The smell of startup incubators is in the air. Adeo Ressi from TheFunded recently announced that his Founder Institute training program for entrepreneurs is coming to Seattle this winter. And next week, TechStars, the seed-stage investment fund with operations in Boulder, CO, and Boston, is holding its annual reunion event in Seattle amid increasing buzz around the potential for similar programs in the Northwest.

While those incubators seek to launch mostly new tech companies, I’ve also been hearing quite a bit from entrepreneurs and investors about the cleantech and green-energy startup incubator announced last week by McKinstry, the Seattle-based construction, consulting, and energy-efficiency firm. The new innovation center will be housed at McKinstry headquarters in Georgetown, and is slated to be complete next spring.

“We are on the forefront of creating some of the most innovative solutions to eliminate energy waste in the built environment,” said Dean Allen, CEO of McKinstry, in a statement. “Now with the Innovation Center we will have the opportunity to quickly advance new technologies that are working toward that goal, as well as partnering with innovative entrepreneurs to bring new technologies to market.”

I haven’t had a chance to sit down with McKinstry yet, but I’ve already heard some strong reactions from the local cleantech community. Here are a few:

Michael Butler, CEO of Seattle-based investment bank Cascadia Capital and a strong supporter of Northwest energy companies, says the new incubator is a “big deal, I think and hope.” He adds, “The Puget Sound marketplace is not creating a critical mass of clean tech companies. We don’t have the ecosystem in place. I am really hopeful that the McKinstry effort can fill some of the void. We are falling further behind other regions, and the window will start closing if we can’t get the ecosystem built.”

Rick LeFaivre, managing director at Kirkland, WA-based OVP Venture Partners, says the incubator “could be very interesting” but that “it’s still early,” and details are still being worked out. “I’ve talked several times to the McKinstry folks about what they want to do and I think it could be very helpful to kick-start cleantech companies in the region,” he says. “A truly effective incubator needs more than access to space. It needs access to capital and business acumen to help the startups develop and get ready for venture financing (if necessary and appropriate). This, of course, is what Accelerator does in the biotech space. I have offered to work with the McKinstry team to help develop this concept, and I’m excited about what it could become. I think back to the two years I spent working with the EnerG2 team [energy storage startup in Seattle] to get them ready for venture funding, and they would have been a good candidate to go into an incubator while fleshing things out.”

Burt Hamner, entrepreneur and founder of Hydrovolts, a Seattle-based water-energy startup, stresses the importance of communication between the people running the new innovation center and local entrepreneurs and financiers. “Incubators can be great things,” Hamner says. But it “depends on how they are set up and their connections.” He says he “must wait and see,” and that in the meantime, it’s important for McKinstry to “inform the clean tech community what they are doing.”

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Seattle-based McKinstry, the construction, consulting, and energy firm, announced today it is developing an innovation center for new and emerging cleantech and green energy startups. The 24,000-square-foot incubator will be housed at McKinstry headquarters in Seattle’s Georgetown neighborhood, and is slated to be finished in the spring of 2010.

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If you spend much time in the business or legal world, “due diligence” is a phrase you hear a lot. It’s the polite term for the time you have to spend figuring out whether a potential client, vendor, investment, acquisition, or partner is legit or phony, smart or just slick.

Part of the process involves discreetly (or not so discreetly) calling around, trying to find people who know the person or entity you’re “diligencing.” But what if due diligence weren’t such a guessing game? What if there were a central marketplace where you could declare which type of information you need, pick an expert, and—for a reasonable fee—get an hour of private telephone consultation?

That’s the whole idea behind Zintro, a Web-based client-expert matching service being rolled out in beta form by serial entrepreneur Stuart Lewtan. The founder of Lewtan Technologies, a maker of financial analytics software sold to UK-based DMGT in 2004, Lewtan believes there’s a problem with existing professional-networking services such as LinkedIn. They’re great for staying in touch with your acquaintances, he says, but they aren’t really designed to bring about conversations between people who don’t already know one another.

