I met recently with Bob Nascenzi, the software industry executive who stepped in last May as the CEO of ProQuo, the San Diego startup that was created to help consumers control their personal information and reduce their junk mail.

I didn’t realize, however, that ProQuo had shut down. The last I heard about the company’s status was just over six months ago, when ProQuo founder Steven Gal sent out a mass e-mail to thousands of his contacts (including me) announcing Nascenzi’s appointment and his own departure to teach at Cornell University’s business school as a visiting professor. It seemed at the time like a straightforward change in CEOs.

Turns out it wasn’t. Nascenzi tells me he’s constrained in what he can say. But he says he worked with ProQuo’s chief creditor, San Jose, CA-based venture lender Western Technology Investment, to sell off the company’s assets and dissolve the corporation. Nascenzi says he shut ProQuo down at the end of July, and laid off the last six employees.

Gal, a veteran who worked at San Diego’s HNC Software and was a co-founder of ID Analytics, started ProQuo in 2007 as a way to enable consumers to review mass-market mailing lists and decide what junk mail they really wanted to receive. The service was free to consumers and the business concept was to make money by selling the customized lists of users to mass-marketing companies. ProQuo took in a total $15 million in venture capital from Draper Fisher Jurvetson of Menlo Park, CA, and San Diego’s Mission Ventures.

Mission Ventures’ Leo Spiegel confirms that ProQuo was the startup he was referring to during a San Diego Venture Group panel discussion a couple of weeks ago, when he said his firm has only shut down one portfolio company during the economic downturn. In an e-mail to me, Spiegel says “It was difficult to execute the plan given the economic [downturn] and the competitive landscape.”

I gleaned a little more insight from a recommendation for Nascenzi that Andre Durand, a ProQuo co-founder and board member, wrote on the professional networking site LinkedIn: “Bob was brought in at a very difficult time for ProQuo. The company had not yet validated it’s business model, was consuming its remaining cash quickly, and with the funding climate changed significantly for the worse, was being forced to shut down… During this period, Bob regularly communicated his progress to the board, and managed the company through a number of tricky and delicate negotiations with creditors and purchasers of the ProQuo assets. While it was unfortunate that after so much time and money, we ended dissolving ProQuo, we were very fortunate to have found Bob when we did.”

In response to my query, Gal sent me an e-mail that says, “I ceased any involvement with ProQuo as of the beginning of May, I was neither employed by the company nor on the Board when it ceased operations, and am under a confidentiality agreement with the company (as is Bob) which prevents me from divulging any information.”

The topic apparently remains sensitive. Gal also called me, saying, “In 15 years of doing these kinds of startups, this is my first failure. It was truly a painful experience, and I’m still not over it.”

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What the Sam Hill (as my grandpa used to say) is a Daily Grommet? The answer comes in two parts. “Grommet” is the word industrial designer and entrepreneur Jules Pieri has appropriated for the kind of bewitching product that you might discover in an upscale shop in Puerto Vallarta or Tuscany or Vermont—something that’s so unique or beautiful or inventive that you just have to buy one and tell all your friends about it.

And the Daily Grommet is an e-commerce startup in Lexington, MA, that features one new grommet on its website every weekday. Through videos and short articles, Daily Grommet staffers—often Pieri herself—explain what’s so cool about the products they’ve chosen and the companies that make them. They also sell the products, on consignment from their makers. This week’s finds, for example, include an energy bar with ingredients picked by customers, a solar-powered flashlight (no, that’s not a contradiction in terms), and a garlic shredder that looks a little like a little two-wheeled Popemobile.

If you’re thinking that the Daily Grommet sounds like Hammacher Schlemmer meets RocketBoom meets VeryShortList, maybe with a dash of Martha Stewart, you’re not completely wrong. But there’s something stylish, original, and earnest about Pieri’s business that isn’t captured by any of these comparisons.

For one thing, as I can relate after visiting the startup’s office/studio in a quaint clapboard house just off Lexington’s main drag last week, the women who run the company (and they’re all women) are, like Pieri herself, genuinely nice people. They have a visible passion for uncovering little-known new products, testing and investigating them, and telling their stories to the world.

Left to right: Joanne Domeniconi, Jules Pieri, Jen Lockwood, Barbara Gordon, Patti Purcell, Wendy Chandor.

For another, the Daily Grommet has a common-sense business model that blends old-fashioned retailing with the best of Web 2.0-style interactivity. In addition to the daily videos, which are an easily digested two to three minutes in length, the startup is utilizing the full complement of social media channels, including a Twitter stream, an RSS feed, an e-mail newsletter, a Facebook page, and badges and widgets that fans can embed in their own websites. And every grommet gets its own permanent page on the site where readers can leave comments and even interact with the people who make the products. (The company often singles out companies that are so small or new that a feature on the Daily Grommet can be their first big break.)

It all amounts to a human-centered, high-touch approach that might just help to redefine what consumers expect from e-commerce sites. Whether such a business can be scaled up efficiently is an open question. But clearly, if you had the courage in this age of cloud-based software startups to start from scratch with a business that sells actual stuff, you’d want to take advantage of the media that people are using today for word-of-mouth exchanges, namely Twitter, blogs, online video, and the like.

And ideally, you wouldn’t just dilute these media with empty marketing messages, but you’d tell real stories about the people who make the stuff and what motivated them.

This is the kind of stuff Pieri thinks about. “Social media is not commerce media,” she says. “What travels in social media is news—whether it’s personal or national or just funny videos. I know that the stories around products have that same power, and the potential that people would want to …Next Page »

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Today Bedford, MA-based Zink unveiled the winning designs in a $25,000 contest called “Zero Boundaries,” launched to elicit creative ideas about how Zink’s inkless printing technology might be built into devices that young people and future mobile consumers could use to capture, modify, and share digital photos.

