Here comes another venture capital downturn. Maybe. That’s my not-so-definitive take after looking at the VC investment numbers for Massachusetts in the third quarter of 2011, which broadly reflected the national trend as well.

How any such downturn will compare to 2008-09 is anyone’s guess. Maybe it’s just a blip, or a healthy resetting after a few high-flying months for early-stage companies and their valuations. But maybe the real bloodbath is yet to come.

In any case, venture firms invested a total of $505 million in 95 Bay State companies from July through September, according to the most recent MoneyTree report from PricewaterhouseCoopers and the National Venture Capital Association, with data from Thomson Reuters. That’s down by almost 50 percent from the $1.0 billion invested in 105 deals in the previous quarter (when there was rampant talk of a new tech bubble). But the dollars invested are still 10 percent above the $458 million that VCs put into 92 deals in the third quarter of 2010, according to the report.

We’ll be keeping a close eye on what happens from here. In the meantime, here are the 10 biggest venture deals for Massachusetts companies from the third quarter of 2011, according to MoneyTree (along with links to our prior coverage), below.

The #1 investment was MIT biotech spinoff Verastem; but #10 was an interesting social marketing software company, Awareness, that I hadn’t heard very much about, even though it’s been around since 2000. I’m betting most techies out there haven’t heard of some of the companies from #2-9 either, but the life sciences folks will know them well:

1. Verastem, $32.1M

2. Avedro, $25.5M

3. Care.com, $25M

4. Fluidnet, $25M

5. T2 Biosystems, $23M

6. Second Rotation (Gazelle), $21.7M

7. Epizyme, $19M

8. Arsenal Medical, $18.3M

9. Proteon Therapeutics, $15.2M

10. Awareness, $13M

And a few other notable investment deals: CloudBees ($10.5M), Foundation Medicine ($10M add-on), and peerTransfer ($7.5M).

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Constant Contact is a digital marketing company led by babes. I don’t mean women, though that is true, actually. And I don’t mean babies in the crying, needy, or naïve sense, but rather the youngest-in-the-family sense.

Let me start over. As it turns out, many of the senior management team of Waltham, MA-based Constant Contact (NASDAQ: CTCT) grew up as the baby of their family, and they had older siblings who influenced their worldview. And that has impacted the culture of the company in an important way.

That was one of the more interesting things I learned last week from speaking with Gail Goodman, the company’s CEO and chairman (and youngest of four). She has been CEO since 1999 and led the company’s $107 million IPO in 2007. For those who don’t know, Constant Contact started in the mid-1990s (originally called Roving Software) and rose to become a leader in e-mail marketing and online surveys for small businesses. Now 815 employees strong, it anchors a vibrant hub of marketing-tech-related firms in the Boston area.

Like most young public companies, though, Constant Contact faces challenges in continuing to innovate while staying focused on increasing its profits. The firm made $174.2 million in revenue in 2010—a 35 percent increase over the previous year—and a modest profit of $2.9 million. But its percentage growth has been slowing down over the past couple of years, and the company is investing in newer areas like social media and mobile marketing—to the tune of $24 million spent on R&D in 2010.

Earlier this month, Goodman presided over an annual “innovation day” at the company. Employees were encouraged to submit innovative new ideas for products and processes, and five finalists were selected out of a pool of 33 project ideas, she says. (The finalists weren’t revealed, but two had to do with mobile, and two had to do with “customer wow experiences,” she says.) There will be a final bakeoff in late August, with the overall winner to be implemented by the company by the end of the year.

But Goodman (see below) had a lot more to say about what’s happening at Constant Contact these days. Here’s an edited transcript of our chat:

Xconomy: It’s a perennial question, but how does a mid-size public company like Constant Contact continue to innovate?

Gail Goodman: It actually starts with making sure everyone knows they’re paid to think and to innovate. It all starts with an attitude: what else cool can we do? It helps that we innovate with context. Everyone here is really clear about who our target audience is—small businesses, small associations. We have more than 450,000 customers, and 70 percent of them have fewer than 10 employees. Our innovation needs to be highly usable cool technology. Everyone knows the problem set we’re trying to work on. We help [businesses] create and grow customer relationships. We talk about it a lot. And employees use 10 percent of their time to innovate.

X: So what are you doing that’s unique or special?

GG: We have a Labs organization, and we did that earlier than most companies. That’s where some larger companies get stuck. How do you invest in the future? We keep a running strategic roadmap, with a multi-year focus that has technology disrupters on it—here are things coming that could disrupt our market and customers. We continue to role play, we continue to do late-night pizza sessions.

One example: we have a fantastic “big data” problem. We have 450,000 customers, all of … Next Page »

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An intriguing Boston-area tech company is going public after more than 10 years—and it’s not too late to shake things up in its market. I’m not talking about Zipcar (NASDAQ: ZIP), which had its long-awaited IPO a couple weeks ago. I’m talking about SMTP, a pioneering e-mail software firm based in Cambridge, MA.

Yes, the company with the famously boring name—it makes software for e-mail delivery management and marketing—is going public today. It’s not debuting on the Nasdaq or New York Stock Exchange; rather, trading of SMTP’s stock begins this morning on the over-the-counter bulletin board (OTCBB: SMTP). Companies that trade over the counter generally don’t have to meet the same SEC filing requirements as those that trade on the more regulated stock exchanges; it can also be harder for investors to trade OTC shares, partly because buyers and sellers must arrange their trades directly.

About two months ago, SMTP made an initial stock offering to 81 shareholders, who invested a total of $100,000 at 25 cents per share. The deal is different from a traditional, big-company IPO in that there is no investment bank involved as an underwriter—the offering went directly to a small pool of investors.

This isn’t your run-of-the-mill penny stock, though. SMTP says it doesn’t need the money, so it can afford to separate the process of going public from fundraising. The idea is that the firm could raise a few million in a secondary offering down the road—if its stock goes up—and in the meantime, it will keep growing and work towards becoming a much bigger player in e-mail tech. What’s more, its CEO has a contrarian’s sense of timing (and other important lessons to share), which we’ll get to in a minute.