“LinkedIn is an excellent tool, but it doesn’t’ really provide a good mechanism for reaching an agreement to talk,” Lewtan says. “Everything Zintro does is built around trying facilitate introduction, qualification, payment, and all the other aspects of connecting two people and creating a safe environment for them to communicate and exchange information for a fee.”

Here’s how Waltham, MA-based Zintro’s Web service works: Say you’re an investor and you’re thinking about buying a big chunk of stock in A123Systems, the Watertown, MA-based battery maker that went public last week, but first you want to know more about lithium ion batteries. You sign up for a “client” account at Zintro.com and fill out a form describing your information needs. Zintro uses what Lewtan calls “fuzzy search” algorithms to comb its database of experts, who all fill out detailed profiles when they sign up for the service. Zintro sends your inquiry to appropriate experts who indicated they know something about batteries, electric cars, or material science.

These experts are then free to respond with a brief proposal outlining their rates and their qualifications for talking about A123. From your Zintro dashboard, you can sort through their proposals; if you need more details, you can request them from the experts via Zintro’s internal e-mail system.

Once you settle on an expert, Zintro helps you schedule a phone call, and charges your credit card or PayPal account for the amount of the expert’s fee, plus Zintro’s 30 percent introduction fee—say, $100 for the expert plus $30 for Zintro. The funds go into an escrow account, and Zintro provides a dial-in number that both parties can call at the agreed time.

Once the call is over and both parties confirm how much time was used, the fee is released to the expert. There’s also an escape hatch: if you …Next Page »

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Xerox (NYSE: XRX), the document-management giant headquartered in Norwalk, CT, said today that it will buy Affiliated Computer Services (NYSE: ACS), a Dallas, TX-based business process outsourcing firm, for $6.4 billion in cash and stock. The acquisition will turn Xerox—like IBM or Dell—into a hybrid technology and services firm; ACS has 74,000 employees focusing on IT support, human resources, finance, and customer support for clients in government, healthcare, and other industries.

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

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

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

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

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

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

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

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

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The old joke about management consultants is that they’ll look at your watch, tell you what time it is, and hand you a bill for $50,000.

But if you’re a healthcare company and you hire Scientia Advisors, here’s what’s more likely to happen: they’ll look at your watch, notice that it’s running slow, take it apart, fix it, put it back together, and tell you how—if you tweaked the design—you could make millions selling a different kind of watch.

Not literally, of course. The Cambridge, MA-based consulting firm works only on life-sciences strategy questions, not timepieces. But after a recent visit to Scientia, I came away feeling like it was one of the most unconventional consulting firms I’d ever seen.

Do you expect your consultants to spend months learning about your business? Forget it—Scientia will send people who already understand your industry, and they’ll spend only 5 percent of their time on site, according to Harry Glorikian, the firm’s co-founder and managing partner. Are you used to consultants who finish an engagement by doing a big PowerPoint show, handing over a few thick three-ring binders, and leaving you to ponder how to use the information? Forget that too. Glorikian says Scientia’s goal is to give clients the data and context they need to make a strategic decision about their problem, then and there.

“We want to be able to walk in and not have to learn a lot from the client to be able to add value,” Glorikian told me. “We bring a lot of knowledge that our clients are not used to consultants having.”

In that respect, the 30-person firm takes its cue from Glorikian himself. Prior to founding Scientia in 2006, the Boston University MBA graduate spent 20 years in the healthcare and life sciences business, including senior management stints at X-Cell Laboratories, Signet Laboratories, and Applied Biosystems (NYSE: ABI). Co-founding partner Arshad Ahmed worked on healthcare, life sciences, financial services, and other areas for Boston Consulting Group, Integral Inc., and McKinsey spinoff Potomac Partners. The third co-founder, Amit Agarwal—who runs Scientia’s West Coast operations from Palo Alto, CA—also has a deep background in the consulting and financial services worlds. And among its crew of consultants, the firm counts both youngsters with fresh science and business degrees and industry veterans from places like Millennium Pharmaceuticals and the dialysis division at healthcare giant Baxter.