We’ve told you the story of Zink, the Bedford, MA, startup whose pocket-sized printers can make instant, 3-by-4-inch prints from any digital image without using ink. In essence, the company reimagined a thermal printing technique that was invented but never commercialized at Polaroid. In a contest announcement earlier this year, Zink (whose name stands for “Zero Ink”) asked designers and design students around the world to reimagine Zink’s own products.

The winning ideas hail from designers in the U.S., China, Brazil, the Netherlands, and Romania. They vary from an iPhone accessory to a little robot that crawls around on a giant piece of Zink paper, printing as it goes. The company has published slide shows and descriptions of the winning entries on its contest website.

Zink’s basic technology involves a thermal print head that applies precise pulses of heat to special paper impregnated with crystals that turn various colors when they melt. Contest entrants had to build their designs—whether physical models or 3-D CAD renderings—around the basic mechanical and electronic elements of the Zink printer.

“The designs were incredibly well thought-through and truly showcase the breadth and disruptive nature of the future of printing that only Zink can enable,” said CEO Wendy Caswell in today’s announcement.

In the “Youth” category, the company’s challenge to designers was to “make today’s youth crave Zink products in the context of their digital and mobile world.” The winner, Zink Mix, consists of an iPhone application that searches a user’s photo albums and social networks for pictures they might want to print, along with a fancy iPhone docking station with numerous sliders and dials for photo editing that give it the appearance of an audio mixer. Patrick Schuur, of design firm Maketropolis in the Netherlands, won a $10,000 cash prize for the design.

In the “Future” category, Zink wanted designers to reimagine printing altogether. The winning design certainly does that: called the Mini Giant, it’s a self-propelled, large-format poster printer that rolls across a piece of Zink paper the way a farm combine traverses a wheat field. A thermal head on the Mini Giant’s undercarriage exposes paper as it goes. The design came from Paula Adina Sumalan, a recently graduated design student from Romania, who also won $10,000.

The company also handed out $1,000 second prizes in each category and $500 third prizes, along with a $500 “People’s Choice” award, with the winner determined by voting at the contest website. Brazilian Arthur Ditlef’s design for a portable business card printer, called the SmartBC, won the popular vote.

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Seattle-based Alliance of Angels, a network of individual investors focused on the Northwest, announced today it invested a total of $6.4 million in 36 companies in 2008—the second-highest amount in the organization’s 11-year history. Nineteen of the investments were new, in startups spanning Web 2.0, software and services, mobile, gaming, nanotech, and consumer/retail. Five portfolio companies had exits last year: CleverSet, Coffee Equipment Company, Insitu, Shelfari, and SnapIn.

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If you were watching the Superbowl yesterday, you may have seen the tongue-in-cheek ad in which down-on-their luck celebrities Ed McMahon and MC Hammer hawked Cash4Gold, a Pompano Beach, FL-based metal refinery that sends customers checks for mailing in their unwanted gold, silver, or platinum jewelry. An e-mail about the ad circulated this weekend by a partner at General Catalyst provides the first public acknowledgement that GC is an investor in Cash4Gold, confirming—at least in part—a report earlier this month from Dan Primack at Private Equity Hub.

Primack reported in the January 6 edition of PE Hub’s daily e-mail newsletter, PE Week Wire, that GC and Lexington, MA-based Highland Capital Partners had just put more than $40 million into the company. Primack didn’t reveal his sources, and neither GC nor Highland would confirm or comment on their involvement.

But in a general e-mail this weekend, Bilal Zuberi at General Catalyst wrote: “If you are watching the Superbowl, look out for ads in the pregame and 3q for our portfolio company ‘Cash4Gold’ :) …And pull out your baggy pants in anticipation of MC Hammer on the screen.” Below, I’ve embedded the YouTube version of the ad—which earned an “A” from Time Magazine in its round up of the best and worst Superbowl ads of 2009.

When I contacted Zuberi today, he said he wouldn’t call his note an official confirmation that General Catalyst was in on the Cash4Gold deal. “It was kind of a joke e-mail,” he said. “It’s one of those investments where everybody talks about it. I don’t know anything about that area [of GC's business]. It was just a note to my friends saying you’ve got to check it out.”

I’ve got a call in to Michelle Daubar, GC’s communications director, requesting the firm’s official word about the investment. I’ve also requested comment from Dan Nova at Highland, whom Primack identified as that firm’s lead partner on the Cash4Gold deal.

Offering consumers cash for their precious-metal objects, especially at a time when gold prices are relatively high, may be a canny way to make money during a downturn. But one obvious question is whether partners at GC and Highland were aware of, and/or signed off on, Cash4Gold’s decision to put its own money into Superbowl advertising. According to a story on ESPN.com last week, NBC charged advertisers $3 million for each 30-second spot during the big game. That’s almost twice as much as companies paid back in 1998-1999, when so many dot-com companies were accused of profligacy for buying Superbowl spots.

I’ll let you know if I hear back from anyone.

Update, February 3, 2009: VentureBeat has picked up the Cash4Gold story, reporting on consumer complaints about the company, which apparently center on payment delays and “misplaced” packages that result in insurance payments below the value of the enclosed jewelry.

Update, February 6, 2009: The Economist’s Free Xchange blog reported this week that Cash4Gold has attempted to buy off a blogger who was critical of the company. If you search for “Cash4Gold” on Google, this blogger’s post claiming that the company pays customers for mailed-in gold at rates far below the market price appears at or near the top of the results. According to The Economist, he got a letter offering him cash to take down the post or “de-optimize” it for the search engines.

