[Corrected 8/1/11] Palo Alto, CA-based Palantir Technologies has raised $50 million in a sale of equity, option, and warrants, according to a May 5 regulatory filing. The company, which makes software platforms for visualizing and analyzing intelligence, defense, law enforement, and financial data, raised $90 million in Series D funding in 2010. Its investors include Fluke Venture Partners, Founders Fund, Glynn Capital Management, In-Q-Tel, Ulu Ventures, and Youniversity Ventures. [Correction: An earlier version of this article stated that Benaroya Capital Co. is an investor in Palantir Technologies. It is not. We regret the error.]

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Chelmsford, MA-based IT firm Mercury Computer Systems said yesterday that it bought LNX, a provider of receiver systems for intelligence technology. Mercury (NASDAQ: MRCY) paid $31 million in cash for the Salem, NH-based company, and could pay up to an additional $5 million if LNX hits certain financial targets in 2011 and 2012, according to the announcement. The acquisition will strengthen the radio frequency and signal processing technology for Mercury’s products, the company said.

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Yesterday, we ran the first part of a sit-down interview with Nick Hanauer, a noted entrepreneur, investor, and co-founder of Seattle-based Second Avenue Partners. Hanauer, who has been involved in the early stages of such prominent companies as Amazon, aQuantive, and Insitu, spoke about the importance of new metaphors in recognizing and understanding breakthrough ideas; why venture capitalists don’t take enough risks; and the challenges of healthcare reform.

In what follows, Hanauer talks quite a bit more about Amazon, Insitu, and how to think about solving the biggest problems in business and society (hint: don’t conform). He also touches on why he’s generally bored with the online advertising sector (except for Seattle-based Marchex), and the one key area in which he would seek omniscient advice.

Here is part two of our interview:

Xconomy: What are the prospects for another big tech company like Amazon to come out of the Seattle area?

Nick Hanauer: I think the prospects are very good. It’s a very dynamic, creative, and risk-tolerant business culture here. There’s a fabulous ecosystem of people who understand technology in all sorts of ways. There’s software, Internet, biotech, aerospace. Insitu, as an example, is a big company now. And in 10 years, that could be a huge company. I think they employ 600-700 people now. We [Second Avenue Partners] don’t own it anymore, Boeing owns it, sadly. We have as good a shot at creating more big technology companies as almost any place on planet Earth. Probably not as good as Silicon Valley, but better than most places.

X: Tell me more about Second Avenue’s involvement with Bingen, WA-based Insitu, and when you first invested in it. (This company makes unmanned aircraft systems for surveillance and intelligence applications.)

NH: It wasn’t the first round of financing, but they were a teeny tiny company, employed half a dozen people. We looked at it in June or July 2001, and they were like, “Fishing, we’re going to find tuna with cool planes.” We thought it was really interesting technology. [CEO] Steve Sliwa was so good. We got that if they could pull off this technology in this domain, there are an infinite number of applications. And then [September 11, 2001] hit. And we said, oh. The military’s going to buy a lot of these. OK, we’re in. We led that round, and kept on backing them. I’m sad that we sold it, because it was such a civic achievement; it made such a difference in the lives of so many people. It’s maybe the single biggest thing to happen to that region of Washington and Oregon economically in decades. We were very lucky [with the Boeing sale], there was this incredible global bidding war going.

X: How should one learn to think about solving big problems in business and society?

NH: I think the capacity to think creatively isn’t gated by your intellectual abilities so much as your psychological ability to not conform to what other people want you to believe about … Next Page »

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The activity in the Northwest picked up a little bit around the holiday weekend. In the past week, we’ve seen some interesting deals in alternative energy, healthcare, and software.

—Seattle-based Qliance Medical Management raised $4 million in venture capital led by Second Avenue Partners, with participation from New Atlantic Ventures and Clear Fir Partners, as Luke reported. Qliance provides basic healthcare to patients without involving health insurance companies, with the idea of paying doctors to spend more time with fewer patients. The company was founded in 2006 and has raised a total of $7.5 million. Luke first profiled the firm, which is led by CEO Norm Wu, back in December.