SMTP, known as EMUmail until about a year ago, started in 1998 and first released its product for businesses in 2002. The company has grown a lot in the past year and has been making a small profit—just under $400,000 after tax in 2010, on $2.7 million in revenue. The firm had about 10,000 customers worldwide at the end of December. It says it competes with bigger companies like Constant Contact (NASDAQ: CTCT), JangoMail, MailChimp, and Amazon.com, which recently got into e-mail bulk delivery. SMTP currently employs 31 people, most of them in Ukraine; four are based in Cambridge.

“It’s small, but it’s solid, growing, and profitable,” says Semyon Dukach, SMTP’s chief executive (see photo, left). “Once we begin trading, we may very well go and raise a few million dollars in order to make acquisitions of related companies in our space.”

Indeed, anything seems possible when you have a guy like Dukach at the helm. While some might call him crazy (he wouldn’t deny it), Dukach has made a modest fortune thumbing his nose at the establishment. Most people know him as a swashbuckling master of disguise and leader of the MIT blackjack team, popularized in Ben Mezrich’s books Bringing Down the House and Busting Vegas. (He has the distinction of being the latter book’s main character.) But you might also say that Dukach, who is 42 and has five kids, has grown up a lot since then.

But we’re getting ahead of ourselves. Let’s go back to the beginning. Dukach is a Moscow native who came to the U.S. when he was 10, settling in Houston, TX, via Newark, NJ. He studied computer science at Columbia University and came to MIT in 1990 to do a master’s in electrical engineering and computer science. His thesis was on e-commerce and Internet money exchange (“way before it was cool,” he says).

Dukach got involved with the MIT blackjack team in the mid-1990s, and that story has been told. But it isn’t how he made his millions. That would be from his first software startup, … Next Page »

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Successful businesses take pride in knowing their customers, listening to them, and exceeding their expectations. They evolve their products, services, pricing, terms, and distribution based on what the market is looking for and how the landscape is changing—not on what worked in the past. This quality has never been more important than in the past two years of jarring recession and slow recovery.

Yet most businesses are not prepared for a momentous shift in their customers’ behavior, one that transcends any particular product or industry. This shift affects not only customers but employees, suppliers, partners, and investors—in fact, every audience companies need to reach, motivate, influence, and satisfy in order to survive and thrive.

We are changing the way we consume information, more profoundly and rapidly than most of us realize. The explosion of online and mobile video is the catalyst, and the future of corporate communications clearly will hinge on the ability to exploit this shift smartly enough to gain and keep the attention of the people whose impressions, decisions and behavior determine a company’s fate.

“Enterprise Television” will be the 24×7 media identity of successful businesses. With video as the dominant vehicle for nearly all communications, Enterprise Television can significantly increase the ability to:

• Market and sell products and services;
• Increase employee engagement and commitment;
• Build and enhance brand identity and loyalty;
• Project and protect corporate reputation and image; and
• Pro-actively manage and contain all forms of crisis.

The numbers are astounding. In November 2010, 172 million Internet users in the U.S. spent an average of almost 30 minutes per day watching online video. That’s 40 percent more time per day than in 2009. Also during November, Americans viewed 5.4 billion online video ads, which reached 49% of the total U.S. population. YouTube, the most popular online video site, is experiencing more than two billion playbacks a day (150 million of those through smart phones and other mobile devices), as 35 hours of new content is uploaded to its site every minute. The number of people watching video on their mobile phones is growing at a 40 percent annual clip. As broadband pushes rapidly into even more homes, businesses and wireless communications networks, these trends will only keep rising. Cisco, the leading provider of the communications gear that keeps the Internet humming, estimates that within four years, 90 percent of the traffic moving across the Web will be video.

The opportunities for business leaders and marketers may sound familiar: reaching audiences on their terms, targeting them more narrowly and efficiently, and reaping the benefits of interacting with them constantly. Sounds like the call of the Internet, right? The dominance of online video will enable these benefits, to be sure, but also will introduce an entirely new level of possibilities—for good or ill.

Consider GE. An iconic brand with a history of polished marketing campaigns, GE wanted younger audiences (its future customers, investors, and employees) to relate to its Ecomagination green initiatives. Rather than producing slick ads and buying expensive spots on traditional … Next Page »

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The average salary for U.S. company workers rose throughout 2007 and 2008, fell during 2009, and held fairly steady in 2010. By the fourth quarter of last year, average earnings had leveled off to approximately what they were at the start of 2008. But there were some variations between different parts of the country.

That’s all according to a national survey released today by PayScale, a Seattle-based firm that collects and organizes salary and compensation data across companies, geographies, and industries. The survey tracks total cash compensation for full-time, private industry employees.

The national trend (see gray curve in chart below) shows that U.S. wages grew 5.4 percent from 2006 through the end of 2008. Wages decreased by about 1.4 percent during the recession in 2009, reaching their lowest point in the third quarter of that year. Average U.S. earnings have been pretty flat throughout 2010, roughly matching the level of the first quarter of 2008. (The curves are calculated in terms of PayScale’s “index”—see the methodology here—so the absolute wage numbers aren’t as important as the trend—or the comparisons among different regions of the country, which we’ll get to below.)

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The PayScale Index: Boston Metro Area vs. National (US)

The PayScale Index uses 2006 average total cash compensation as a baseline.

Boston Metro Area National (US)

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Compensation Data Provided by PayScale, Inc.

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The trends for the Boston metro area (red curve above) have tracked the national stats fairly closely. For the first three quarters of 2010, Boston wages trailed the U.S. average (by as much as 0.6 percent); but in the fourth quarter, Boston has caught up.

Here are the wage comparisons for Xconomy’s other metro areas, and some quick observations:

—Seattle-area wages also have matched the national trend, but Seattle’s wages have been consistently higher than the U.S. average by 1-2 percent (see red curve below).

The PayScale Index: Seattle Metro Area vs. National (US)

The PayScale Index uses 2006 average total cash compensation as a baseline.