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After raising $70 million in venture funding and spending more than three years on the development of next-generation lithium-ion batteries, Westborough, MA-based Boston-Power has won its first big customer: It’s the supplier behind a new line of replacement laptop batteries from Hewlett-Packard. Branded as the “HP Enviro Series” but based entirely on Boston-Power’s Sonata technology, the batteries incorporate advances in design and chemistry that will allow them to be recharged much faster than conventional laptop batteries—and that will keep them from losing their capacity to store power over time, the way older lithium-ion cells do.

The Enviro batteries be available from HP early next year, and will have the same form factor as current HP laptop batteries, meaning they can be slipped directly into existing HP laptops. That will make Boston-Power the first U.S.-based company ever to enter the laptop battery market, a space wholly dominated up to now by Japanese and South Korean companies such as Sony, Sanyo, LG, Samsung, and Panasonic.

Boston-Power—which is funded by Oak Investment Partners, Venrock, GGV Capital, and Gabriel Venture Partners—has long been promoting its battery technology as a smarter alternative to conventional lithium-ion cells. Most lithium-ion batteries suffer from chemical buildups that cut their capacity in half after only one year of use, meaning that they usually have to be replaced several times over a typical laptop’s three-year lifespan. That’s not only an expensive proposition for consumers, since replacement packs usually cost $80 to $120, but also uses up precious resources during manufacturing and leads to greater shipping costs and carbon emissions.

A single Enviro replacement battery, by contrast, is designed to retain 80 percent of its charging capacity over three years—meaning, in theory, that the replacement will never have to be replaced. Christina Lampe-Onnerud, a research chemist and Swedish native who founded Boston-Power in 2005, calls the company’s deal with HP “a celebration of cleantech” and of innovation in general. “The number-one laptop and notebook computer maker has prioritized the environment and created a whole new brand to give consumers a choice,” says Lampe-Onnerud (who participated in an Xconomy panel discussion on energy innovation last week). “I’m very proud that Boston-Power is the enabling technology for their first offering, and I’m extremely happy that we can be part of the solution for climate change instead of the problem.”

But if the Enviro batteries are so great, why aren’t they being included in new HP laptops, rather than sold only as replacements? That will probably happen down the road, Lampe-Onnerud suggests. Offering the Enviro as a replacement battery first “was the quickest, best way, in HP’s mind, to deploy this battery to as many people as possible,” she says. “I think you should expect to see other opportunities for collaboration [between Boston-Power and HP] in 2009.”

In fact, the market for laptop batteries is so commoditized—with no particular product standing out from any other—that it’s hard to imagine that HP would not eventually put the new Enviro batteries directly into its Presario and Pavilion laptops and turn them into a sales point (or at least market them as an option, the same way it offers buyers of new laptops a choice of graphics cards or hard drives).

“We will see during a 2009 a very interesting opportunity for our early adopters to get rewarded for working with us, because …Next Page »

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Who couldn’t use a robot or two to help with household chores? To make finding that robo-helper easier (and to boost holiday sales) Bedford, MA-based iRobot (NASDAQ: IRBT) announced last week it was opening a kiosk in the Burlington Mall that will show off its Roomba robot vacuum cleaners and other bots for gutter cleaning, floor washing. The kiosk opened on Saturday and will close in mid-January.

A kiosk opening isn’t something we normally cover in Xconomy. But especially since the head of iRobot’s home robots division left last May–in what seemed to signal a shake up in the company’s consumer business—I wanted to know more about what the mall outpost portends for the future of home robots, both at iRobot and more broadly. To that end, I spoke with iRobot CEO Colin Angle, who sketched a vision of robots transforming household drudgery in much the same way (although he didn’t draw the exact parallel) that electric appliances revolutionized things like dishwashing and laundry a few generations ago.

“As we roll the clock forward you’re going to see more and more home robots…and the concept of a robot store is going to be something that every mall is going to want to have,” Angle says. IRobot’s kiosk, he says, is “one of the first practical robot stores ever to be in existence that wasn’t focused on meeting the needs of the hobbyist. I think it is an important milestone in our industry.”

In Angle’s world, there are two types of people: “those who own Roombas and believe, and those who don’t own Roombas.” On the home side of the business (the company also has a big military division), iRobot’s challenge has always been reaching that second group, and convincing people that “practical robots are here, and they can be saving you time and giving you more control over your home.”

Enter the kiosk. As Angle puts it, “nothing can convert a skeptic into a believer like a live demonstration.” The company has been thinking about a retail presence for quite a while, he says, “and felt like we now have a broad enough array of products that we could at least justify a kiosk.” Staffers will experiment with direct sales of a few items, but will mainly demonstrate products and help customers order online as the company tests its messaging, training, and so forth. And while the kiosk will shut down in mid-January, says Angle, “Certainly if it goes well then you have not seen the last of kiosks for iRobot.”

But what about the bigger picture? IRobot recently released positive third-quarter numbers that showed sales up 45 percent over the same period last year, with the home division driving the revenue increase. But margins can be tight in consumer products, and it’s not clear how much of the third quarter’s small ($3.9 million) profits, if any, came from the home division. In any case, the division seems to be in the midst of an overhaul. In May, the company announced the departure of home division president Sandra Lawrence. Since then, the home business has been led by interim general manager Jon Elordi, who previously ran the firm’s international business. IRobot also hired an operations chief from Gillette to improve supply chain efficiency and gross margins. But the company is still running in the red for the year, and Angle acknowledges the economy isn’t helping the overall picture. “Right now we’re in a period of great uncertainty in the economy, and it’s impacting consumer-facing businesses in other industries throughout the country and throughout the world. So there’s a lot of wait and see,” he says.

