Buyouts and mergers of Web companies that offer online “daily deals” have accelerated sharply over the past five months, driven by a rapid decline in valuations and a surplus of Groupon clones, according to a report issued today by CB Insights, a New York data services firm.

CB Insights counted 22 global mergers and acquisitions in the sector during the second quarter that ended in June—more than double the M&A activity that took place during the first three months of 2011, when nine companies offering online discounts for local goods and services were involved in M&A transactions. An additional 22 M&A deals disclosed in July and August have brought the five-month total to 44—before the third quarter has even ended. (Disclosure: CB Insights will share with Xconomy a portion of the revenue from any copies of the report that it sells to our readers. Nobody involved in the writing or editing of this post was involved in negotiating this arrangement or was aware of it before publication.)

The five-month surge in M&A activity far outpaces the 28 transactions done over the previous 15 months (from the beginning of 2010 through the first quarter of 2011), according to CB Insights. The data reinforces a report yesterday from Dow Jones VentureWire, which said the industry is undergoing a shake-out. Citing data from Yipit.com, which aggregates daily deals, VentureWire reported that 170 of 530 daily deal sites across the country—nearly a third—have shut down or been sold so far this year.

“Looking past just the headline M&A transaction numbers, it becomes apparent that things are not going swimmingly in the daily deal space,” CB’s analysts write in their 17-page report. Valuations also have declined sharply since the first quarter, based on the way daily deal sites are valued according to “price per subscriber,” which fell 36 percent and “price per voucher sold,” which fell 40 percent during the current quarter.

The CB report attributes the declining valuations to … Next Page »

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Former venture capital analyst Lenny Grover left his gig at Waltham, MA-based Longworth Venture Partners to make a sustainable business out of a personal hobby: sophisticated stock trading.

No, he’s not working on yet another online trading platform, but is instead looking to the hot field of data and analytics to bring individual investors the information that big institutional investors, particularly hedge funds, have at their disposal when they make trades. It’s about bringing “Wall Street-caliber data and tools to Main Street,” Grover says.

Grover started developing the product, called Screener.co, in August while still at Longworth, left to work on Screener.co full-time in November, and late last month debuted the technology at the San Francisco entrepreneur conference Launch, put on by Mahalo CEO Jason Calacanis.

Grover says the service is hitting a customer sweet spot in several ways. For one, it’s only charging $24.95 per month— about 1/100th of the cost of existing tools that provide similar sets of data to individual investors. (Actually, it doesn’t even cost that much until April 1; Screener is free in its beta period this month). Grover licensed the stock data from Thomson Reuters on a piecemeal basis, and he builds the actual calculations and analytical engine, which is why he can put out his product for so cheap. Grover likens this new piece-by-piece distribution of stock data to how iTunes broke up albums and allowed customers to buy individual songs. Supplying sophisticated stock information to individual investors is also a new market for Thomson Reuters, he says.

Grover, who studied computer science at Cornell and worked for Louisville, KY-based Chrysalis Ventures prior to Longworth, says he first saw the need for sophisticated stock data at the individual level after the markets tumbled in 2008.

“I had this in the back of my mind since March 2009 when I saw that the whole world was on sale,” he says. “And I didn’t have the tools to analyze stocks to figure out what the best investment opportunities were. I saw this need from the individual investor perspective.”

And his venture capital background played a part. “Even if you’re doing private investing, you’re looking at companies and valuations,” he says. “It informed a lot of the ways I built this tool.”

So what else makes Screener.co different from what’s out there? The service paints a much more complete picture of the global stock market than free tools like Google Finance or Yahoo! Finance, Grover says. They offer information on roughly 6,000 to 9,000 stocks, whereas Screener.co tracks data for … Next Page »

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Novell, the Waltham, MA-based networking and workload management software firm (NASDAQ: NOVL), said today it has agreed to be acquired by Seattle-based Attachmate for $2.2 billion in cash. The deal represents a purchase price of $6.10 per share, a 9 percent increase over Novell’s closing stock price on Nov. 19.

Novell also said it is selling off “certain intellectual property assets” to CPTN Holdings, a consortium of tech companies organized by Microsoft (NASDAQ: MSFT), for $450 million in cash. All in all, this sounds like a pretty sad end for a company that once rivaled Microsoft. (Back in 2008, my colleague Wade reported on Microsoft’s and Novell’s unlikely Windows-Linux partnership.)