Seattle Metro Area National (US)

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Compensation Data Provided by PayScale, Inc.

.

—Detroit wages fell precipitously in 2009, to more than 3 percent below the national average (which was also falling). The trend since then has been more volatile than the U.S. trend, with another drop during 2010, followed by an upward swing in the most recent quarter (see red curve below).

The PayScale Index: Detroit Metro Area vs. National (US)

The PayScale Index uses 2006 average total cash compensation as a baseline.

Detroit Metro Area National (US)

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Compensation Data Provided by PayScale, Inc.

.

—San Diego earnings typically have been above the U.S. average, until the most recent quarter, which showed a big drop. At the end of 2010, wages were 2.2 percent below what they were a year earlier—and the lowest they’ve been in three and a half years (see red curve below).

The PayScale Index: San Diego Metro Area vs. National (US)

The PayScale Index uses 2006 average total cash compensation as a baseline.

San Diego Metro Area National (US)

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Compensation Data Provided by PayScale, Inc.

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—San Francisco Bay Area wages were higher than the U.S. average until the end of 2008, when they started to fall in line with the national stats. In the most recent two quarters, Bay Area wages dropped noticeably and were about 1 percent lower than a year earlier (see red curve below).

The PayScale Index: San Francisco Metro Area vs. National (US)

The PayScale Index uses 2006 average total cash compensation as a baseline.

San Francisco Metro Area National (US)

Get a Free Salary Report

Compensation Data Provided by PayScale, Inc.

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In 2009, employment at high-tech companies either declined or stayed essentially flat in all of the cities Xconomy calls home, according to a study of the nation’s top 60 “cybercities” released this week by TechAmerica, a Washington, D.C.-based trade association for the information technology industry.

Though the underwhelming job data certainly accords with most people’s subjective experiences of the recession, there is a glass-half-full way of looking at it: the job losses weren’t as bad in Boston, San Diego, and Seattle as they were in most other places around the country. Between 2008 and 2009, high-tech employment nationwide fell by 195,607, or 3.2 percent. The decline in Boston was far milder—just 1 percent—and tech employment held steady in Seattle (though it declined slightly in neighboring Portland). The TechAmerica report found that San Diego actually added a small handful of jobs—500, an increase of 0.4 percent.

The situation was much worse, however, in Xconomy’s other two home regions, Detroit and the San Francisco Bay Area. Of all U.S. cities on TechAmerica’s top-60 list, Detroit was by far the hardest hit: an alarming 16,737 tech jobs evaporated there, representing nearly one-sixth of all tech employment in the region. The Bay Area lost almost as many jobs–16,147—but that represented only a 3.9 percent decline, thanks to the region’s much larger base of technology workers.

Keep in mind that these are 2009 figures, and don’t take into account any gains in employment that may have occurred in 2010. (It takes about 11 months for TechAmerica to compile its annual cybercities jobs report.) But with high unemployment endemic across the country—and likely to persist for years, according to economists—it’s likely that the trends called out in the report are still being felt.

Continue reading for some analysis of the city-by-city data from the TechAmerica report. Because the report sometimes counts cities within a cluster separately, I’ve recombined some of the numbers into aggregate statistics that represent Xconomy’s home cities more accurately. Specifically, TechAmerica counts San Francisco, San Jose/Silicon Valley, and Oakland as separate cybercities; I’ve recombined them into one. Similarly, the report gives separate statistics for Providence, RI, Worcester, MA, and greater Boston. I’ve put those numbers back together into something more representative of the New England technology cluster. And I’ve combined the Seattle and Portland, OR, statistics into a single Northwest category.

If you do all that, then some of TechAmerica’s rankings begin to make more sense. The report claims, for example, that New York City is the country’s leading center for high-tech employment, with 316,971 people working in areas like computer manufacturing, communications, software, engineering, technical services, and biotech R&D in 2009. But in aggregate, the Bay Area is larger, with 394,290 jobs, and so is the Washington, D.C-Baltimore area, with 369,782.

TechAmerica represents some 1,200 U.S. technology companies and was formed in 2009 from the merger of AeA (the American Electronics Association), the Cyber Security Industry Alliance, the Government Electronics & Information Technology Association, and the Information Technology Association of American. As part of its effort to highlight the importance of high-tech jobs to the overall economy, the organization has long produced an annual “Cyberstates” report contrasting high-tech industry growth in the 50 states. Three years ago, it also began publishing a sister “Cybercities” study focusing on the places within states where innovation is concentrated.

To their credit, TechAmerica’s analysts recognized that high-tech cities often spill across state lines—Boston, for example, extends all the way into southern New Hampshire, by the report’s reckoning, and New York City extends all the way into Pennsylvania. But I’d have argued for an even more liberal interpretation of cybercities, combining neighboring cities that have close ties. There’s obviously enormous interdependence, for example, between innovators and investors in San Francisco, Silicon Valley, and Oakland/Berkeley.

Here’s a look at how the country’s top 15 regions stack up in high-tech employment, after recombining individual cities:

1. Bay Area (Oakland + San Francisco + San Jose/Silicon Valley) 394,290
2. National Capital Area (Washington, DC + Baltimore) 369,782
3. New York City (including Long Island, Westchester County, northern NJ, and Pike County, PA) 316,971
4. Greater Los Angeles (including Orange County, Riverside, and San Bernardino) 289,847
5. New England (Boston + Worcester + Providence) 262,920
6. Northwest (Seattle + Portland) 211,005
7. Dallas-Fort Worth 174,848
8. Chicago 161,799
9. Philadelphia 134,235
10. Houston 127,760
11. Atlanta 123,582
12. San Diego 110,985
13. Minneapolis-St. Paul 98,583
14. Detroit 95,042
15. Denver 88,936

Continue to the next page for selected details on Xconomy’s home regions.

… Next Page »

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As a reporter, you can tell when the innovation economy tide is turning, when a particular sector is rebounding, or when certain companies have turned the corner. How? Because all of a sudden CEOs want to talk on the record, PR people are your best friends, and marketing and real estate guys chat you up about the field at random events.