Despite my best efforts, I don’t feel like I got a detailed picture from Angle of what is going on right now in the consumer division. But the iRobot CEO seemed generally positive about the longer-term future—and especially the growing consumer presence of robots. “The Roomba has shown that there is a very interesting and exciting market for robots that can deliver the goods,” he says. “This is here to stay.”

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Atlas Venture of Waltham, MA, has taken the lead in a €10 million venture round for Inspirational Stores, the Paris-based online marketing firm said today. Inspirational Stores creates and manages e-commerce sites for luxury European consumer brands such as Laduree, Delvaux and Caviar Kaspia. Existing investor OTC Asset Management also participated in the round.

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Highland Capital Partners’ consumer fund led a $6 million Series D financing round for Cambridge, MA-based O Beverages, according to peHUB. Bob wrote about the fund’s earlier investment in the maker of nutrient-and flavor-infused waters (founded by Tom First of Nantucket Nectars fame), as well as the other firms in its consumer-oriented portfolio, back in December.

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The “Give One, Get One” program introduced last holiday season by the Cambridge, MA-based One Laptop Per Child Foundation—which gave consumers in the United States and Canada the opportunity to buy two of the foundation’s XO laptops for $400, and have one sent to a child in a developing nation—was a success in several respects. It generated public excitement about the XO by giving the general public its first chance to buy the machine; it created more orders for the laptop, improving the economies of scale involved in its manufacture; and, of course, it meant that more children received laptops (100,000 more, according to the foundation).

But judged by the standards of most commercial consumer-electronics rollouts, the “G1G1″ program was a fiasco. The foundation didn’t have enough staff to respond the tens of thousands of orders that started rolling in as soon as the program launched. The company it hired to manage fulfillment, Miami-based Brightstar, lost thousands of customer addresses through computer glitches. Many customers—some of whom had planned to give the XO to their own children, grandchildren, neices, or nephews as holiday presents—didn’t receive their laptops until March.

Now OLPC says it plans to repeat the offer for the 2008 holidays—but this time, Amazon will be in charge.

IDG News Service broke the news on Wednesday, after speaking with an OLPC regional director who said the XO will be available from the Seattle-based e-retail giant starting around Thanksgiving. The director, Matt Keller, who runs the foundation’s operations in Europe, the Middle East, and Africa, said the foundation is still too small (with only 25 core staff) to handle such a large program on its own.

Boston Globe reporter Hiawatha Bray spoke with OLPC founder Nicholas Negroponte for a story published today that says the switch to Amazon should eliminate last year’s delivery problems. “Many things in the last G1G1 did not run as smoothly as we would have hoped,” Negroponte told the Globe. “Those things, mostly related to fulfillment, by their nature, are what Amazon can fix.” But Negroponte didn’t share additional information, saying Amazon would announce the details of the program when it’s ready.

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Sadly, my old Roomba Red robot vacuum cleaner is now collecting dust—and not in the way it’s supposed to. Its rechargeable battery no longer recharges, and iRobot charges $70 for a replacement. I figure that’s money I might as well put toward a newer model. And now I’m sorely tempted: today Bedford, MA-based iRobot launched two new Roomba models designed especially for homes with hairy pets.

When my old Roomba was still kicking, it was a huge blessing, since I have a long-haired Australian Shepherd who sheds copiously. My only complaints about the device were that its dirt bin filled up with hair so fast, and that I had to pick dog hair out of the brushes after every outing. Cleaning the brushes was so time-consuming that it almost canceled out the convenience of having a robotic vacuum.

The new Roomba 532 features improvements intended to address those two issues. It has an additional “sweeper bin” that’s 3.5 times the size of the old vacuum bin, as well as an extra set of brushes and special cleaning tools for keeping the brushes hair-free. According to the company, the 532 also has “counter-rotating brushes” that “reach deep into carpets to pull out pet hair and dander.” I’m already salivating.

The new Roomba 562 has everything the 532 has, plus one more set of brushes, a more capacious battery, and an on-board scheduling feature, allowing owners to program the vacuum to sweep automatically up to seven times a week, returning to its home base to recharge when it’s done. The Roomba 532 goes for $349 and the 562 is priced at $399.

Of course, while many people buy Roombas to clean up after their pets, there’s another group of iRobot customers who buy them to entertain their pets. (John Landry, the former CTO of Lotus who’s now in the venture capital business, let slip after a recent Xconomy forum that he’s one of the latter.) So far, iRobot hasn’t come out with a robot tailored especially for the latter group—unless you count the ConnectR, a “virtual visiting” robot that the company is currently beta-testing with a limited group of users and that can be used, according to iRobot’s marketing materials, to “tell Fido he’s a ‘good boy’ even while you’re on vacation.”

The company did, however, bring out one more Roomba model today: the new $599 “Roomba 610 Professional Series” robot (pictured at left), designed to vacuum large areas like offices or retail spaces. It comes with interchangeable sweeper bins—so that you can swap a full one for an empty one without delaying the robot in its appointed rounds, apparently—and it’s capable of using up more of its battery power before automatically returning to its recharging station.

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Wilton, CT-based Greenfield Online (NASDAQ: SRVY), which owns a network of Internet-based consumer survey and comparison shopping sites, announced a complex sequence of changes today. The company is backing out of a previously announced merger with New York-based Quadrangle Group. Simultaneously, it’s selling its Internet survey business to an as-yet-unnamed buyer from the financial services industry. And biggest of all, it has agreed to sell the remaining parts of its business—consisting principally of Ciao, an online comparison shopping service popular in Europe—to Redmond, WA-based Microsoft for $468 million, some $42 million more than Quadrangle had offered.