Attachmate is owned by a private investor group led by Francisco Partners, Golden Gate Capital, and Thoma Bravo. The company, which helps businesses manage and deliver IT services, is a Seattle-area software icon.

This is the second $2 billion-plus tech acquisition to span the Boston and Seattle areas in as many weeks. Last week, Hopkinton, MA-based data storage company EMC (NYSE: EMC) said it is acquiring Seattle-based Isilon Systems (NASDAQ: ISLN) for $2.25 billion.

Today’s announcement ends many months of speculation about the future of Novell. Back in March, Novell rejected a $2 billion buyout bid from hedge fund Elliott Associates, saying the proposed $5.75-per-share offer was too low. As part of the current transaction, which is expected to close in the first quarter of 2011, Elliott Management (which includes Elliott Associates) will become an equity shareholder in Attachmate.

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Remember last year when there was that flap about how much power it takes, and how much carbon is emitted, when you do a Google search? OK, so maybe you can do something like 15,000 searches before you reach the environmental footprint of a cheeseburger. But there are still a slew of companies tackling the broader problem of improving energy efficiency in data centers, and for good reason.

One of them is Viridity Software, a Burlington, MA, startup that has just raised $8 million in its second round of venture funding from existing investors Battery Ventures and North Bridge Venture Partners. The news was reported yesterday by Mass High Tech, based on a regulatory filing with the SEC. Viridity was founded in 2008 and previously raised a $7 million Series A round, as my colleague Wade reported, to develop software tools to help companies and organizations save money on the power bills for their IT operations.

An $8 million Series B is nothing to sneeze at, especially in this day and age where software startups are doing well to get follow-on funding of any kind. But what’s really interesting about Viridity is what it’s doing with the money. The company has what looks to be a unique approach to helping its customers get more power efficiency out of their current IT setups.

So I spoke with Viridity’s co-founder and chief technology officer, Mike Rowan, about the funding news and the company’s current plans. “Series A was all about building product, and the majority of the Series B is about going to market,” Rowan says. That means expanding the company’s sales, marketing, and tech support staff, as well as expanding the product line, he says. Viridity currently has about 30 employees; it has grown by 10 or so in the past four or five months, Rowan says.

Rowan understands the world of IT and storage software and hardware. He was previously the founder of Revivio (which was acquired by Symantec) and StorageCom (acquired by Vyant Technologies and then Mendocino Software). Before that, he helped start CLAM Associates, which developed products for IBM. Rowan first learned the inner workings of data centers as a systems administrator and programmer at Purdue University in the late 1980s.

Viridity is a bit of a new direction for him, but the opportunity to touch “every data center on the planet,” as he puts it, was too great to pass up. “It comes down to power or cooling at the core,” Rowan says. “How do you let someone live in their data center for longer?”

The answer, according to Viridity, is to understand at a detailed level how much power … Next Page »

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How did Geoff Entress become Seattle’s go-to tech investor and startup guru? For those outside the local technology community, Entress is an angel investor who has put his own money to work in more than 35 startup companies, most of them software-based and in the Northwest. They range from firms that are now well-established like Isilon Systems (NASDAQ: ISLN), Seadragon Software (bought by Microsoft), and The Coffee Equipment Company (bought by Starbucks), to fast-rising stars like Bonanzle, Cheezburger Network, Dashwire, Swype, and Elemental Technologies.

But that only scratches the surface of the impact Entress has had in the business community. He is a trusted advisor to scores of local entrepreneurs. He’s also well-known and trusted by the VCs on the other side of the table, having worked as a venture partner at two of Seattle’s premier tech VC firms, Madrona Venture Group and Voyager Capital.

Just yesterday, Entress, 46, found another way to weave himself deeper into the fabric of the Seattle startup community. He announced he has joined Seattle-based Founder’s Co-op as a managing partner. This means he will help run the seed-stage investment fund and startup mentorship program as an equal partner along with co-founders Chris DeVore and Andy Sack. Entress had been a limited partner of the firm for the past couple of years. As if his new role won’t keep him busy enough, Entress is also retaining his position at Voyager Capital, where he will continue to advise startups and evaluate investment deals.