Scientia’s signature style, according to Glorikian, is to bring a deep understanding of the markets and technologies relevant to its clients; to build its own data from the ground up, rather than relying on market research purchased from other companies; and to analyze markets using proprietary software tools, mostly developed by Ahmed.

It’s a style that seems to be working so far. In the two and a half years since Agarwal, Ahmed, and Glorikian started the company, it has only had one consulting proposal turned down by a potential client. “One customer said, ‘You’re the most cost-effective firm I’ve ever used,’” says Glorikian. “I said, ‘You’re calling us cheap!’ And he said, ‘No, you don’t understand. When I ask you guys a question, I usually get an answer. If I ask another firm the same question, I get back a project.’”

The clients coming to Scientia usually need answers fast. The typical customer, Glorikian says, is a company looking to expand into a new market, or get rid of products that aren’t selling well, or take a cyclical business and transform it into something less beholden to economic shifts. Scientia can help clients understand which markets hold the biggest opportunities, and how those opportunities match up with their existing capabilities.

I asked Glorikian to walk me through a real example. (He left out identifying detals to protect the client’s confidentiality.) “We had a Fortune 50 company come to us and ask us to look across a number of industries to determine what areas they should be playing in,” he recounted. “So we took them through a number of screens. One of them was for simple things like the size of the market, its growth rate, and profitability; you obviously don’t want to be in low-growth, low-profitability markets. Then we did a quick spin of their R&D groups to understand their competencies. And then we went back and …Next Page »

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Reading, MA-based Vitalize Consulting Services, which manages IT implementation projects for big healthcare companies, announced today that it has acquired rival r3 Health Partners of Santa Ana, CA. Financial terms of the deal were not disclosed. Vitalize is backed by SV Life Sciences, Ferrer Freeman and Company, and Bank of America.

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File this under “no surprise there”: GlassHouse Technologies, the Framingham, MA, IT consulting company that filed for a $100 million initial public offering in October 2007, has now pulled the offering, according to an SEC filing cited by Reuters. The firm cited “market conditions” in its decision. GlassHouse has continued to raise money and add staff through the recession, however: it closed a $9.8 million Series F financing round in December and acquired a 12-person team of former Motorola network security experts in January.

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Three weeks ago, the Washington Technology Industry Association (WTIA) launched a survey on the effects of the economic downturn on the technology community. The specific goal was to get feedback on how tech businesses are being directly affected by the nation’s financial crisis. Xconomy was the exclusive media partner on the survey; we had early access to the results, which will also be made available on the WTIA website.

The news isn’t as bad as it could be—but it’s bad. First, a bit about the respondents. They represent companies in software, Internet, consulting, and professional services in roughly equal proportions, with a few hardware companies and other categories thrown in the mix. The majority are based in Washington state and classify themselves as business-to-business.

Seventy percent of respondents said their businesses are being directly impacted by the financial crisis. Fifty-four percent said demand for their product or service was somewhat reduced or greatly reduced. Looking ahead to what was expected over the next 3-6 months, that figure held pretty steady at 56 percent, but 30 percent of respondents thought demand for their product would actually increase.

On companies’ plans to raise capital, hire new workers, or expand, the survey showed a mixed bag. Thirty-eight percent of respondents said the economy is delaying, reducing, or putting on hold fundraising efforts, while 30 percent said it has no effect, and 28 percent marked the question “not applicable.” Meanwhile, 56 percent said their hiring outlook for the coming quarter is down (the rest said it hasn’t changed or has even improved). And two-thirds percent of companies surveyed said they’ve cut back on plans for investing in growth or expansion.