Founded in 1994, Greenfield Online has nearly 800 employees and raised $58 million in a 2004 IPO. It acquired Ciao in 2005 as part of a buying spree that also brought in OpinionSurveys.com, Rapidata.net, and Zing Wireless. Ciao runs a classic comparison-shopping site—with localized versions in Germany, France, Spain, Italy, the United Kingdom, the Netherlands, Sweden, and the United States—that offers price comparisons, product specifications, and consumer reviews for more than 4 million products. The company earns money on click-through advertising and commissions on referred purchases.

Tami Reller, corproate vice president and CFO for Windows and online services at Microsoft, said in an announcement that acquiring Ciao would “further extend Microsoft’s search and e-commerce services in Europe,” where the company already runs localized versions of its MSN and Microsoft Live Search portals. “The team at Ciao has built a passionate consumer community based on intuitive technology and extensive merchant relationships that we believe will deliver incremental benefit to the Microsoft Live Search platform,” Reller said.

The sale to Quadrangle had been valued at $426 million, but Greenfield said in an announcement Tuesday that it had received a superior offer from a “Fortune 100 strategic buyer,” which turns out to be Microsoft. Under the previous merger agreement, Quadrangle had three days to make a counter-offer—which, apparently, it did not. Greenfield will now have to pay Quadrangle a $5 million termination fee.

Microsoft was apparently uninterested in Greenfield’s original core business—its Internet Survey Solutions division, or ISS, which recruits paid panels of consumers who respond to surveys commissioned by consumer products companies. The software giant was involved in finding an outside buyer for that part of the company, according to Reller. “We are pleased we could find the right strategic partner for ISS to continue its growth,” she said.

One of Greenfield’s investors, Connecticut-based Mesco Ltd, is also an investor in uTest, a software quality assurance outsourcing house we profiled last week. Utest executives said they wanted to work with Mesco because of its familiarity with businesses that gather feedback online.

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Why do airlines give away frequent flyer miles? For the same reason that credit card issuers offer cash-back programs: because hanging on to existing customers by giving them rewards is generally cheaper than recruiting new ones. That basic truth has made frequent-flyer programs and other loyalty programs into a huge business: one in three Americans has a frequent flyer card on at least one airline, and 88 percent of all credit-card purchases in the United States are made using rewards cards (many of which help consumers rack up even more miles). There are so many loyalty programs, in fact, that it’s getting harder for each company to make their rewards program look better than the next guy’s.

That’s where Mall Networks comes in. If you went just by the Lexington, MA, startup’s name, you might think that it owns chain of shopping malls, or that it runs a TV network for malls, sort of like the CNN Airport Network. Not at all. In fact, the company’s business is to help ensure the loyalty of loyalty-program members, by creating online malls—really, just collections of products from 700 name-brand merchants such as Lands End.com, Wal-Mart.com, HomeDepot.com, and Buy.com—where people like Chase credit card holders or Spirit Air frequent flyers can earn extra points or miles for every dollar they spend.

Today Mall Networks announced that it has earned a big reward of its own: a $7 million Series B investment led by Waltham, MA-based Dace Ventures, with participation from Series A investors Flybridge Capital Partners of Boston, Wellesley, MA-based Venture Capital Fund of New England, and LBO Enterprises. Mall Networks CEO Dave Andre says the three-year-old, 40-person company will use the money to expand its platform to accommodate more clients and to hire about 10 additional sales, marketing, and service staff over the coming six months.

It’s easy to see how Mall Networks attracted the new investment: it’s one of those companies that has capitalized on the fluidity of Internet-based transaction data to carve out an entirely new niche, engineering what might be called, if you’ll forgive the lapse into biz-speak, a “win-win-win” scenario. Consumers who buy stuff through the malls—which are generally branded to look like they’re run by Chase, or Spirit Air, or whoever the Mall Networks client may be—win by earning rewards faster than they would if they made their online purchases elsewhere. The credit card companies and airlines win because they’re able to provide a benefit to their loyalty-program members at zero added cost to themselves (the rewards are generally funded by the merchants, out of the standard commissions they pay for purchases referred by outside websites). And the merchants win because they’re picking up customers who might not have shopped at their sites otherwise.

If you wanted to throw in a fourth winner, it would be Mall Networks itself, which charges clients to administer the loyalty-shopping programs. It’s a function most big financial companies and other service providers are happy to farm out. “It takes a whole bunch of expertise of different sorts” to set up the malls, monitor customers’ accounts, move points around, and market the programs correctly, says Mall Networks CEO Dave Andre. “The banks don’t want to have to put together 600 contracts with different merchants. That’s clearly something that needs to be outsourced. And with the banking and airline industries in turmoil—canceling programs that cost them money—these programs, properly executed, can be profit centers.” For example, companies can keep a slice of the merchant commissions for themselves.

For loyalty-program members, the only downside to shopping at a Mall Networks mall is that the prices offered by participating merchants aren’t always the lowest ones available on the Web. But retailers are free to sweeten the deal by offering higher multiples on what consumers spend—Target.com, for example, offers 6 miles for every dollar spent by the members of one airline frequent-flyer program. Which means it can be worthwhile to pay a little more, if it gets you enough points or miles for that next big reward. “If you’re 350 miles short of a European family vacation, those last 350 miles are really valuable to you,” points out Andre. “The value is really in the eyes of the consumer.”