—Xconomy reported that Prometheus Energy, a Redmond, WA-based producer of liquid natural gas, raised $10 million from Shell Technology Ventures (managed by Netherlands-based Kenda Capital), with $10 million more coming down the road if Prometheus meets certain milestones. It’s a big deal for Prometheus, which has developed a novel method of producing alternative fuel from waste gases at landfills, coal mines, and other facilities. It’s also a big deal for Seattle cleantech and for the alternative fuels industry, which needs support from big oil companies.

—R.W. Beck, a Seattle-based engineering and business consulting firm, has been acquired by SAIC (NYSE: SAI), the San Diego government contractor, as Eric reported. Financial terms weren’t given. SAIC performs research and services for U.S. intelligence, defense, and security agencies. R.W. Beck was founded in 1942 and focuses on the energy and infrastructure sectors.

—Seattle stealth startup Ground Truth raised $2.6 million in equity funding, according to an SEC filing. The investors include venture capitalists Tom Huseby and Erik Benson of Voyager Capital in Seattle, and Beau Laskey of Steamboat Ventures in Burbank, CA. Ground Truth is led by executives Sterling Wilson and Michael Libes.

—Burnaby, BC-based Ballard Power Systems (NASDAQ: BLDP) has teamed up with Bend, OR-based IdaTech to sell 310 hydrogen-fueled generators to ACME Tele Power, a wireless infrastructure company in India, as Eric reported. Terms of the sale weren’t disclosed. The generators will help ACME produce backup power to maintain wireless networks during outages.

—The Financial Times reported that Microsoft (NASDAQ: MSFT) is in the process of selling Razorfish, its Seattle-based online advertising subsidiary. The report, which has not been confirmed by Microsoft, claims Morgan Stanley has been appointed to find a buyer, and that Publicis, a French marketing firm, is a possible bidder. Microsoft acquired Razorfish in 2007 as part of its $6.4 billion purchase of aQuantive in 2007.

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San Diego Mayor Jerry Sanders has referred to SPAWAR, the Navy’s Space and Naval Warfare Systems Command, as one of the city’s best kept secrets, and I started to understand why during a presentation yesterday at San Diego’s Sidney Kimmel Cancer Center.

SPAWAR is a major Navy procurement agency, with a total budget of more than $2.4 billion in fiscal 2008. About 65 percent of that supports industry partnerships, which includes spending to acquire a host of hardware and software technologies needed for what the Navy calls C4ISR, Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaisance. Naturally, the Navy keeps most of this technology under wraps—literally. When maintenance crews work on U.S. warships at the Navy base here, they often wrap up parts of the superstructure before servicing the radar and other electronics.

So a presentation yesterday by Frank Gordon, who heads SPAWAR’s navigation and applied sciences department, represented an unusual opportunity to lift the veil of secrecy that surrounds the Navy labs on Point Loma. SPAWAR is an enormous organization, with more than 6,300 civilian, military, and contract workers just at its San Diego headquarters, and local spending of almost $991 million on procurement contracts and R&D programs, according to the latest data available at SPAWAR’s web site. Gordon says that at any given time, SPAWAR is overseeing more than 800 technology development programs in San Diego.

About 100 people attended the session, which was sponsored by Connect, the San Diego nonprofit group that promotes innovation and entrepreneurship. Connect was founded at UC San Diego in 1985 as a resource for academic researchers who wanted to start technology-based companies based on their laboratory breakthroughs. At SPAWAR’s government lab in San Diego, scientists also spin out new companies and technologies, said Jim Fallin, a spokesman for SPAWAR Systems Center.

Gordon, who is nicknamed “Dr. Chaos” because of his love of nonlinear dynamics, highlighted some of the advanced technologies that SPAWAR is developing for … Next Page »

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I was a little surprised yesterday when Enerdyne Technologies, a subsidiary of Carlsbad, CA-based ViaSat, said encryption technology is now available for its digital data link systems to unmanned military surveillance aircraft.

Isn’t the video transmitted from robotic spy planes already encrypted?

