

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On Friday, we reported that Tiger 21, a New York-based network and support group for the very wealthy, is setting up a Seattle chapter, headed by the local entrepreneur and investor Andy Sack. (Tiger 21 had planned to announce the news today, but another media outlet jumped the gun on Friday.)

The point of Tiger 21 is to give high net-worth individuals (more than $10 million is the base criterion) a safe haven to discuss their portfolios and problems with peers who can relate to them. This is a serious issue for the wealthy. “People are either jealous or they can’t understand you have problems,” says Lewis Haskell, a managing director of Tiger 21. “They say, ‘I should have such problems,’ or ‘How hard can it be?’”

I thought it would be useful to share what actually goes on behind the closed doors of Tiger 21 meetings, as related to me by Haskell and Sack. The meetings take place once a month in each chapter. Besides New York, the chapters tend to be in wealthy cities like Miami, Dallas, San Francisco, Los Angeles, and San Diego. Chapters typically have 10 to 12 members, says Haskell.

Monthly meetings are usually held in a board room from 9 a.m. until 4 or 4:30 p.m., and are followed by a social event. The first hour is called “world update.” Each member shares what’s been going on with his or her portfolio in the past 30 days, as well as their view of the landscape—concerns about anything from wars to interest rates to foreign competition. (I bet the October and November meetings were pretty ugly.) If there are personal issues to discuss, such as problems with children or relatives, they might be shared then too.

The next part of the meeting is about “issues and opportunities,” Haskell says. Members have an organized discussion about things like concerns over getting money out of a hedge fund, for instance. They might discuss relationship issues in more depth, like how to have difficult conversations with relatives who want to borrow money, or other people who want a piece of them.

Two guest speakers are brought in for each meeting, one before lunch and one after. Previous speakers include shareholder activist Carl Icahn, oil baron T. Boone Pickens, and former U.S. Senate Majority Leader George Mitchell. Topics range from economics and management to historical perspectives on war and other global issues.

In the final part of the meeting, one member gets up and gives a portfolio defense to the group. The individual shares his or her strategy, intentions, and ideas about their personal wealth and how to maximize it, and the rest of the group gives feedback—things like whether the member has too much stock versus other investments. “It’s really useful to have people look over your portfolio,” says Sack.

As one might imagine, it takes a special kind of person to be this open, and to be this invested in both learning and helping their peers. Here’s hoping the Seattle chapter of Tiger 21 finds the right mix to benefit both its members and the greater innovation community.

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Think the super-rich don’t have problems? Try fending off friends and relatives who always want to borrow money, or raising spoiled brats who don’t take responsibility for their actions. Not to mention the more obvious financial questions of how to manage such hefty portfolios—especially in economic times like these. (Granted, some of this might be viewed as insensitive at a time when local food banks are running out of food.)

Enter Tiger 21, an exclusive network for the very wealthy that is opening in Seattle this month. Its goal is to provide a support group for people of high net worth to talk about their investments, portfolios, and problems. Local entrepreneur and investor Andy Sack of Founder’s Co-op will be chairing the Seattle chapter of the national group. Last month, I sat down with Sack and Lewis Haskell, the managing director who runs Tiger 21 west of the Mississippi. I’m a little under-qualified to speak on the problems of the wealthy, but Sack and Haskell filled me in nicely.

First, some background. Tiger 21 was founded in New York in 1999 by Michael Sonnenfeldt. Sonnenfeldt had recently sold his interest in Emmes & Company, a real estate holdings company, for tens of millions, and was looking to build a safe haven for people in similar circumstances to meet and talk. The confidential network has grown into a big business. Besides New York, Tiger 21 has existing chapters in some of the country’s wealthiest places—San Francisco, San Diego, Los Angeles, Dallas, and Miami. It has about 170 members who have an average net worth between $30 million and $50 million.

And that’s the catch: to join Tiger 21, you have to have at least $10 million, exclusive of houses, cars, and other properties (how they verify this, I’m not sure). And it costs $30,000 a year to be a member. All members sign confidentiality agreements.

Sack’s connection with the group is through its founder. Back at MIT around 15 years ago, Sonnenfeldt was Sack’s mentor at the Sloan School of Management, and the two have invested together. Seattle brings some unique challenges to the very wealthy, Sack says. They might be overexposed because the community is relatively small. “The network of support is not as high, or as sophisticated, in Seattle,” he adds.

