Groom Energy, a Salem, MA-based company focused on corporate sustainability and energy assessments, said today it has pinned down $2.6 million in funding from a group of angel investors, led by Eyk Van Otterloo, founder of the investment management firm GMO. The money will fund its shared-savings agreements with corporations, where it installs products like solar panels and LED lighting for companies and outsources energy maintenance and monitoring. Groom, whose customers include General Electric and Thermo Fisher Scientific, also plans to add to its engineering team and open up new offices.

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This is one of the stealthiest and most intriguing cleantech companies in New England. XL Hybrids, based in Somerville, MA, has just received $300,000 in investment from an undisclosed professional fund, which brings its total seed funding to just over $1.8 million. The company previously had raised a little more than $1.5 million in angel investment, about half of which we reported back in February.

XL Hybrids is keeping things quiet for a while, but I’ve gleaned some new details about the operation from talking with Tod Hynes, the company’s co-founder and president. Hynes is a lecturer at the MIT Sloan School of Management, where he teaches a course on energy ventures. He is also the co-founder of the MIT Clean Energy Prize, and has been working in the cleantech industry for eight years, having made his name in wind power development.

The idea behind XL is to convert commercial fleet vehicles—town cars, duty vans, and trucks for hire—into hybrid (gas-electric) vehicles. The company is initially targeting vehicles that travel more than 30,000 miles a year, Hynes says, but that figure will go down with the cost of the XL system. By retrofitting conventional cars and trucks with lithium ion batteries, electric motors, and other integration and control technologies, he says, XL can reduce fuel consumption by 15 to 30 percent, depending on how the vehicles are used. Hynes declined to give details about the retrofitting process, saying it’s proprietary.

Of course, retrofitting existing vehicles to make them hybrid or electric has been a popular idea for some time. What makes XL unique is that it’s focused on low costs and the ability to deploy its technology quickly in a large number of vehicles, Hynes says. Hence the focus on conventional hybrids instead of pure electric or plug-in vehicles. “Our strategy is to focus on the most cost-effective system,” he says. “Our target is a good economic solution…that will reduce petroleum consumption very rapidly.”

“It’s a great economic opportunity,” Hynes adds. “You have to deal with the vehicles on the road. You need to have a hybrid before a plug-in.”

Hynes founded XL Hybrids together with four other MIT alums in 2009. It currently has six full-time employees. The company has been developing and testing its technology over the past year, and is now lining up pilot tests in the Boston area for this fall. If all goes well, the plan is to roll out national pilots soon thereafter.

It probably doesn’t hurt XL’s prospects that crude oil is currently above $75 a barrel. Hynes acknowledges that the price of oil “has a big impact on the business.” But he maintains, “We can make the numbers work down to $50 a barrel.”

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Richard Anders, a veteran Boston-area entrepreneur and investor, has long shown an interest in life sciences through his affiliations with the Museum of Science in Boston, the Dana-Farber Cancer Institute, the Harvard-MIT Health Sciences and Technology program, and other organizations. Along the way, he’s seen a major problem: many promising life sciences inventions never reach the market. So after spending more than a year thinking about how to solve this problem, he led the formation of an angel investment group called Mass Medical Angels (MA2).

“I had been frustrated,” says Anders, “I wondered what can we do to bring more cash and innovation into life sciences.”

Mass Medical Angels, which held its first meeting in December, is to Anders’ knowledge the only angel group in Massachusetts dedicated solely to investments in life sciences. The angel group aims to help entrepreneurs in the biotech, medical devices, and other science-related fields raise enough money to make sure that their great ideas for products don’t die on the vine. And though the challenge of raising seed money for life sciences startups predates the financial meltdown, the formation of the angel group could be extremely timely because the down economy has forced many venture firms to reduce their bets on seed-stage companies.

However, there’s a reason why there are so few angel groups focused only on life sciences. Life sciences startups, particularly those developing drugs, often need to raise huge sums of money before they reach a liquidity event such as an acquisition where investors see a return on their investments. That spooks some angel investors, who prefer to make bets on firms in the Web or software industries that require less money than life sciences startups. Yet Mass Medical Angels plans to invest in capital-efficient life sciences firms such as medical devices and healthcare IT startups, or even in fledgling biotechs that require relatively small amounts of money to do research that will lead to a larger institutional round of financing with VCs, Anders says.