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Creating a new diet soda, deodorant, or dish soap is a notoriously chancy business: consumers are unpredictable, and experience and intuition can only get a product designer so far. But what if you could apply the power of evolution to product development—subjecting various ideas to generation after generation of Darwinian competition, with consumers themselves as the agents of selection, picking which attributes of each product survive into the next generation?

This exact idea was one of the hottest trends in product development—in the year 2000. That was when a group of entrepreneurs and researchers from MIT, with backing from Cambridge, MA-based Flagship Ventures, founded a startup called Affinnova with the goal of applying a new form of mathematics called evolutionary algorithms to the traditionally expensive and time-consuming process of market-testing of new products. The company grabbed a few big clients such as Procter & Gamble, and even attracted imitators like Cambridge’s Icosystem. But eight years on, the field of evolutionary algorithms still hasn’t produced a smash-hit startup; after three rounds of venture financing totaling some $25 million, Affinova is only now approaching profitability.

But the company’s roughest years may be over. While Affinnova (pronounced ” AFF-i-NO-va”) doesn’t release actual sales figures, it says sales in the first half of 2008 were up by more than 60 percent compared to the first half of 2007. Its client base grew by one-third in the same period, and the company is in position to bring in $25 million in revenues next year, according to chief marketing officer Steve Lamoureux.

This growth can be attributed largely to changes made since the arrival of CEO Waleed Al-Atraqchi in 2005, Lamoureux says. (Al-Atraqchi replaced David Andonian, who went on to found Dace Ventures.) “Waleed is a turnaround guy,” he says. “There was an underlying asset that was being underleveraged in the business world. We were top-loaded with PhDs making advances in evolutionary algorithms, but we were putting fewer resources into making that technology understandable and adoptable. One of the things Waleed has done is to balance that out. We’ve taken the technology and made it really streamlined and sticky, and as a result we get a lot of repeat business.”

So, what exactly has Affinnova been doing to evolve its own strategy? Lamoureux and Al-Atraqchi filled me in about two of the company’s initiatives last week when I visited their offices in Waltham. The first, it turned out, was to stop helping companies come up with new product ideas, and start helping them pick between the ones they already had.

When I first became aware of Affinnova around 2002, the company was already a couple of years old, and had been focusing largely on helping designers dream up new product ideas that stood out from the crowd. In one example, the company’s Web-based software created thousands of variations on an old standby–the plastic water bottle—and asked participants in online focus groups to pick the ones with the most exciting combination of shapes, contours, and label colors. The process had the potential to arrive at radical combinations that no human designer would have bothered (or dared) to try, but that tested well with consumers anyway.

But Al-Atraqchi says that when he arrived at Affinnova, “I said, in a sense, let’s not confuse ideation with optimization. Most studies say that companies don’t lack for ideas. Which ones are the best, and what to do with them, are really the big issues, and that’s the problem we should try to solve.”

The company has found a niche, according to Lamoureux, by helping consumer manufacturers bringing out new products find the sweetest spot within a fairly narrow range of pre-determined options. Dannon, for example, came to Affinnova a few years ago for advice on the best way exploit the low-carb craze then sweeping the nation. The company knew it wanted to bring out a new brand of low-carb yogurt; the only question was how to package it. Should the label be teal, as Dannon’s experts thought, or some other color? Should the package hold 6 ounces of yogurt or 8? Should the product be called “Carb Control” or “Carb Smart” or “Carb Oh”?

Affinnova tested combinations of all of these options and more, and was able to determine not only which overall product concept was most appealing to consumers, but which elements were most important to their choices. The winner: a red package branded Carb Control, which went on to become one of the year’s top new food products, earning Dannon $75 million in its first year on shelves. A competing product, Yoplait Ultra, came out in a teal package and failed within a year.

Affinnova has refined its evolutionary process to the point that it can create competitive concepts even for products no one has heard of. As an exercise, Lamoureux paid a design firm to come up with three concepts for the packaging for a hypothetical new product—a cleaner for stainless steel kitchen appliances. The three designs ranged from bright and cheery (targeted at general consumers) to elegant and understated (targeted at older, more affluent consumers). In Affinnova’s tests on real consumers, participants gravitated to …Next Page »

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So, you bought a first-generation iPhone last summer, but now you absolutely must have the iPhone 3G. (Hey, I’m with you, man. I already got mine.) But what to do with your old, perfectly functional iPhone? You can sell it on eBay, if you want to go through the hassle. Or, starting today, you can just go to Gazelle, which will not only make you an instant cash offer for your device, but will send you a box and a pre-paid shipping label. It’s zero-friction gadget recycling—and if you’re feeling socially conscious, you can even have Gazelle send the check to your favorite charity.

If that all sounds familiar to you, it might be because Rebecca profiled Gazelle’s parent company, Waltham, MA-based Second Rotation, back in January. The 25-employee startup has been running a beta version of the cash-for-gadgets service at secondrotation.com since last July, and today it has rebranded and relaunched it under the Gazelle name.

The company picked the new moniker because it’s easier to remember than “Second Rotation” and has clearer, more desirable connotations, according to founder and CEO Rousseau Aurelien. “We want consumers to think of Gazelle as easy, elegant, and speedy,” Aurelien told me last week. “The name tested phenomenally well, and we think it will create a pretty strong household brand.”

It didn’t hurt, either, that “gazelle” rhymes with “sell.” The tag line “Don’t Just Sell It, Gazelle It” will be plastered all over the company’s bright-green shipping packages, which Aurelien hopes will become as familiar as Netflix’s red DVD envelopes.