Overall, the move solidifies Entress’s standing as one of the most connected and successful early-stage tech investors in the country. He has been called the “Ron Conway of Seattle” (after the Silicon Valley early-stage angel investor in Google and PayPal) often enough that the comparison feels like a cliche. But to understand what Entress’s move to Founder’s Co-op really means—and what the long-term impact could be on the startup and venture capital ecosystem—you need to know more about where he came from, and where he’s going in life.

Entress is one of those guys whose track record as a boy wonder boggles the mind. He grew up in Pittsburgh, the son of an oral surgeon with the U.S. Navy who “pulled the wisdom teeth of all my friends in high school,” he says. He went to college at the University of Notre Dame, and returned to his hometown to do a master’s in industrial administration at Carnegie Mellon University. Fresh out of business school in the mid-1980s, when he was in his early 20s, he ran a hedge fund with his father. The fund was successful enough that its sale to Duquesne Capital Management helped launch Entress’s career as an angel investor.

But before he found his golden touch for startups in Seattle, he had to complete a couple more steps in the journey. He learned the ways of Wall Street in various jobs in finance, sales, and … Next Page »

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Vertex Pharmaceuticals has been around the block with biotech hedge funds. These are the people who aim to get rich trading volatile stocks second-to-second, and make big bets, long or short, on whether an experimental drug will work. Now that Vertex has passed some of the riskiest stages of drug development, the company figured it was time for steady, buy-and-hold investors to support the next phase, as it morphs into a commercial player.

That was one of the insights that I gathered yesterday in a conversation with Vertex chief financial officer Ian Smith. He was in a pretty good mood—as you might be too, if you’d just helped your company raise $320 million in a secondary stock offering. The financing is important because it gives Vertex (NASDAQ: VRTX) enough cash to operate until it introduces its lead drug to the market and starts generating positive cash flow, according to analyst Thomas Russo of Robert W. Baird & Co. Especially in the midst of a recession, that’s good news for Vertex’s 1,300 employees in Cambridge, MA, and 200 in San Diego.

But beyond the stability that comes with the dollars, Smith was just as enthused about being able to recruit the type of long-term shareholder he wants backing Vertex for the next five years. Vertex was able to attract these blue-bloods because of growing interest from investors in a pair of drugs that aim to transform the standard of care for patients with hepatitis C and cystic fibrosis. Since these drugs have continued to make important progress, and telaprevir, the hepatitis drug, is thought to be worth at least $2 billion a year in U.S. sales by 2013, Vertex saw an opportunity to invite in new investors who want to hold onto shares throughout that trajectory, not just between now and next Tuesday. To get some insight into the company’s thinking, look at its stock chart from 2007, when shares fell 37 percent, even though the company continued to make progress.

“We as a company have been trying to align our shareholder base with the progress of the company,” Smith says. “These are people who invest for the long haul.”

Smith wouldn’t give all the names yet of the new crew of investors, but this deal went to a small number of investors—three “anchor” funds that took the biggest stakes, two other “high-quality” funds, and a few others, Smith said. What they all have in common is that they like to invest in late-stage biotech companies that have cleared major risky steps, and need to get to the next level. These funds typically backed some of the industry’s bellwethers–Genentech, Gilead Sciences, Biogen Idec, and Celgene—when they reached this stage, Smith says. One of them is San Francisco-based Capital World Investors, although he said he couldn’t yet name the others.

Smith, as well as other Vertex leaders, have been cultivating relationships … Next Page »

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The first thing I noticed when I sat down in the office of biotech investor Rich Aldrich was a shelved paperback copy of Barbarians at the Gate, the book about the legendary leveraged buyout of R.J.R Nabisco. It reminded me that Aldrich is a main character in a somewhat similar book about the biotech industry, The Billion-Dollar Molecule. That book chronicles the formation and innovative strategy of Cambridge, MA-based biotech firm Vertex Pharmaceuticals (NASDAQ:VRTX), where Aldrich served as chief business officer and helped build the firm into a formidable force in the biotech industry. (Vertex has a significant presence in San Diego as well.)

In his office on the 15th floor of downtown Boston’s Prudential Tower, Aldrich looked to be living the dream. He sat back in a chair next to a framed Boston Celtics jersey. (Aldrich is part of the group that purchased the venerable NBA franchise in 2002, and, yes, he has the championship ring from last season to prove it.) Aldrich’s office is in the same suite as RA Capital Management, the biotech hedge fund he founded in 2001 after leaving Vertex, yet he has long turned over day-to-day management of the enterprise to managing member Peter Kolchinsky. (I wrote about Kolchinsky and the growth of RA Capital, which is a stockholder in San Diego-based diagnostics firm Sequenom (NASDAQ:SQNM), earlier this year.)