Not necessarily, says Enerdyne general manager Steve Gardner. As it turns out, it’s possible to buy a standard commercial FM receiver used by TV news organizations and tune it to “eavesdrop” on the analog video signal transmitted by several different types of robotic aircraft used by the U.S. military. He says in the early years of UAV development, aircraft companies encrypted the digital electronics used to control UAVs, but “typically chose small analog transmitters” to broadcast video signals from the aircraft to ground units. That could be a problem if the eavesdroppers are U.S. adversaries in places like Afghanistan and Iraq. Gardner says whether that scenario should be a concern has become a hot topic of discussion these days in defense circles that are focused on the development and use of UAVs, or unmanned aerial vehicles.

Gardner says Enerdyne now has developed a module that can be installed aboard a UAV, between its camera and analog video transmitter. The module, which is a little bigger than a handheld calculator, digitizes and compresses the video signal so it can be encrypted without necessitating changes in the analog video transmitter aboard the plane or in U.S. equipment receiving the video signal on the ground. Enerdyne uses another module on the ground to decrypt the video signal.

“From the perspective of the FM equipment that they have on the airplane and on the ground, they can’t tell the difference,” Gardner says. The innovation reflects … Next Page »

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It has taken roughly 10 years, but a robotic helicopter created in San Diego by Northrop Grumman (NYSE: NOC) is finally nearing a critical test phase for the U.S. Navy.

The unmanned aircraft, known as the Fire Scout, looks unremarkable, except for the fact that it has no windows. It is based on a small civilian helicopter, the Schweizer Model 333, and New York-based Schweizer Aircraft supplies the basic airframe.

But the electronics inside the gray helicopter are another story. Known in the military bureaucracy as a VUAS, or Vertical Unmanned Aircraft System, the Fire Scout is intended primarily for maritime reconnaissance and for “situational awareness” just beyond the edges of a Naval battle group. It also has a laser to pinpoint targets for the Navy’s laser-guided missiles and bombs. The robotic helicopter is designed to take off and land autonomously, fly as far as 110 nautical miles (about 126.6 statute miles), and operate continuously for 8 hours.

The Fire Scout and USS McInerney

When I noticed the Naval Air Systems Command at Patuxent River, MD, recently awarded a $40 million follow-on order to make three more Fire Scouts, I decided to ask Northrop for an update on the aircraft’s progress.

After completing a crucial series of tests in 2006, the Fire Scout is scheduled to undergo a technical evaluation aboard the guided missile frigate U.S.S. McInerney in the next few months. “The Navy wants to see how wind affects the aircraft and how it performs with the ship at sea,” says John VanBrabant, who heads business development for the V-UAS (Vertical Unmanned Aircraft System) group at Northrop Grumman Aerospace Systems in San Diego.

To appreciate what this means, VanBrabant says the tests conducted in January, 2006, showed the helicopter’s electronics can land the Fire Scout autonomously on a moving Navy warship that was operating off the coast of Maryland. The robotic … Next Page »

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The way Alfredo Ramirez talks, the Global Hawk does not epitomize an avant-garde aerospace design—even though the robotic spy plane operates at the uppermost boundaries of advanced military aircraft.

The 46-year-old Ramirez is the lead designer for the Global Hawk, a high-altitude UAV, or unmanned aerial vehicle. I recently sat down with him to discuss his work on the Global Hawk, a conversation that amounted to his first public conversation about aerospace innovation.

With a bulbous nose and a ‘V’ shaped tail, the Global Hawk looks vaguely like a flying beluga whale. The fuselage is 47.6 feet long—–half the length of a Boeing 737 jetliner—but its wings are thin and unusually long, giving the craft a total wingspan of 130.9 feet.

The Global Hawk is capable of flying 35 hours and operating at 65,000 feet—or approximately 12 to 13 miles above the Earth’s surface. It carries no weapons, but the latest model holds 3,000 pounds of surveillance equipment, including advanced “synthetic aperture” radar, as well as electro-optical and infrared sensors that can provide high-resolution images of an area as big as Alabama.

A typical mission these days calls for the Global Hawk to take off from California’s Beale Air Force Base and fly autonomously to the Mideast. There it can patrol high above the Syrian and Iranian borders with Iraq for nearly 24 hours. Radar and sensor data is transmitted directly from the spy plane via satellite to mission control in California for dissemination to U.S. military commanders in Iraq.