That’s the feeling I’m getting about radio frequency identification (RFID) these days—and I’m getting it from both coasts. The field of RFID comprises tags, readers, and software that, together, enable wireless communication via tiny embedded chips so people can gather information about everything from the location and status of product inventory on shelves to runners in a marathon. A couple of months ago, I profiled ThingMagic, a 10-year-old Boston-area RFID company founded by MIT Media Lab alums, whose time appears to have come, thanks to fortuitous changes in the market.

ThingMagic’s sister company in the Northwest is Impinj, a 10-year-old Seattle RFID tech firm founded by University of Washington professor Chris Diorio. Impinj is a bigger company than ThingMagic—and has raised much more venture capital—but both startups survived the RFID-for-retail-supply-chain-tracking hype around 2003-2004 (and the ensuing crash) and lived to tell the tale. The firms have worked together on RFID reader technologies, with Impinj selling its reader chips to ThingMagic. Now they and a few other survivors and competitors, including San Francisco Bay Area-based Alien Technology, are poised to make some bold moves.

I spoke with Impinj CEO Bill Colleran by phone last week to hear about the company’s progress, and some interesting new challenges ahead. One thing that grabbed me was how much the competitive landscape in RFID was decimated by the early hype and glacial adoption of the technology—plus the economic recession. That now leaves Impinj with relatively few competitors. “There’s been a shakeout along the way,” Colleran says. “We’re in a great position to grow as this industry takes off.”

And take off it apparently will, across sectors like consumer electronics, automotive, healthcare, and apparel and other retail applications—finally. “RFID has experienced a resurgence in the last year or so,” says Colleran. “The common theme is the technology has continued to move along—performance is dramatically better, and cost has come down…It’s a maturing of the technology and ecosystem. We’re seeing wholesale adoption.”

That’s easy to say, of course, but here are some stats to back it up. Impinj says it will ship as many RFID tag chips in the second half of 2010 as it has in the previous five years … Next Page »

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There’s some interesting personnel news today in the world of mobile software apps for companies. Boston-based Apperian, a mobile development and platform startup, says it has appointed a new CEO as of last week. He is David Patrick, a veteran of Lotus, Sun, Novell, and a number of cutting-edge tech startups on both coasts. He succeeds founder Chuck Goldman, a former Apple executive who is staying on as chief strategy officer and will continue to run the company’s services, sales, and business development.

I took the opportunity to get to know Patrick a bit, and to get an update on Apperian’s business. The company has about 20 full-time employees plus a number of consultants; there were three new hires last week, and more will come soon. Patrick says the firm’s revenue “has grown very dramatically” and could be on pace to increase by 300 percent this year over last year. Nevertheless, one of his first objectives as CEO is to raise a Series A financing round. To date, Apperian has been supported by $1.5 million in seed money from CommonAngels, plus services revenue from its mobile-app development work.

“I’ve looked at a lot of startups, and this is the first one I’ve seen as healthy as it is after 18 months,” Patrick says.

Founded in January 2009, Apperian has developed consumer iPhone apps for companies like American Greetings (electronic cards), Intuit (tax forms), and Timberland (retail marketing). It also counts Estee Lauder, Rue La La, Progressive Insurance, and Warner Bros. among its customers, for whom it has developed 55 apps so far. But an even bigger opportunity may lie in creating a platform for companies to develop their own internal mobile apps—what would amount to an “enterprise app store” for iPhones, iPads, and Google Android-based devices.

That’s what Apperian announced it was working on this spring, as my colleague Wade detailed in an interview with Goldman. The software platform is still in beta mode, Patrick says, and he has been studying it for the past couple of months (before officially starting with the company), thinking about issues such as how to ensure the security of confidential data and users’ identities on mobile devices. In the meantime, the company seems to be gaining traction, particularly around the iPhone and iPad.

Challenges aside, it’s clear that being an early player in the emerging mobile business … Next Page »

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Here’s an interesting snapshot of a lean, consumer-oriented Internet startup that has survived the recession so far—and is looking to take its business to a new level.

Framingham, MA-based Punchbowl Software, an online party-planning company, said today it has surpassed one million registered users as of a few weeks ago. That number includes senders and receivers of the company’s party invitations and e-cards, and it is a significant step for the business, says Punchbowl founder and CEO Matt Douglas.

After a tough 2009, the company’s “growth has been outstanding,” Douglas says. He declined to give specific numbers, but emphasized that “traffic and growth is accelerated.”

The startup also has acquired the domain name Punchbowl.com (it previously used MyPunchbowl.com). The company bought it from Rick Schwartz, the domain name pioneer who previously sold such venerable assets as Candy.com and Men.com for millions. Douglas wouldn’t say how much he paid, but said it was between one dollar and $5 million. There is strategic value, he says, in having a two-syllable brand named after an object—see Kayak.com or Facebook.com (which used to be TheFacebook.com back in 2004).

My colleague Wade first profiled Punchbowl back in October 2007. The company’s software helps party hosts do things like pick dates that work for the majority of people on their invite list, design invitations, track RSVPs, buy supplies, and share photos and videos after the event.

Punchbowl currently has eight employees plus a half-dozen contractors. It raised its most recent financing round in 2008—$2.1 million from Contour Venture Partners, Intel Capital, and eCoast Angels. The company also said today that Michael Waxman-Lenz, former senior vice president and general manager at American Greetings, has joined its board. American Greetings, Hallmark, and Evite (owned by IAC) are some of the big players in Punchbowl’s sector.

The startup makes money through a combination of licensing deals (to customers including 1-800Flowers and Oriental Trading), memberships, local advertising, and some e-commerce. Punchbowl’s party business is pretty seasonal—and with Halloween and the holidays coming up, its about to be high season, Douglas says.

“Revenue has been very strong,” he says. “We’re right on our plan, and it looks like the pipeline is opening up more.”

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If you squint just the right way at new numbers from a quarterly “innovation index” released by the University of Michigan-Dearborn, you might just believe that Michigan could be headed toward an actual end to the recession.