Aldrich, unlike in the intense days captured in Billion-Dollar Molecule, is no longer tied to one job or one company. He now lends his deal-making expertise to young biotechs; he is chairman of Cambridge startups Concert Pharmaceuticals and Alnara Pharmaceuticals, and serves as a director of several other companies. And Aldrich had front-row seats, as a director of Sirtris Pharmaceuticals, to that Cambridge-based firm’s sale to GlaxoSmithKline for $720 million in May 2008.

I spoke with Aldrich, who’s now 54, about life after Vertex and the state of the biotech industry in Boston and beyond:

Xconomy: Have you ever thought about going back to an operational role at a biotech company?

Aldrich: I have, … Next Page »

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ZymoGenetics is growing up. For the first time, the Seattle-based biotech company has raised capital by borrowing it, instead of following the usual industry playbook—getting it by selling more equity shares to investors.

The latter technique, which creates more supply of available shares and therefore dilutes the value of existing ones, would certainly have raised a ruckus with ZymoGenetics shareholders. The stock (NASDAQ: ZGEN) closed yesterday at $8.42 a share, and has fallen 44 percent from its 52-week high. Another equity sale would’ve likely driven it down more.

“We clearly didn’t want to do that,” said ZymoGenetics president Doug Williams, in an interview. “We feel that Recothrom is going to be a successful product, and because we are a maturing drug company with a marketed product, we can now take on debt as an instrument to fund the company.”

The company said yesterday it agreed to borrow as much as $100 million from Deerfield Management, a leading biotech hedge fund and one of its largest shareholders. It gives ZymoGenetics the flexibility, as Williams puts it, to make strategic withdrawals in $25 million chunks to boost sales of Recothrom, the company’s new drug for surgical bleeding. In exchange, Deerfield gets a 2 percent royalty on sales for every $25 million loan it provides. The company will also have to pay back the borrowed money by June 2013, plus 4.9 percent interest.

ZymoGenetics said earlier this year it would do something to slow the bleeding on its own income statement. The company reported a net loss of $41 million in the first quarter, and had $155 million in cash and investments left at the end of March. To reduce expenses, it cut more than 80 jobs, leaving a payroll of 535 workers. It is also dropping hints about possible partnerships in the works that could bring in new cash.

Without a proven stream of cash flowing in yet from its new product, Deerfield’s bet matters, said Greg Wade, an analyst with Pacific Growth Equities in San Francisco. Recothrom, approved by the FDA in January, still has to pass muster with hospital purchasing committees. That bureaucratic process can take months before the company gets a more specific read on the drug’s sales potential, Williams says. Meanwhile, ZymoGenetics and its partner Bayer have to convince hospitals they should quit using a cheaper competitor, Thrombin-JMI, derived from cow blood and start using the genetically engineered product from ZymoGenetics.

“Deerfield is a highly respected institutional investor, and it speaks to their confidence in ZymoGenetics’ management and product that they’ll put this much money at risk,” says Wade, who owns shares in ZymoGenetics. He added that ZymoGenetics chose the “optimal” way to get capital at a low borrowing cost, while minimizing the dilution of existing shares.

Wade expects Recothrom to generate $23.7 million in sales in 2008, its first year, and $70.9 million in sales next year. That puts Wade in the middle of analyst forecasts for Recothrom sales, which vary from $13 million to $35 million for 2008, said Susan Specht, a company spokeswoman.

It’s still too early to say whether ZymoGenetics can get to the ultimate measure of success for a maturing company: the P-word (profitability). Chief Financial Officer Jim Johnson used the word on a conference call with analysts yesterday, saying it is the company’s goal “in the next few years.” It’s possible that Recothrom sales could push the company into the black, he says, although he didn’t go so far as to predict that one drug alone will do the trick.

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ZymoGenetics (NASDAQ: ZGEN) said today it has received a $100 million funding commitment from Deerfield Management, a biotech hedge fund. The Seattle-based company can draw the money in $25 million increments anytime over the next 18 months, and plans to use it to build its business with Recothrom, a drug for surgical bleeding. Deerfield will get a 2 percent royalty on Recothrom sales for every $25 million request by ZymoGenetics, the company said.

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