Ramirez says the Global Hawk reflects an incremental progression from previous designs, as well as the need to constantly balance the demands of cost, performance, and risk.

Still, the craft was sexy enough to serve as a background prop in this year’s superhero movie, Iron Man, a cinematic homage to advanced technology and robotics-laden special effects. The design also won the 2000 Collier Trophy, the industry’s top aeronautical achievement, awarded annually by the National Aeronautic Association.

To Ramirez, however, the spy plane with no cockpit and a single jet engine mounted atop its fuselage represents a fairly conventional aircraft design.

“Aircraft design is usually evolutionary, rarely is it revolutionary,” he says. Wing design is a perfect example, he says. “You do iterations. You make them longer, wider, thinner, shorter—and then you run calculations to analyze each design.”

The Global Hawk was developed in the mid-1990s at Teledyne Ryan Aeronautical, a San Diego aerospace company that was acquired by Northrop Grumman in 1999. When Ramirez joined Teledyne Ryan’s advanced development group in 1985 as a freshly graduated aerospace engineer from San Diego State University, the company already had extensive experience developing jet-powered drones that had flown reconnaissance missions over Vietnam.

Ramirez says he gained experience working on several … Next Page »

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Veracode, a Burlington, MA, startup that looks for security flaws in software by analyzing its raw binary code, announced this week that In-Q-Tel, a venture investing group spawned by the CIA, has made a strategic investment in the company.

The amount of the investment was not disclosed. But as we explained in a story last December about In-Q-Tel’s decision to open a Boston office, the organization usually puts $1 million to $3 million into its portfolio companies, and usually earmarks the investment for research and development in areas of interest to U.S. civilian and defense intelligence agencies. Veracode said in a joint announcement with In-Q-Tel that under its new partnership with the organization, it will “accelerate specific research areas for governmental, commercial and open source applications.”

The obvious appeal of a technology like Veracode’s to the intelligence community is that the company’s Web-based software screening service, called SecurityReview, is able to search for common vulnerabilities in a software application, such as buffer overflows, SQL injection, and hidden backdoors, simply by examining its compiled binary code. Binary code is a non-human-readable series of 1s and 0s and therefore masks any trade secrets—or, for that matter, national security secrets—that might be contained in the source code.

Indeed, Donald Tighe, In-Q-Tel’s vice president of external affairs, told Government Computer News that the intelligence community was attracted to Veracode in part because of its ability to work without source code.

Ben Levitan, the In-Q-Tel partner who runs the Boston-area office (which is actually in Waltham), said in the joint announcement that In-Q-Tel is also “excited by the company’s product roadmap, as it offers great promise for both the private and public sectors.” Kimberly Baker, Veracode’s vice president of government and international markets, told Government Computer News that that roadmap includes a stand-alone, product version of the SecurityReview service that organizations could purchase and run on their own networks.

Aside from the new In-Q-Tel investement, Veracode has raised about $20 million in venture funding, with backers including Atlas Venture, Polaris Venture Partners, and .406 Ventures. It joins an exclusive group of Boston-area In-Q-Tel beneficiaries that includes QD Vision, Stratify (purchased last year by Iron Mountain), Basis Technology, BBN Technologies, Ember, Endeca, Metacarta, Polychromix, Sionex, Spotfire (purchased last year by TIBCO), and Traction Software.

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At QD Vision in Watertown, MA, engineers are building on nanoscale “quantum dot” technology pioneered at MIT to create a new generation of light-emitting devices (LEDs) that could eventually be used in video displays with brighter colors, blacker blacks, and far higher energy efficiency. And gradually the company has been showing up on the radar screens of outside supporters and investors— including In-Q-Tel, the venture wing of the U.S. intelligence community, which announced a strategic investment in QD Vision yesterday.

The amount of the investment wasn’t disclosed, but QD Vision says that it brings the total government funding it’s won in the last year to $5 million. The company also has funding from the National Institute of Standards and Technology’s Advanced Technology Program and the Air Force Office of Scientific Research.