The name isn’t the only thing that’s new about Gazelle. The company has also expanded the catalog of items that it can offer instant bids on, to include virtually any cell phone, laptop, digital camera, MP3 player, GPS unit, camcorder, game console, satellite radio, or hard drive you might own. (The expanded catalog covers 17,000 SKUs, or stock-keeping units, up from 5,000 for the previous site, according to Aurelien.) Navigation has also been overhauled; pictures of each item make it easier to locate the one you want to sell. And if your gadget isn’t in the catalog, the company will customize an offer for you, then add that item to the database, so that the catalog grows as more users participate.

Free shipping has always been part of Second Rotation’s services, but now 80 percent of transactions on Gazelle will now qualify for free packaging as well—in those bright-green boxes. “All you have to do is put your item in the box and leave it outside your door, and the Postal Service will pick it up,” says Aurelien. (You have to wonder whether that will be entirely safe, though, once it becomes common knowledge that bright green Gazelle boxes probably have valuable electronic gadgets inside.)

The company has also built some basic social-networking features into the Gazelle site. If you introduce someone else to Gazelle, you can get a cash reward the first time they sell something. Users can also set up fundraisers, with the checks for old gadgets sent directly to a non-profit organization such as a school or a scout troop.

Greenness has always been part of Second Rotation’s pitch, and that will continue with Gazelle; the argument is that by selling your gadgets, you’re keeping them out of landfills. The company normally resells the devices users send in through eBay or other marketplaces (indeed, its whole business model is built around knowing how much it can get for each item and offering the seller a somewhat lower price), but if it determines that it can’t resell an item for a worthwhile price, it will dispose of it following “responsible recycling” guidelines like those set up by the Electronics TakeBack Coalition.

To go with its new site, Second Rotation has come up with a new label for the whole process. “We are calling it ‘recommerce,’” says Aurelien. “We think it goes beyond recycling and offers a very strong economic model that allows the consumer to get some cash and allows us to take these products and put them to re-use.”

It’s a clever way to position the startup, which raised $4.4 million in venture capital from Cambridge, MA-, New York, NY-, and Palo Alto, CA-based Venrock and a group of angel investors in January. The “recommerce” message not only offers consumers a responsible way to dispose of their unwanted gadgets, but could also ease their potential guilt about wanting to ditch their current gear for the latest, greatest product models.

Indeed, Aurelien says that one of the biggest revelations from the company’s first year of operations was that most of the products people were sending in were less than a year old, like those first-generation iPhones. “There’s a whole category of consumer we are calling the ’serial upgrader,’” says Aurelien. “They have 24 gadgets in their house, and every month a couple of them become, from their perspective, obsolete. But they aren’t at end-of-life. They’re just at end-of-use.” And with Gazelle, they can bound back into action.

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Matchmine—the Foxborough, MA-based startup whose recommendation engine helps consumers find songs, videos, and other content they’re likely to enjoy at various content-oriented websites, and which we profiled in September 2007 and again in April 2008—announced today that four new destination sites have signed up for its system. They are Podcast.com and Videocast.com, both owned by Treedia Labs, and Muzic.com and MP34U.com, both owned by MP3 Lunatics. Earlier this month, Matchmine also announced partnerships with personalized channel-surfing site ffwd.com, and Pixsy, a maker of private label video and image search engines.

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Spire.com, the Boston-based social networking site for the affluent—not be confused with Bedford, MA-based photovoltaic equipment maker Spire Corporation—said this week that it has raised $9 million in Series A venture financing, in a round led by Hearst Interactive Media, Trident Capital, TL Ventures and private investors.

The company, whose network is aimed at high-net-worth individuals but is open to all, said it has already used some of the funds to acquire London-based travel and lifestyle site Suzanne’s Files. The creator of Suzanne’s File’s, Suzanne Aaronson, co-founded Spire.com with CEO Janet Kraus, formerly of Circles, a Boston-based concierge service that helps companies arrange luxury experiences for their clients. Aaronson’s reviews of travel destinations and luxury products now appear as a separate section of Spire.com called the “S-Files.”

Spire.com says that its members have an average annual income of more than $250,000 and average assets above $1 million. Members use the free, advertising-supported site to share information about travel, restaurants, shopping, health, recreation, arts and culture, and the like. In that sense, the site is similar to another affinity-based social network based in Boston, Eons, which mainly targets people over 50.

It’s easy to imagine how the site might become a conduit for exclusive travel offers, sponsored content, and various other kinds of marketing aimed at affluent consumers—but so far, it’s unclear from Spire.com’s public materials whether the company’s business model extends beyond Web-based advertising.  For now, the company seems to be concentrating on adding more content to the site and growing its network of members. “With our financial resources now in place, we are poised to grow a dynamic social resource where these savvy people can connect, share and source anything and everything that’s important to their worlds,” Kraus said in the company’s announcement about the funding round.

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Back in January we profiled Zink Imaging, a Bedford, MA, startup breathing new life into an inkless photo printing technology first developed (pardon the pun) at Polaroid before that company’s bankruptcy and dismantlement. This weekend, the first commercial printer based on Zink’s technology will reach consumers—and ironically, it bears the Polaroid brand.

The Polaroid PoGo will go on sale this Sunday, July 6, at Best Buy stories nationwide, Zink announced yesterday. The $149 device, which was first unveiled at the Consumer Electronics Show in Las Vegas in January, is about the size of a cell phone, and it grabs photos from camera phones and digital cameras via a BlueTooth wireless connection or a USB cable.