With the likes of Bill Gates, Paul Allen, Nathan Myhrvold, Steve Ballmer, Jeff Bezos, Howard Schultz, Craig McCaw, and Jim Jannard (founder of Oakley eyewear) in the area, you’d think Washington state would have such a support network in place already. But what Tiger 21 provides that other wealthy social networks don’t is a focus on members sharing how they manage their financial lives, says Haskell.

As for its future Seattle members, Sack and Haskell have been recruiting for about 10 openings. I’m guessing they’re not taking unsolicited applications. Sack says members have to have an interest in learning, and be willing to be open with their peers. And, he added, “There’s a ‘no asshole’ rule.”

Stay tuned for what goes on behind Tiger 21’s closed doors in Part 2—Eds.

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Map and list updated Dec. 19: Want to know where your favorite VC gets his or her morning latte? How about where tech and life sciences entrepreneurs gather to network and discuss ideas? If you’re looking to rub shoulders with the technological elite—or if you’re just looking for a quiet cafe to have a meeting or get some work done—you’ve come to the right place.

Here at Xconomy Seattle, we’ve been keeping track of the coffee hotspots around town favored by the tech-business leaders we talk to and write about every day. We thought it would be fun to share what we’ve found, both as a list and as an interactive map you can click around on (see below). In many cases, we’ve met the innovators or investors in their favorite haunts and sampled the local beverages. In other cases, we’ve gone by what they told us. But this is in no way a comprehensive list. We’d love to hear from you about where you like to go, where plans get hatched, and where tomorrow’s deals are being discussed. We’ll update the list as we go.

It may be cliché to say the Seattle innovation scene runs on coffee, but it seems to be true. One of the amazing things about the region is the sheer number of great cafes and places to gather, talk, refuel, and recharge. There’s something for everyone, from the quiet elegance of Caffe Fiore on Queen Anne Hill to the casual charm of Louisa’s on Eastlake to the hustle and bustle of Espresso Vivace near downtown. Not to mention the old reliables, Starbucks, Seattle’s Best, and Tully’s (especially on the Eastside—what’s with the dearth of independent cafes over there?).

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And behind every great cafe is a great story. Take Trabant Coffee & Chai, known for its strong espresso, tasty drip coffee, and spicy teas. The Pioneer Square branch is a personal favorite of Dan Shapiro, the co-founder and CEO of Ontela—and there’s an interesting reason why. In early 2006, Shapiro says, he was one of several entrepreneurs pitching their companies at a Keiretsu Forum angel investor meeting downtown. “We were singing for our supper,” he says. The guy in front of him was pitching a $12,000 drip-coffee maker, and he had coffee samples for everyone (Shapiro was too wired to try any). The panel asked the coffee guy questions like, Aren’t you just going to compete with Starbucks? Why wouldn’t Starbucks just do this? He replied that Starbucks’ leaders were too set in their ways, and the only way they’d do it is if they saw it in action.

The guy was Zander Nosler of the Ballard-based Coffee Equipment Company. His machine was called the Clover, and sure enough, he was right. His 11-person startup was bought last March by Starbucks, which now has Clover machines in several-dozen stores in the Seattle, Portland, San Francisco, and Boston metro areas. So what does this have to do with Trabant? The local coffee shop was a key early customer of the Clover, buying the machine in the spring of 2007. “Every time I go there, I feel like I’m supporting the local startup scene,” says Shapiro.

There are many more stories, but we won’t get to them today. Instead, we present our first pass of the Greater Seattle Coffee Cluster: an alphabetical list of cafes (50 and counting), and some of the notable people you might run into there. If you’ve got a favorite spot, or a story to pass along, please do comment below or drop us a note at editors@xconomy.com. Then again, you might want to keep your local treasures to yourself…

Belle Epicurean
1206 4th Ave, Seattle, WA
Recommended by Megan Muir of DLA Piper for its pastries, good coffee, and confidentiality.

Caffe Fiore
224 W. Galer St, Seattle, WA
Martin Tobias of Kashless is known to arrive for meetings here on his Segway. Also the favorite of Paul Thelen of Big Fish Games and Bill Bryant of Draper Fisher Jurvetson.

Caffe Ladro
600 Queen Anne Ave North, Seattle, WA
Paul Thelen of Big Fish Games also lists this institution as one of his likes. …Next Page »

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When TechCrunch served up a headline yesterday saying Seattle startup Judy’s Book was “Back from the Dead,” I thought there might actually be some news. The same day, John Cook at TechFlash posted a much more informative story about the current state of the online reviews-and-shopping company, which was founded by Andy Sack and Chris DeVore in 2004 and had raised $10.5 million from Ignition Partners, Mobius Venture Capital, and others, before closing in late 2007.