QD Vision doesn’t yet have a commercial product, but if its development efforts are successful, it could find itself at the center of a revolution in display technology. Current liquid crystal displays (LCDs) are illuminated by electricity-thirsty fluorescent backlights and produce muddy, impure shades of red, green, and blue. By contrast, QD Vision’s “quantum dots”—tiny semiconductor crystals only a few nanometers in diameter—produce highly pure colors when stimulated by electrons, and require much less electricity in order to glow brightly.

The four-year-old company’s main backers to date have been Highland Capital Partners and North Bridge Venture Partners, which provided initial venture support, as well as a $7 million Series B round last year. Accompanying the strategic investment by In-Q-Tel was a “technology advancement agreement,” which amounts to a longer-term promise that the organization will help QD Vision get its technology off the ground and adapt it for the specific needs of users in the intelligence community.

Exactly what those needs might be, no one is saying. But it’s not hard to imagine how brighter, crisper, less energy-hogging LED-based displays might be useful in IT-driven intelligence-gathering and command-and-control applications. “The fact that they excel on color purity and brightness combined with efficiency is what’s rare” about QD Vision, says Donald Tighte, In-Q-Tel’s vice president of external affairs. “A lot of solutions in the display marketplace hit two of those three—for example, you can get greater brightness in your laptop screen but you pay a premium in terms of the power drain on your battery. But [this technology] combines excellence in visibility, purity, brightness, and energy efficiency. It’s one of the things that has us excited about the company’s commercial applications and also, we hope, it’s applications within the intelligence community.”

The QD vision deal is only In-Q-Tel’s second investment in the Boston area since the organization set up a local office in Waltham, late last year. The first was in Cambridge, MA-based CoreStreet, which is developing smart-card-based access systems for secure buildings. But even before it had a local office, In-Q-Tel was an active investor in Boston-area technology firms with intelligence-related technologies, including Basis Technology, BBN Technologies, Ember, Endeca, Metacarta, Polychromix, Sionex, Spotfire, Streambase, and Traction Software.

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If you’re a budding Boston entrepreneur working on a technology such as deeper data mining, longer-lasting batteries, or faster microfluidic DNA screening, you might get a surprise phone call one day soon from the U.S. intelligence community—or at least, from its strategic investing arm. That’s because In-Q-Tel, an Arlington, VA-based private, non-profit group that funds early-stage technology ventures on behalf of the Central Intelligence Agency and other U.S. intelligence organizations, has come to town. It’s just turned on the lights at its new Waltham office, and it’s on the lookout for Boston-area startups with technologies that could help the nation’s spies and intelligence analysts do their jobs better.

It’s not that Boston has eluded the intelligence agencies in the past—the region is already home to 13 out of the 120 companies In-Q-Tel has funded since its creation in 1999, including Basis Technology, BBN Technologies, Ember, Endeca, Metacarta, Polychromix, Sionex, Spotfire, and Traction Software. But Ben Levitan, a new partner brought on by In-Q-Tel this April to help open the Boston outpost, says “that percentage is about to go up a lot.”

Levitan agreed to meet me for coffee in a snowy Harvard Square yesterday afternoon. With him was Donald Tighe, In-Q-Tel’s vice president of external affairs, who was visiting from Virginia. I’d first met Levitan in an unusual setting—a dinner discussion about virtual items and virtual economies hosted back in October by David Beisel of Cambridge venture firm Venrock—and he’d hinted to me then that In-Q-Tel would have some news in the next few weeks. Over cappuccinos at Legal Sea Foods, Levitan and Tighe told me that the organization has been cultivating local contacts behind the scenes for some time, and that they’re now finally ready to start spreading the word more widely about In-Q-Tel’s presence here.

In-Q-Tel’s mission is to scout for young companies where engineers are working on technologies intelligence agencies might want, but need help getting these technologies off the ground and adapting them for the government’s specific requirements. The organization provides seed money of up to $3 million, as well as a crash course in the structure and requirements of organizations like the CIA, the NSA, or the National Reconnaissance Office. Most often, In-Q-Tel doesn’t even ask for an equity stake in return. “We’re not looking for ‘deals.’ We’re looking for solutions to problems,” says Levitan.

Those problems fall into five specific areas: application software and analytics; bio- and nano-technology … Next Page »

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