The index, which measures things like loans, VC funding, and new incorporations rose to 89 (out of 100) in the first quarter of 2010, up from 83.3 in the fourth quarter of 2009. This is the highest rise in the index since 2008.

The jump is attributed to an increase in trademark applications and incorporation filings, but new university spinoffs and economic development efforts are also contributing to the improving figures.

“These figures seem to indicate that innovation is on the rise toward pre-recession numbers,” Lee Redding, associate professor at UM-Dearborn and the index’s project director, told Crain’s Detroit Business. The index is above its year-ago level of 80.0 and at its highest point since the third quarter of 2008 before the worst of the credit crunch.

The quarterly index, a project of U-M-Dearborn’s Center for Innovation Research, or iLabs, tracks economic innovation in Michigan based on calculations of employment of “innovation workers,” trends in venture capital, trademark applications, incorporation activity, small business loans and gross job creation.

Employment of “innovation workers,” or those employed in science and engineering, continued a rebound, adding 0.4 points to the index in the quarter.

Not ready to hang a “Mission Accomplished” banner across Michigan yet, but at least something is headed in a positive direction.

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Because of his past, Yuchun Lee is legally barred from certain establishments. Luckily, IBM is not one of them.

Lee is the co-founder and CEO of Unica (NASDAQ: UNCA), the Waltham, MA-based marketing and analytics software firm bought by IBM for $480 million in cash earlier this month. Much has been made of Lee’s past experience as a key member of the MIT blackjack team in the 1990s. Not as much has been made of Lee’s vision, strategy, and decision-making in leading Unica from its founding in 1992 to its IPO in 2005—setting the stage for one of the bigger tech acquisitions in New England this year.

The company has survived four recessions and three wars over its 18 years. So, this is the story of how Unica went from being a small startup led by three MIT alums to a leading public company focused on selling marketing and analytics software—and a key purchase for IBM in a rapidly evolving business area. Along the way, of course, there were plenty of bumps in the road and important lessons learned.

“The hardest thing is having the emotional fortitude to have conviction in what you think is the right path,” Lee says. “It’s kind of like blackjack. You may get a string of bad hands, but that doesn’t mean you don’t have an edge on the market.”

Unica’s software helps companies across different industries—financial services, insurance, retail, telecommunications, travel, hospitality—do things like personalize their marketing campaigns, manage interactions with customers, and analyze the behavior of website visitors to optimize sales. IBM, for its part, has shown increasing interest in helping companies do marketing, sales, and commerce more efficiently. In the past few months, Big Blue has acquired AT&T’s Sterling Commerce (helping companies interact more efficiently with customers, partners, and suppliers) and Coremetrics (Web analytics). Unica appears to fit with this acquisition pattern.

Companies usually reflect the personality and drive of their founders, and Unica is no exception. Lee (see photo, left) is a born entrepreneur who came to the U.S. from Taiwan when he was 13. By then he was already “fascinated by the concept of commerce,” he says—in particular, “how to accumulate business and make more money.” He started a software company while in high school in Houston, TX, and says he got in his proverbial “10,000 hours” of experience with computers and programming during those formative years.

In the mid-1980s, Lee came to Boston to do his undergraduate and master’s degrees at MIT in electrical engineering and computer science. After graduating in 1989, he went to work for Digital Equipment Corporation, the venerable Route 128 computer company. (Lee laments that these days, billion-dollar fund managers on Wall Street, who look like they’re “just out of high school,” don’t even know what DEC was. “It’s quite sad,” he says.)

Lee left DEC and started Unica in 1992, together with two other MIT grads, David Cheung and Ruby Kennedy. In the beginning, Unica was not focused on marketing. Instead, the firm … Next Page »

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A friend of mine worked at a productive technology company that was private. When sales slumped in a recession, the owner turned technical personnel on to creating future products,  and turned them to servicing products when the economy was strong. The company became public and the cycle of stability was reversed: laying off people in slumps and hiring people in booms.

If the investment community had more stomach for the power of preparing and the 3-year timeline of development, we might do networking and have more meetings in bust times. We could talk less about the plight of the moment and more about the future in these times; or maybe we do.

Stability for Silicon Valley should be wrapped up in people being available for new projects, people learning deeply about new opportunities, and people taking time to regenerate their tool sets. The lectures, demos and schmoozes are central.

[Editor's Note: This commentary is part of a series in response to a question we've posed to technology leaders: "What three things can San Francisco and Silicon Valley companies, entrepreneurs, and VCs do to foster a more stable environment for innovation in IT, life sciences, and energy, and become less wedded to cycles of boom and bust?"]

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For my last official post as Editor of Xconomy Seattle, let me tell you a quick story.

It was a warm, cloudy day in June 2008. Two guys walked into an old office on First Hill, but only one guy walked out. That was me. I took the stairs. The other guy was the Qwest cable guy. He took the elevator, and got stuck between the basement and the first floor for 40 minutes before we could extricate him with the help of a repairman.

Our phones and Internet service at Xconomy Seattle didn’t get turned on that day—or the next, as I recall. It was kind of a drag, given that we are an online media startup. So Luke and I improvised a lot, working from home (or wherever we could pick up Wi-Fi) in those early days.

We’ve come a long way in two years. OK, maybe not in terms of our office, which could still be described charitably as “startup space.” But in terms of our editorial content, our events, our readership, our sponsorships, and especially our relationships with people in the innovation community, we have created something we think is pretty special. That’s why today’s news from Xconomy warrants a personal note from me to our readers.

This morning, Xconomy announced our expansion to San Francisco—the fifth city in our growing network of innovation clusters around the country. As part of this expansion, Xconomy’s ace technology reporter in Boston, Wade Roush, is moving to San Francisco to be our Editor there. And my big news is, I am moving back East next month to become Editor of Xconomy Boston. It’s a great opportunity for me. But—and this is important—I plan to keep a strong hand in our Seattle and West Coast coverage by taking on an additional role as National IT Editor of Xconomy. That means I will continue to write stories about technology startups, financing strategies, and big-company research and innovation in Seattle and elsewhere—all from a national perspective.