For the record, though, the Judy’s Book site never completely went away. And nothing of note actually happened with it this week. (TechCrunch may have just noticed the site was live—the media works in strange ways.) The company has been under new ownership since early March, when it was bought by Geoff Entress, formerly of Madrona Venture Group, and Andy Liu and David Niu of Seattle-based BuddyTV. The three investors, who happen to be limited partners in Sack and DeVore’s seed-stage fund, Founder’s Co-op, make up the Judy’s Book board of directors. Sack and DeVore are not involved.

I spoke with Entress yesterday to get his take on the company, which currently has one full-time employee and several outsourced positions. Entress and his partners re-launched the site about two months ago. “We thought it was a real gem, and it was a shame for it to go away,” says Entress. “We refocused the site away from [retail] deals and back to reviews, where it had been…We’re running it very leanly. It’s cash flow neutral or positive on a monthly basis. The hope is we can grow it.”

What Judy’s Book had, and still has going for it, is a loyal user base, says Entress. The site lets users post and receive referrals and recommendations for local restaurants, stores, dentists, and other services—which is more like the original vision of Sack and DeVore, and similar to Yelp and other review sites. “It had a substantial amount of traffic, and we’ve been able to keep that,” says Entress. According to Compete.com, Judy’s Book had roughly 153,000 unique visitors in September—much less than Yelp (which has something like 17 million), but respectable nonetheless.

The business model will remain advertising-based, at least for the time being, says Entress. His team is busy working on some new features which he couldn’t say much about yet, though he did say they’ve been “encouraging members to create ‘favorite’ and ‘worst’ lists.” “It will be evolutionary rather than revolutionary,” Entress says.

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Andy Sack’s favorite coffee drink is a 12-ounce, single-shot, non-fat latte. But if you’re meeting with him to pitch your latest technology startup idea, be advised that he’s probably on his second or third cup already. These days, his schedule is filled with meetings and networking—most of it pretty informal. “I’ll have coffee with anyone,” he says.

On Tuesday morning, he sat down with me at Louisa’s Cafe near Lake Union in Seattle. It’s where Sack hosts his weekly “open coffee” hour, drawing a regular crowd of entrepreneur types looking to network over coffee and pastries. (”They don’t have the best coffee, but they have the best blueberry scones,” says Sack—and he’s right.) I wanted to get the full story of Founder’s Co-op, the startup fund run by Sack and fellow Web entrepreneur Chris DeVore, as well as hear feedback from the community. Back in June, I reported on the background and motivation behind the half-year-old venture. Then, just a week ago, Luke reported that Sack and DeVore have raised a new round of funding and announced 14 limited partners in the fund, all of them tech entrepreneurs who are well-known in Seattle innovation circles.

It’s a unique model, and Sack began by clarifying the terms of the new financing. The fund is $2.5 million, with each limited partner (LP) putting in $150-200K, which buys each of them a stake in all of the startups to be funded. They will meet as a group six to eight times a year. “It’s a peer-to-peer, seed-stage fund,” says Sack. “Chris and I are the decision makers—it’s not a democracy. As a group, the LPs provide deal flow and help guide our investment strategy.” Crucially, they will also provide mentoring and connections for the portfolio companies, which Sack says will typically be made up of small teams of young, first-time entrepreneurs (usually just two people).

The peer-to-peer aspect is a big part of what makes Founder’s Co-op different from the Y Combinator and TechStar incubators of the world (we’ve covered those here and here). The firm’s limited partners include Ben Elowitz and Kevin Flaherty of Wetpaint, Andy Liu and David Niu from BuddyTV, Adam Brotman from Corbis and Barefoot Yoga, and Geoff Entress, formerly of Madrona Venture Group. I asked a few of them about their involvement in the fund, and what’s special about it. “The model is special because it really helps entrepreneurs jump start their businesses,” says BuddyTV’s Niu. “They don’t have to worry about some associated startup infrastructural costs like phones, Internet, etc. if they move into the co-op’s office. In addition, they can access a wide range of ideas and experiences from Andy [Sack] and other LPs who have successfully started their own companies and want to give back to other local entrepreneurs.”

As for why he joined, Niu touts “the opportunity to work with Andy and the other LPs. I have a great amount of respect for what they have accomplished individually, and I think pooling their collective experiences will be a formidable asset that portfolio companies can tap…Of course, there is much less certainty and a higher chance to see failure when you invest in something early stage and unproven. At the same time, you can have an outsized positive influence and guiding hand to hopefully channel them towards success.”