The PoGo can create a 2-inch-by-3-inch color print in about 60 seconds by applying brief pulses of heat to Zink’s special paper as it passes under the device’s print head. Each pulse is timed to melt crystals embedded at different depths in the paper; as the crystals melt and re-solidify in an amorphous form, they turn yellow, magenta, or cyan, producing a color picture.

Zink makes the paper for the PoGo at its own plant in North Carolina, and plans to charge $3.99 for a pack of 10 sheets and $9.99 for a pack of 30. The marketing campaign around the device is targeted at teens and twenty-somethings, and the hope is they’ll tote the PoGo with them just as they do with their cell phones (the name stands for “Polaroid-on-the-go”) and make and share prints on impulse, almost the way they might use a photo booth or an old-fashioned Polaroid camera.

And if they do, the paper business could become quite lucrative for Zink—just as film cartridges for popular Polaroid cameras such as the SX-70 were that company’s cash cow for decades.

“We at ZINK Imaging are extremely excited with the availability of the Polaroid PoGo,” Zink president and CEO Wendy Caswell said in the company’s announcement. “Through this partnership, consumers will now be able to experience the magic of Zink Zero Ink digital printing, allowing printing where it’s never before been possible.”

Target stores will begin selling the PoGo on July 20, two weeks after its debut at Best Buy. But while the device bears the Polaroid name, Polaroid itself doesn’t manufacture much of anything these days. In 2005, Minnetonka, MN-based Petters Group Worldwide bought what was left of the company after bankruptcy proceedings. It puts the Polaroid name and logo—which is still associated with instant imaging in many consumers’ minds—on consumer electronics devices assembled by contract manufacturers such as Alps Electric Co. of Japan, which makes the PoGo.

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We usually get deluged with funding news on Mondays —but a small rash of venture capital rounds were announced (in one form or another) this morning, so we thought we’d wrap them up into one post.

First up is OwnerIQ, which we have written about before. The two-year-old Newton, MA-based startup—which operates a network of websites packed with freely downloadable user manuals for all manner of consumer products, coupled to user-generated content about those products and its own editorial content—just received $6 million in Series B funding. The round included new investor Egan Managed Capital, plus all existing investors: Atlas Venture, CommonAngels, and the Massachusetts Technology Development Corporation.

The company pulled in a $2 million Series A round in October—and founder Jay Habegger says the company will use the money to expand the range of services OwnerIQ offers for consumers and also grow its advertising programs. Consumers come to the site looking for lost user manuals and other product information about appliances and devices they own, and OwnerIQ sells product companies aggregated information about owners of specific devices or groups of people with similar devices. That way, he says, a company with a new product can target its advertising directly to consumers most likely to be interested.

“We’re the first media outlet that allows a marketer or a product manager to target an advertising campaign based on the brand definition and the brand understanding—as opposed to the way they do it today, which is they have to take that and reduce it to demographics and then match those demographics to publications that reach those demographics,” says Habegger. “We allow them to short circuit that process and go directly to consumers that…have the purchasing behaviors that are consistent with their brand.” Habegger says OwnerIQ is now registering over 100,000 users per month, and has over one million total registered users.

Next in the funding parade comes Sciformix, which is headquartered in Westborough, MA, with operations in Mumbai, India. Sciformix’s business idea is to help biotech and pharma companies with their regulatory paperwork, which, for example, might mean outsourcing statistical analysis of clinical test data or writing reports on drug side effects to the FDA. Sciformix announced today that is has taken in $3.3 million in a Series A round led by Boston-based Flybridge Capital Partners.

“Currently estimated at $820 million and projected to grow to $1.2 billion in the years to come, the drug safety and clinical data management markets are key focus areas for the life sciences industry,” said CEO Dinesh Thakur in a statement. “The funding will enable us to accelerate our ability to meet the rapidly growing needs of life sciences companies for high-quality drug safety services.”

The last fundee, but not the least since it reportedly has taken in $12 million in a Series C round, is Boston-based Optaros, a consulting firm that describes itself as designing and assembling “solutions from loosely-coupled software components into supported composite applications.” (I think that’s a good description of how they do things but not what they do, which after perusing their website for about 10 minutes I was still left wondering about—apparently helping companies build their websites). In any event, the funding news, based on a regulatory filing, was reported by PE Week, which says 406 Ventures was joined in the round by previous investors Charles River Ventures, General Catalyst Partners, and Globespan Capital Partners. The company had previously raised $19.5 million.

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When I got an iRobot Roomba vacuum cleaner a few years ago, my dog’s first reaction was mild curiosity, followed by total disinterest. He was clearly intelligent enough to understand that the gadget wasn’t alive—and that therefore it wasn’t a rival or a threat. Alas, some people’s dogs just aren’t as smart. An article in today’s Wall Street Journal takes a lighthearted look at the frictions that, apparently, are all too common between real pets and robotic ones, especially the Roomba.

Nancy Dussault Smith, a spokeswoman at Bedford, MA-based iRobot (NASDAQ: IRBT), told the Journal that the subject of animal-robot relations “comes up constantly” at the company. “Dogs, cats, all animals, they have their own personalities, so they react differently to the robots,” she said. The issue is so common, she said, that iRobot has built safety features into the Roomba line to disable the robot if a pet flips it over or sits on it.

If your dog just can’t get along with your robot vacuum, the Journal has a suggestion: tell the robot “bad Roomba” in front of your dog. After one violent confrontation, such a scolding calmed down Argos, a dog belonging to San Carlos, CA, software engineer Keith Hearn, according to the article.

The Journal piece includes a pointer to this entertaining YouTube video showing a puppy facing off with a Roboquad toy robot from WowWee Robotics. And the paper’s website excerpted the YouTube video in the following video from reporter Adam Najberg:

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