I will also be an advisor to our latest addition to the Xconomy Seattle team—Thea Chard, our new Assistant Editor, who is my successor on the tech side here. We’ll have much more to say about Thea (pronounced TAY-uh) once she gets started next week. Meanwhile, my comrade-in-arms Luke, who first moved to Seattle in 2000 as a reporter at The Seattle Times, has been promoted to Editor of Xconomy Seattle. He will oversee our Northwest coverage, in addition to his considerable responsibilities as National Biotechnology Editor (which include leading our life sciences coverage in the San Francisco Bay Area).

Those who know me understand that I rarely like being the center of attention. So I don’t want today’s news to be about me—and it isn’t. It’s about the team. I can only begin to tell you how excited we are at Xconomy to be making this nationwide push to redefine technology and innovation journalism. My move back to Boston is part of this push. And, of course, I have roots in Boston, having lived there for 15+ years before coming to Seattle two years ago. So I do have some personal and family reasons for the move.

But it’s also really hard to pick up and leave town just when I’m getting to know lots of amazing people in the Seattle community, and starting to make some real friends. Let’s face it: this sort of thing takes time. There is something called the Seattle Freeze; this town isn’t always the most welcoming place for a newcomer, let alone a new beat reporter for a new publication. But I’ve learned … Next Page »

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New smartphone applications (“apps”) are being developed at a rate of nearly 1,000 new titles a day. While Apple’s brilliance in cultivating the developer community receives much of the credit for this incredible phenomenon, it has also ridden the back of the global economic meltdown coinciding with the rise of the iPhone.

“Huh, come again,” you say? That’s right, the storm that wiped out so many budding software companies was so immensely beneficial to the growth in iPhone sales that even Steve Jobs probably never imagined its true transformative power and the permanent changes it would cast upon the software industry landscape.

Who among us doesn’t know someone who joined a software company in the past five years only to see their stock options plunge under water as a result of a cram-down financing, layoff, or outright bankruptcy? Or to put it a little more bluntly, who among us knows anyone left standing whose equity value wasn’t substantially wiped out? When something like 99 percent of developers who were being extrinsically motivated by stock options have seen their paper wealth get crushed, many have begun to question whether they’d been sold on a phantasmagorical dream like so many Klondike prospectors 150 years ago. Some of the walking wounded began searching for—and many have already found—a compelling alternative to the conventional startup company. Tens of thousands have launched their own app development and publishing businesses.

On the one hand, the consequences of this blight upon common stock value has caused many developers to seek higher ground in the form of competitive salaries and benefits, and to be less charmed by the allure of stock option certificates that may yet again turn out to be useful only as wallpaper. Even in the best economic times, the odds against stock options turning into real worth were already long. After a meltdown like the last one some are willing to bet on Dante’s lounge offering frozen drinks before they’ll bet on stock options again. The older dogs also remember that an economic downturn hits the entrepreneurial economy with tectonic force about every six to 10 years, taking out entire ecosystems of startups with them.

This may be good news for the Microsofts and Oracles of the world who can afford to offer higher salaries and attract software talent that previously would have opted for the upstart venture where they could play a more significant role, potentially create greater wealth for themselves, and not just be a “cog in the machine” of a giant enterprise. Indeed, finding developers to join a startup that has an insignificant war chest, no 401K, and a health care plan that relies on employees obtaining their own coverage is just about as hard as I can remember it ever being in the over two decades that I’ve been working in, leading, and investing in technology startups.

But there is another, perhaps more significant factor at work. If you know something about the psyche of software developers, then you should know that it is rarely about the money for them. Developers are “creatives” who thrive on knowing that the product they are building with their blood, sweat, and tears is going to be appreciated, if not loved by its users. The best way to kill a developer’s … Next Page »

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It’s obvious that the financial downturn has negatively impacted innovation. Lack of investment has meant fewer startups, and lack of capital for liquidity events and exits has pushed a listless market into even greater torpor. Overall, the downward pressure is preventing a lot of great new ideas and technological advances from getting off the ground.

But is there a positive side effect of the recession? What if the legacy of the most acute economic distress since the 1930s is that, rather than simply returning to our old pace and methods, we shift to a studied, more sustainable form of innovation and growth? What if we’re entering an era of “refined” innovation that will change the way ideas move from concept to market for years to come?

Stop adopting, start assessing

We’re coming off a ten-year run of hyper-innovation that has revolutionized our daily lives. From consumer electronics to energy efficiency to alternative materials to data interchange to entertainment, virtually every aspect of our lives has been impacted. The past decade has essentially been a large global whiteboard on which visionaries have jotted down earth-shattering new concepts that ultimately formed and transformed big and bold markets.

But the new truth is that we can absorb only so much innovation—and so much change—in a given period. That’s why, at some point, consumers, commercial markets, investors, and strategic partners need to stop adopting and start assessing and refining.

This means we’ll begin to embrace new technology on a more selective basis. It means we’ll begin to incorporate and absorb the long-term impact of innovation and transform past fads or previous follies into sustainable evolutions. And it means we’ll begin to look for synergies across various breakthrough ideas that have survived the vetting process and extract their most positive and efficient attributes.

Call it innovation refinement or innovation consolidation, this is where we need to go. It’s about catching our breath and extracting maximum value from the super-spasm of innovation that has just taken place.

Low-risk funding

What does this mean for financing? Everything.

There are vast opportunities for low-risk innovation investment today. And the foundation has already been laid for this approach. A vast array of science projects has been hatched and funded, and now we need to focus on which of these innovations can be improved on with additional … Next Page »

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I was recently headed down the fund-raising road with one of my technology startup clients, when something strange happened.