Part of the strategy at Mass Medical Angels, Anders says, has been to stack its ranks … Next Page »

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Despite the Thanksgiving holiday, it was a fairly busy week for deals in the Northwest. Some big companies reared their heads (or at least were reported to) in software, wireless, and biotech, and other deals are in the works, so stay tuned.

—The Times of London reported that Microsoft (NASDAQ: MSFT) is looking to acquire Yahoo’s (NASDAQ: YHOO) search business for $20 billion. The veracity of the report has been seriously disputed, but it raises some interesting questions about the near-term future of the two companies.

—Kirkland, WA-based Clearwire (NASDAQ: CLWRD) closed its deal with Overland Park, KS-based Sprint Nextel (NASDAQ: S) to merge the two companies’ next-generation wireless Internet access businesses, as Wade Roush reported. With $3.2 billion in venture investment from Comcast, Intel, Time Warner Cable, Google, and Bright House Networks, the new company (which retains the name Clearwire) will upgrade its wireless data services to WiMax-based systems in 46 markets.

—Entellium, the troubled Seattle startup whose top two executives were arrested in October for fraud, is reportedly being bought by Intuit, a financial software firm based in Mountain View, CA, for about $8 million, according to TechFlash. The deal has not yet been finalized.

—Seattle-based DotNetNuke closed a Series A financing round from Silicon Valley venture firms August Capital and Sierra Ventures. Financial terms were not announced. DotNetNuke makes software for creating and managing interactive Web and intranet sites using a Microsoft platform.

—Cell Therapeutics (NASDAQ: CTIC) of Seattle teamed up with Spectrum Pharmaceuticals (NASDAQ: SPPI) of Irvine, CA, to create a joint venture, called RIT Oncology, to commercialize and develop the cancer drug Zevalin. The drug for non-Hodgkin’s lymphoma, which Xconomy has covered extensively, will be marketed in the U.S.

—Values of n, a collaborative-software startup in Portland, OR, was acquired by San Francisco-based Twitter for an undisclosed sum. The founder of Values of n, Rael Dornfest, has been hired by Twitter, the micro-messaging company, which also gets the startup’s assets and intellectual property, including software for personal online assistance and smart sticky notes.

—Not exactly a deal, but a story of several deals: Xconomy got the rundown on the finer points of bootstrapping a tech business versus raising venture or angel financing, from the co-founders of the Seattle-based startups CultureMob, Tableau Software, and Robot Co-op (creators of 43 Things and other social websites).

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What are the arguments for and against bootstrapping a tech startup? When should a company raise venture funding? And what have Seattle entrepreneurs experienced in taking various different paths? I interviewed three prominent local entrepreneurs in the past week to get their thoughts. Yesterday, in Part 1 of this story, I gave some context and a quick preview. Today, I’ll give some more background on each entrepreneur, and let them tell their remarkable (and sometimes surprising) stories in their own words.

—Steve McCracken of CultureMob has experience with venture and angel funding, as well as bootstrapping. In 2000, McCracken co-founded Seattle-based Serials Solutions and bootstrapped the library-software company to an $18 million acquisition in 2004. “We started the whole thing with $8,000,” he says. “Unlike Web publishing stuff, you’re selling and getting money from Day 1. The hurdle to clear to get to profitability was lower.”

“I’d been at a VC-backed startup, and I’d seen the time that went into fundraising,” McCracken says. “When I looked at the time and effort required, basically I thought, I need to develop domain expertise in fundraising. Or with that same time, I can develop expertise in developing and selling my product…That was the basic math. Also, secondarily, in an unsexy thing like library [software], I didn’t think I’d get the money.”

“As a result of that, we were obsessed with revenue, just obsessed with it,” he continues. “The next thing you’re obsessed with is A, making clients happy, and B, selling. When you get to business fundamentals, that was really powerful. The whole organization could say, ‘Listen people, your paycheck is coming from selling the product. We are earning our paychecks.’ There was absolute clarity of objective to the team. It highly encourages focus and discipline on the key metrics.”

On the flip side, McCracken says, “Good investors bring more than just money. They bring connections, and an outside perspective, sometimes a challenging perspective—is this the right course, and why? By reporting to an outside set of investors, it sets higher bar on reporting. It prepares you for presenting your business. More money gives you runway and resources, if time to market is key. Maybe the product can’t be built without outside cash.”