So what’s to be done about it? Forty-two percent of companies said they are re-allocating resources because of the economy. Thirty-seven percent said they will devote more resources to sales, while 16 percent will put more into marketing. Interestingly, another 16 percent said they’d devote less resources to marketing. Operations budgets led the pack as the most likely to be reduced (18 percent of companies).

All in all, it seems like a useful snapshot of tech-business attitudes heading into a financial winter. We’ll be watching closely for signs of spring.

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Outside of a few giants like IBM, you’d be hard pressed to find many technology companies that offer both consulting services and boxed software products. Harder still would be finding a venture firm daring enough to fund a startup that wants to combine these two seemingly disparate lines. But software security startup Security Innovation, which has offices in Wilmington, MA, Seattle, and Amsterdam, has been doing just that—and to get the next level, it raised $7.1 million this summer from Wakefield, MA-based Brook Venture Partners.

Security Innovations CEO Ed Adams visited Xconomy back in July, and we’ve had such an unexpectedly busy August that I’m only now getting around to writing up the company history Adams related, which was fascinating. Adams himself is a rarity among software CEOs—amiable, frank, and understandable. The former Rational Software executive has been with Security Innovation since 2003, when he was invited to join by founder James Whittaker, then chair of the software engineering program at Florida Institute of Technology, whom Adams affectionately calls “the nutty professor.”

Whittaker had invented a program called HEAT: the Hostile Environment Application Tester. It stress-tested other software by subjecting it to simulated conditions most developers don’t think to anticipate, such as hardware memory shortages or corrupt keys from the operating system. Whittaker was giving HEAT away on the CD-ROM for his 2002 textbook How to Break Software. But “he thought he had created something really special, the next great quality-assurance testing tool,” says Adams, and he had put together a company to sell it.

Adams was interested in HEAT, but he found that what the nutty professor had actually created was “a body of knowledge and a group of experts who understood software security better than anybody on the planet.” He joined as CEO, and to pay the bills, he put HEAT on hold and transformed the company into a consultancy, which quickly found big clients both in the technology business (Microsoft, SAP, Symantec) and in the defense and intelligence realms (”certain three-letter agencies,” to be exact).

That put the company into an interesting—and slightly uncomfortable—position. “We were training organizations like Microsoft and SAP how to find security vulnerabilities and fix them,” says Adams. “But on the government side, we were showing these agencies how to exploit those same vulnerabilities for intelligence-gathering purposes.” Say the NSA wanted to monitor potential terrorist traffic flowing over a computer in an Internet cafe in Amsterdam; Security Innovation knew about operating-system weaknesses that could be used to implant these machines with undetectable spyware. In some cases, says Adams, these flaws were so useful that intelligence agencies would ask the company not to show its corporate clients how to fix them.

It was an untenable situation, so in 2005 Security Innovation spun off its government operations into a separate firm called SI Government Solutions. (That company was acquired by Waltham, MA-based Raytheon for an undisclosed price last April.) Also that year, Adams hired a product manager—a former Rational colleague—to return to HEAT, a command-line program lacking even a basic graphical user interface, and start transforming it into a viable commercial product. The result was Holodeck, named after the virtual-reality chamber from Star Trek. (”We are complete geeks,” Adams acknowledges.) The company also created two other software products, a “consultant in a box” program called Team Mentor and an e-learning package for software engineers looking to train themselves in security.

To market the three programs more widely, the company needed more capital. But there was a problem: Security Innovation was still both a consultancy and a software company, a combination that baffled most venture firms. “We were building out these product lines, but we had no intention of …Next Page »

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Wilmington, MA-based Security Innovation, which consults with Fortune 500 companies on the security of their software applications, said today it has raised $7.1 million in Series A funding in a round led by Brook Venture Partners of Wakefield, MA. Founded in 2002 by software quality expert James Whittaker, the company hasn’t taken any venture investment until now, but says it will use the round to scale up sales and marketing and product development efforts.

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There’s endless debate about how to encourage more innovation inside technology companies. But in Waltham, MA, there’s a startup that says, in effect, don’t bother: innovation can be outsourced to a global community of freelancers.