This client is a company founded by entrepreneurs with accomplished backgrounds. They came up with a novel idea and had developed it over the previous 24 months. Their product had been commercially released, and they were beginning the process of building their market. They secured a strategic business partner based on the powerful nature of their technology and revenue started to come in the door. Impressive for a small business that had bootstrapped itself through a recession. The CEO then came to the conclusion that they needed to be strategic about their business, hire key personnel, and spend their way into market share. The only way to do that quickly was to raise venture capital. I did some introductions for them, and they had some contacts of their own. In pretty short order, they lined up meetings with three venture investors within a week of each other.

The CEO called me after each meeting and the response was similar for each one: “It went great—they want in. We’re going to get a term sheet.” He felt good, but I know him and could tell that something was eating at him. The day after the last meeting, the CEO called me back and said, “We’re not going to do it.” I assumed that he meant they had been rejected by the prospective investors. But what he said next surprised me. Maybe it shouldn’t have, but it did.

“They really want in, but I don’t want to take the money. Their interest has made me realize that what we have is special and we need to keep growing this on our own. Maybe not as quickly as we could have otherwise, and maybe it will be painful, but hopefully not for too much longer. They will be there if I really need it, but maybe I can do this without giving away 33-50 percent (or more) of the company.” Then we went into a long discussion (and modeling) of how the economics could play out to his advantage in the near and long term if they didn’t take venture money and ultimately sold the company, factoring in the likelihood of a reduced price because he wouldn’t grow as quickly.

I was fascinated. I had worked feverishly on venture capital financings over the past 12 years. And absent the time periods when the startup markets were dead, raising money from venture capital investors is just what technology companies did. When quality investors wanted to back you, you said thank you, put them on the board, and deposited their money in the bank. Apparently not in this case.

I had seen most startup companies that were able to survive over the past 18 months, including many clients, do so by bootstrapping themselves, thinking creatively about growth, utilizing the readily available talent on the market as consultants, and slashing expenses. But for the most part, … Next Page »

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Angels have been in the air lately—especially around the Northwest. Last month, Atlas Accelerator hosted what might have been the largest-ever gathering of active angel investors in Seattle, at its first investor open house. Wings, a new angel group to invest in medical devices and software, has gotten started. Last week, there were prominent angel investment forums organized by Zino Society (in Seattle) and the Oregon Entrepreneurs Network (in Portland). And just today, the Alliance of Angels is finishing up hosting the Angel Capital Association’s Northwest Regional Meeting in Seattle.

The various angel groups around town have different strengths. Alliance of Angels does traditional, locally-based investment deals, for instance, while Keiretsu Forum can use its national network to take startups to other parts of the country, and might help them raise a bit more money. (For example, Keiretsu put more money into Earth Class Mail than Alliance of Angels did.) All of the groups would say they’re doing well, of course, although they don’t publicly disclose hard data on returns.

Yet the recession is unquestionably taking its toll on individual investors and early-stage entrepreneurs alike. “We were fully expecting a down year in ’09,” says Greg Huey, program director for Seattle-based Alliance of Angels. “We were pretty shocked at the level of activity our investors had.”

He’s referring to the $9.1 million that the group invested in 29 companies last year—the most dollars Alliance of Angels has invested in any year since it started backing technology and other high-growth companies in 1997.

So I wanted to drill down a little more into what Huey is seeing out there—and what the real mood of investors and entrepreneurs is. He says he’s still meeting with a steady flow of four to five companies a week. Huey has seen a “big increase” in deals involving companies that Alliance of Angels classifies as cleantech—like Seattle-based Modumetal and MicroGreen Polymers, based in Arlington, WA. But, he says, “People are shying away from large, capital-intensive deals” that involve biofuels, say. Meanwhile, software-as-a-service and consumer/retail companies remain strong in the deal flow, but he’s seeing fewer Web 2.0 and Internet startups.

None of this is particularly surprising, but Huey is putting a hopeful spin on the current climate. “I think people are pretty positive,” he says. “For us, ’08 was a good year for investing and exits. In ’09, there was a lot of money put to work, but not a lot flowing back.” So exits for portfolio companies are clearly a concern for this year and next. But, like most investors, Huey is also thinking long-term, and he sees this challenging period as a real opportunity for companies to distinguish themselves.

“When investors look back, hopefully 2009 and 2010 will be years where they made some of their best investments,” he says. “It’s a great time to be starting something.”

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Despite official data showing that the U.S. economy is out of recession, leading economics bloggers remain cautious about the nation’s economic prospects, with almost half saying that conditions are worse than the official numbers indicate. But government policies boosting entrepreneurship and allowing more high-skilled immigrants into the country could bolster recovery, bloggers say. That’s all according to a survey of online observers of the U.S. economy (including this reporter), released this morning by the Ewing Marion Kauffman Foundation in Kansas City, MO.

The overall condition of the economy is “mixed,” according to 59 percent of the bloggers surveyed, while 23 percent see the possibility of a double-dip recession and 10 percent believe a second recession is already underway. About half of the survey respondents said conditions for lending to individuals and small and large businesses are bad or very bad, and the group’s overall feeling is that government budget deficits, interest rates, inflation, and poverty rates will all rise substantially over the next three years. But all of that may actually mean more opportunities for innovators: nearly 60 percent of bloggers said conditions for entrepreneurship are either good or fair right now. (You can download the full survey report here.)

Surveys of leading economists are plentiful, but this may be the first time anyone has tried to quantify the views of economics bloggers, whose work appears in dozens of online publications (or on their own personal blogs) and ranges across the ideological spectrum. Tim Kane, a senior fellow at the Kauffman Foundation and the author of the survey report, says the foundation plans to repeat the survey each quarter.

“A survey of economic bloggers might seem like an exercise in herding cats, but it honestly struck us as a puzzle why nobody else was conducting one already,” Kane told me. “Here we have a crowd of the most knowledgeable and outspoken analysts of the economic scene, and nobody had bothered to take their pulse.”

Kane developed the survey questions with help from Donald Marron, former acting director of the Congressional Budget Office and a former member of the Council of Economic Advisers. He sent survey invitations to the top 200 economics bloggers as ranked by the Palgrave Econolog, a directory maintained by New York, NY-based academic publisher Palgrave Macmillan. In the end 83 bloggers participated in the survey. I was one of the bloggers surveyed, and I was also on the board of advisors that helped Kane to design the questions. (For full disclosure: The Kauffman Foundation is one of the underwriters of Xconomy’s Startups Channel.)