Kevin Flaherty of Wetpaint echoes the sentiment about Sack and the other partners. “They all have miles of experience in the startup world. Being able to experience how they evaluate potential investments is a great learning opportunity for me. From a purely financial standpoint, there is a great need in the Seattle startup community for this type of investment. Matching that need with good insight provides a great opportunity for a solid rate of return,” Flaherty says. “We’ve already seen less venture interest in certain types of businesses and renewed focus on certain business metrics that for a while were undervalued. That being said, I expect there to be significant startup activity that is uniquely suited for Founders Co-op. Two folks in a garage are perfect for the fund.”

I also gathered some reactions from people outside the co-op—local angel investors and …Next Page »

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Heading deep into the battles of October (hang in there, Red Sox), dealflow has been fairly strong. The Northwest saw plenty of action in mobile, biotech, health care, and seed-stage tech funds in the past week.

—Redmond, WA-based MobUI, a mobile software developer, acquired Bellevue, WA-based Action Engine, as Ryan reported. MobUI also raised new funding, led by GlobalNET Mobile Solutions, a South American wireless application service provider, but no financial terms were disclosed.

—Microsoft (NASDAQ: MSFT) and San Diego-based Scripps Health teamed up with Bay Area firms Affymetrix and Navigenics to study the effects of personal genome testing on up to 10,000 people’s health behaviors. The researchers will use genetic scans to tell participants about their risk for various ailments, and then will track their lifestyle choices and their health outcomes for 20 years. Their personal health information will be kept in Microsoft’s secure HealthVault accounts.

—Seattle-based Dendreon raised $20 million in a stock sale to Azimuth Opportunity, as Luke reported. Earlier in the week, Dendreon (NASDAQ: DNDN) said an interim analysis of a 500-patient study of its drug Provenge for prostate cancer found that it lowered the risk of death by 20 percent.

—Mentor Graphics, an electronics design and analysis firm based in Wilsonville, OR, acquired the Flomerics Group, a U.K.-based maker of fluid-dynamics simulation software. Flomerics will become the mechanical analysis division of Mentor Graphics (NASDAQ: MENT).

—Luke reported that Founder’s Co-op, the Seattle-based seed-stage fund run by Andy Sack and Chris DeVore, raised a new investment round, worth $1.8 million, and announced 12 more limited partners, bringing the total to 14. Founder’s Co-op is a peer-to-peer investment firm in which the partners, all established entrepreneurs, help guide strategy and support the portfolio companies.

—Bellevue, WA-based Monster Venture Partners acquired a controlling stake in BitWine, a startup that lets users share knowledge and get expert advice online. Financial terms were not disclosed, but former Expedia exec Ronnie Gurion is BitWine’s new CEO, and Rob Monster is now chairman of the board.

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Founder’s Co-op, the Seattle-based tech incubator founded by Andy Sack and Chris DeVore, has gathered a $1.8 million investment round from some well-known Seattle Internet entrepreneurs, according to this report in TechCrunch.

Ben Elowitz of Wetpaint and Blue Nile, Alex Algard of Whitepages.com, and Adam Brotman of Play Network all participated in the round, according to TechCrunch. Greg dissected what this operation is all about back in June, based on an interview with Sack (an Xconomist). The vision boils down to bringing a bunch of entrepreneurs together to invest in small Web companies, (typically comprising just two people-one business and one technical), and share 5 percent of the equity in each of the companies among them. It sounds like this new round could go a long way toward getting new Internet companies in Seattle off the ground.

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The tech scene here is on the move. In comparison to other U.S. cities, Seattle has had the largest growth in tech jobs, and has moved up to #9 (from #10) in total number of tech workers. By comparison, Boston ranks #6 in number of jobs gained and #4 in total tech employment.

That’s all according to the American Electronics Association’s “Cybercities 2008″ report that compiled stats from 60 cities. The AEA rankings were based on labor stats from 2006, the most recent data available, and were not normalized to population. In terms of raw number of tech workers, the top five metro areas were New York, Washington DC, San Jose/Silicon Valley, Boston, and Dallas-Fort Worth.