InnoCentive was set up by Eli Lilly in 2001 as an experimental way to farm out some of the giant drugmaker’s biggest product development challenges by posting them on the Web and inviting people around the world to submit competing solutions, with a substantial monetary prize as the reward for the winner. Two years ago, Lilly spun out the company as an independent venture, and it has since diversified beyond the life sciences to a range of disciplines, such as computer science and cleantech. And today, the organization announced that it’s raised a new pile of venture money—$6.5 million altogether, which it will use to upgrade its platform and expand its network of “solvers,” people who submit solutions in hopes of winning awards that range from $10,000 to $1 million.

It works like this: Companies (called “seekers”) work with InnoCentive to craft a well-defined challenge and pick a dollar amount for the award. InnoCentive then alerts its network of solvers, and those who choose to engage in a particular challenge are given access to online project rooms containing proprietary details about the seeker’s project. At the end of the challenge period, the seeker evaluates the solutions and chooses one as the winner; InnoCentive then helps transfer the rights to the solution from the solver to the seeker’s organization.

It isn’t “crowdsourcing” in the typical Web 2.0 sense of throwing open a problem and soliciting thoughts and contributions from thousands of random Internet surfers. It would be more accurate to describe InnoCentive’s platform as a mechanism for soliciting RFPs (requests for proposals) from a much broader cross-section of experts than any company could reach through the traditional business consulting process. Companies like Procter & Gamble use Innocentive’s system to find new product ideas faster than they might on their own, and the model has even inspired imitators such as Ohio-based Planet Eureka, which launched last month.

The problems posted at InnoCentive range from grand challenges (one seeker is offering $1 million for a biomarker that can track the progress of amyotrophic lateral sclerosis, or Lou Gehrig’s Disease) to utterly practical, small-scale problems (the Rockefeller Foundation offered $20,000 for a design for a solar-powered wireless router for use in developing countries). To date, solvers have collected over $3 million in awards, according to InnoCentive.

The lead funder in the funding round, InnoCentive’s second, was Spencer Trask Ventures, a New York-based investment network that includes scores of high-net-worth individuals. Lilly also contributed to the round. On Monday I had a phone conversation with InnoCentive CEO Dwayne Spradlin about how the organization plans to use the funds—and about the effectiveness of the prize-based innovation model in general.

Xconomy: It would be great if you could talk a bit about InnoCentive’s current direction, how that has changed over the past few years, and how you plan to use the new cash infusion.

Dwayne Spradlin: The company has been around for about seven years. We were founded under Eli Lilly and spun out as a standalone company a few years ago by Spencer Trask. As you point out, the company is a fair bit different today from a few years ago. The last several years were really about proving the concept—that is, that open innovation could drive remarkable outcomes for organizations that are innovation-hungry and that need better, faster, cheaper product development and time to market.

Now it’s ready for prime time. In the past six months, we’ve added challenge categories including business and entrepreneurship, engineering and design, physical sciences, and mathematics and computer sciences. We’ve increased the number of tools we offer—we used to focus on deep research-type tools but now we also offer “ideation” tools that help large numbers of people brainstorm very quickly, and electronic RFPs so that clients can find business partners very quickly, and help managing intellectual property rights. So we’ve gone beyond the proof-of-concept stage to the stage of getting InnoCentive into the hands of as many organizations as possible. We and the investors in InnoCentive believe this is the time to expand.

The $6.5 million is earmarked for expansion in three areas: First, our sales and marketing footprint, really getting feet into the street to evangelize the product. Second, expanding our solver community, which is 140,000 strong, but we have about 5 billion …Next Page »

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Conchango, a UK-based consulting firm that specializes in custom implentations of Microsoft enterprise software, will become part of EMC’s European IT consulting practice, the Hopkinton, MA, company announced today. EMC is spending about 42 million pounds sterling or US $84 million on the acquisition.

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