In early 2007, McCracken co-founded CultureMob and has been in the process of raising angel funding. “The difference is that Serials Solutions had revenue from Day 1. CultureMob is primarily ad-driven—it’s got to get to a lot of traffic to make a lot of money. [Angel] capital is allowing us to grow rapidly,” he says. “It’s about being super-efficient, and getting us across the chasm and over to profitability.”

McCracken sums it all up: “We try to do with the least amount of angel funding possible. What are the considerations? If nobody is investing, bootstrapped is the way to go. Or if you’ve got early revenue…My goal is not to walk around town saying, ‘I got X million from the coolest investor.’ I care about building a great business…I’m not knocking VCs, I think there’s absolutely a great role for VCs in the economy…Massive capital isn’t, in this industry, the defining factor. It may be in pharmaceuticals—I’m not going to launch a new drug with bootstrapping.”

—Josh Petersen is the co-founder of Seattle-based Robot Co-op, the developers of popular social websites like 43 Things (which was funded by Amazon). A veteran of Microsoft and Amazon himself, Petersen has a unique perspective on fundraising. “We decided not to pursue the VC route mostly out of disinterest in convincing anyone about our idea or our team,” he says via e-mail. “In our minds, the Robot Co-op is more like a band than a company and going to work each day is more like band practice than working in an office. We sit at one common table, riffing off ideas and trying to put something together that we can be proud of. There really is no room in this approach for a VC/record exec. And what is the point of trying to prove yourself to a bunch of record execs until you’ve had a chance to play some shows and write some good songs? Pitching the band before it is actually playing live is how boy bands (think N Sync) get assembled, really the creation of producers and record execs rather than talent that fronts the band. Funny, a lot of funded companies (not all, by any means) remind me of boy bands, where it is not too hard to see … Next Page »

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The leaves have changed, the World Series is winding down (hang in there, Tampa Bay), and the deals continue to flow in the Northwest. Digital media, software, and biotech were well represented in the last week.

—Seattle-based HyperQuality, which makes software to improve call centers and customer experience, secured $7.6 million of a $12.1 million Series C round, according to PE Hub. HyperQuality has previously raised $17 million in investments led by Ignition Partners and Miramar Venture Partners.

—In one of the bigger acquisitions of the year, Seattle-based Getty Images bought Jupitermedia’s online image business, Jupiterimages, for $96 million in cash. Getty, which previously tried to acquire its smaller rival in early 2007, was itself bought this summer by an affiliate of private-equity firm Hellman & Friedman.

—ZymoGenetics, the Seattle-based biotech firm, accepted a $21 million lump-sum payment from Bristol-Meyers Squibb to settle a patent dispute over lg fusion proteins, as Luke reported. ZymoGenetics dropped its patent lawsuit against Bristol and granted the company a non-exclusive worldwide license for the technology, which is used in a rheumatoid arthritis drug.

—Seattle-based Amazon acquired Reflexive Entertainment, a developer and distributor of casual games based in Lake Forest, CA. The terms of the deal were not released, but the move seems to signal Amazon’s increasing interest in the game distribution market, particularly for casual and social games.

—Luke reported that Vancouver, BC-based Sutus, a telecom company that targets small businesses, raised $4.5 million in venture and debt financing. BDC Venture Capital and Growthworks Capital invested $2 million, while MMV Financial provided $2.5 million in debt financing.

—Earth Class Mail, a Seattle-based company that digitizes paper mail and delivers it through the Internet, raised $5.1 million in angel investment, led by the Keiretsu Forum. The company primarily targets corporate and government customers.

—Not a deal, but a hint of deals to come, in cleantech: At the second annual Algae Biomass Summit in Seattle, Silicon Valley venture capitalist Vinod Khosla spoke about the potential of algae-based biofuels, and Bob Nelsen of Arch Venture Partners and Jim Long of Gabriel Venture Partners discussed their high-profile investments in the space. The next day, Al Gore (who’s a venture partner with Kleiner Perkins Caufield & Byers) heard about cleantech and the University of Washington’s new College of the Environment from UW Tech Transfer head Linden Rhoads.

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Seattle-based Earth Class Mail, which digitizes paper mail and delivers it via the Internet, has announced it has raised $5.1 million in angel investment led by Keiretsu Forum. Earth Class Mail also said it has increased staffing by 35 percent in the past two quarters to keep up with demand from corporate and government customers.

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