In 2006, the Seattle area had a net gain of 7,800 tech jobs, a 7 percent increase over 2005, for a total of 127,700 jobs. The average wage for those jobs was $96,200 (#5 nationally, compared to $95,100 for Boston—no slouch itself). Seattle ranked first in software publishing (thanks largely to Microsoft) with 42,600 jobs, ninth in telecom with 18,800 jobs, and ninth in manufacturing of measurement and control instruments with 6,400 jobs. The area had a total of 4,900 high-tech establishments—as compared to 8,200 in Boston—according to the survey.

Some (including me) have questioned whether the 2006 growth stats are still relevant in 2008. The experts I’ve talked to say the answer is definitely yes—at least for the Seattle area. “My sense is there has not been a slowdown,” says Seattle-area Web entrepreneur and Xconomist Andy Sack. “I saw the article on the #1 fastest growing… and my thought was, well that explains why recruiting has been and continues to be so difficult.”

A word of caution, though—echoing University of Washington computer scientist Ed Lazowska’s Xconomist post from yesterday. “Future growth depends on our ability to make high-tech careers attractive to our children,” said J. D. Hammerly, a vice president at Battelle Seattle Research Center, in an AEA press release. “We need to spark more excitement and enthusiasm for technology, sciences, and math. These skills are critical to prepare young students for an increasingly technical world, providing them with the foundation to become highly paid tech workers.”

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It’s going to be a busy summer for Andy Sack. The serial online entrepreneur and investor is getting deep into his latest venture, Founder’s Co-op, and he doesn’t have much time for chit-chat. I’m just able to catch him on his cell, while he’s rushing off to a meeting and getting ready to head out of town.

I’ve heard a lot about Founder’s Co-op, Sack’s new collaborative of Web entrepreneurs, and I want to get the story straight from the horse’s mouth. But Sack, an Xconomist originally from the East Coast (he’s been in Seattle for eight years), is also uniquely positioned to comment on the broader state of Web entrepreneurship in the area, something I’m tracking closely these days. “It’s more active than it was, but it’s fragmented,” says Sack of Seattle’s startup climate. “There hasn’t been a really big win since Amazon. People are looking for the next big hit.”

So that’s the context. Back in January, Sack and his business partner Chris DeVore had wound down and sold off Judy’s Book, a local social networking and shopping site, and started working on their next project. “Founder’s Co-op came out of lessons learned at Judy’s Book,” says Sack. “In part about overcapitalization, and in part about focusing on fundamentals in business—like generating revenue ahead of expenses.”

The vision of Founder’s Co-op is to bring a group of entrepreneurs together, invest in small Web companies (typically comprising just two people—one business and one technical), and share 5 percent of the equity in each of the companies among them. The size of any particular investment is expected to be between $10K and $250K. The networking support is pretty informal, says Sack, but he’s providing mentorship to first-time entrepreneurs, peer-to-peer mentoring through weekly lunches and other gatherings, and shared office space.

Sack points to two compelling motivations for forming his new group. “One, it costs less to get to market and create a real business than it used to. Very small teams can have highly leveraged businesses without a lot of infrastructure,” he says. “Number two is a real lack in the Seattle community of supporting first-time entrepreneurs with expertise, mentoring, and networking. Those things exist much more in Boston and San Francisco, and for some reason it doesn’t exist here. Chris and I have a desire to fill that.” (Take for example the Boston area’s Y Combinator, which Bob wrote about last month.)

In March, Sack and DeVore announced an initial $2 million fund, and played an active role in focusing and supporting two local startups, helping them get off the ground: Cooler Planet (which matches alternative energy suppliers with customers) and Orange Line Media (which monetizes online stock photography). “Now we’ve made a commitment, and we’ll raise more,” says Sack.

How’s the new venture working out so far? “It feels like we’ve got solid footing in terms of deal flow and things like that—the things that would make you feel good about investing in this environment,” says Sack. The plan is really to attract first-time entrepreneurs, such as those leaving big companies in Seattle, Redmond, Kirkland, and the like. “We’d like to be their first stop,” says Sack. And the unique challenges of the area? “Talent is a real issue for the startup community,” he says. “It reminds me of Boston in the late 90s, it’s a very tight labor market.”

As for his plans for the near future, Sack is pretty tight-lipped. “There’s a bunch of deals we’re working on,” is all he will say. Some could be pretty interesting, so watch this space. (He could tell me now, but then he’d have to kill me).

I ask Sack about his biggest surprise these days, and he admits that it’s how well his portfolio companies, Cooler Planet and Orange Line Media, are doing in terms of generating revenue already. “They’re off to a great start,” he says. “Of course, a great start doesn’t make a great finish. But it’s better to have a great start than not.”

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