To me, one of the most striking findings was that most respondents—71 percent, in fact—felt that the federal government is too involved in the U.S. economy. That seems unexpected, given that economists on the left and the right seem to agree that the bank bailouts and aggressive federal stimulus spending, while perhaps unpalatable, saved the economy from disaster. More than half of respondents gave the U.S. Congress a failing grade when it comes to their performance steering the economy; Wall Street firms also got dismal grades. The Congressional Budget Office and other watchdog groups fared much better.

Asked to name the federal policies that would best stimulate economic growth, the bloggers named increasing high-skill immigration (63 percent), increasing legal immigration at all skill levels (57 percent), promoting new firm formation (48 percent), increasing financial regulation (41 percent), and increasing education spending (33 percent).

Kane says the finding that surprised him most was that bloggers have such bleak views about the economy’s near-term future. “Despite the individualistic nature of bloggers, I was shocked to see how pessimistic the group was in general about the 3-year outlook for the U.S. economy, but I attribute that to their ability to see beyond both the headlines and the official statistics,” he says. “I was also heartened by the consensus for cutting payroll taxes and shifting the tax burden to consumption generally and gasoline specifically.”

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Like others in the tech-journalism business, we here at Xconomy tend to pore over the latest statistics about the entrepreneurial economy pretty obsessively: how much money venture firms are raising and investing from quarter to quarter; how much they dole out to each new startup in their portfolios; how much these portfolio companies eventually return to their investors through mergers, acquisitions, or public offerings.

But what if none of this really matters? What if it turned out that the number of new companies created by entrepreneurs is pretty much the same every year—and that things like how much money venture firms are handing out, or how many companies are achieving lucrative exits, or how many students are graduating from business school, or how many startup incubator programs are springing up, make no difference whatsoever to the nation’s overall levels of entrepreneurial activity? Would this mean that all the conferences and white papers and blog posts about the best ways to boost innovation and entrepreneurship are, in the end, pointless?

Well, that’s a serious question now—because the last three decades of data, according to a new study from the Ewing Marion Kauffman Foundation in Kansas City, MO, show that the number of new businesses incorporated in the United States holds steady at about 700,000 per year, give or take 50,000. It’s as regular as clockwork. In fact, it’s as if American entrepreneurs were programmed to start 700,000 new ventures every year—in the same way that, say, American parents pass on the genes for red-headedness to roughly 170,000 newborns every year.

You can read all about it in Exploring Firm Formation: Why Is the Number of New Firms Constant?, by Kauffman Foundation senior analyst Dane Stangler and senior fellow Paul Kedrosky. (Kedrosky, a San Diego-based investor, entrepreneur, and essayist, is also an Xconomist, and to complete the disclosures, the Kauffman Foundation is an underwriter of Xconomy’s Startups Channel.) When I first met Stangler at a Kauffman Foundation function last October, he and Kedrosky were still puzzling over the numbers they’d been digging up from places like the Census Bureau, the Small Business Administration, and the Bureau of Labor Statistics, which all seemed to show the same thing: Americans start the same number of businesses every year, come hell or high water.

That is a remarkable and, at least on the surface, counterintuitive finding. As Stangler and Kedrosky point out in their final report, which was published Wednesday, a casual observer might guess that the number of new firms would fluctuate from year to year in response to such major forces as economic recessions or expansions, technological change, and the availability of capital and credit. (We certainly hear the howls of local technology innovators every time venture firms scale back the number or size of Series A rounds.) But these things don’t seem to make any difference in the big picture.

“It’s a real puzzle, and it didn’t appear as if anyone else had noticed it or written about it,” Stangler told me by phone yesterday.

He and Kedrosky might not have noticed the phenomenon themselves if they hadn’t already been examining, for a different study, the question of survival rates for new companies. The percentage of the companies founded in 1990 that were still in business in 1995, they’d found, is almost exactly the same as the percentage of companies founded in 2002 that were still around in 2007. (It’s about 50 percent.) “That was interesting,” Stangler says, “and one of the possible inputs to that is that the number of new companies founded each year is remarkably similar”—which turned out to be the case.

Nobody had noticed this fact before, Stangler speculates, because it’s about constancy, not change: “You don’t stop to think, ‘Why is there not a trend here? You have to recognize the absence of something.”

Being good scientists, Kedrosky and Stangler first checked to see whether there might be something wrong with their instruments—that is, that the data might be wrong or incomplete. But all the datasets they checked showed … Next Page »

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Rob Glaser, the founder and chief executive of Seattle-based RealNetworks, has stepped down, according to a company statement. Glaser will remain chairman of the board.

“After nearly 16 years, I’ve decided it’s time for me to step away from day-to-day operations,” Glaser said in a statement. “I’m grateful to all of our stakeholders—customers, partners, shareholders, and most of all, employees—for the support and commitment they’ve given to RealNetworks. I remain committed to the company and look forward to continuing to serve in my capacity as board chairman.” (See Glaser’s farewell note to Real’s employees here, from the Seattle Times.)

Real’s board of directors appointed Robert Kimball as president and acting CEO, and new board member. Kimball joined RealNetworks in 1999 and was most recently the company’s general counsel and executive vice president of corporate development. Glaser said a formal search process for a permanent CEO will begin soon.

The move seems to be part of a broader shakeup of the senior leadership team at Real (NASDAQ: RNWK). Yesterday, the company reported in an SEC filing that chief operating officer John Giamatteo will resign as of April 2. Giamatteo was also president of the company’s technology products and services division. The news was reported by PaidContent, TechFlash, and other outlets.

In November, RealNetworks laid off 4 percent of its worldwide staff (about 70 employees) as a result of the economic recession and cost-cutting measures. The company reported a small profit for the third quarter of last year, its first profitable quarter since the beginning of 2008.

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