On the heels of Renaissance Venture Capital announcing earlier this month that it had its first close of $60 million on its second fund, the Michigan Venture Capital Association (MCVA) released its annual report on the state of Michigan’s venture ecosystem. Its findings? More venture capital—a 64 percent increase in the past five years—and more deals. This optimism seems to square with regional venture capital data released by MoneyTree in April, which reported five deals in Detroit during the first quarter of 2012, with a total investment of $15.1 million. According to the MoneyTree report, the last time five deals were closed in Detroit in a single quarter was back in the second quarter of 2000. By contrast, three deals worth a total investment of $1.5 million were closed in the first quarter of 2011.

Michigan’s VC scene bucked the national trend of an overall decrease in venture activity. According to the same MoneyTree report, which is prepared by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters, first-quarter venture capital investments fell 19 percent nationwide in terms of money and 15 percent in terms of deal numbers compared to the fourth quarter of 2011. In Michigan, venture capital investments in Q1 fell by 11 percent over the previous quarter, but the number of deals quadrupled.

The MVCA data shows that investments concentrated in Life Sciences (40 percent), clean tech (18 percent) and IT (18 percent). New to the report this year are figures on what state-backed venture funds are contributing to the economy: The MCVA estimates that companies supported by the $215 Venture Michigan Fund alone have put $50 million back into the economy in the form of salaries paid and services purchased.

Key findings in the MCVA’s report include that the number of venture firms and capital under management both increased. There are currently 54 venture capital firms in Michigan with 335 active portfolio companies. Of the $3 billion of venture capital under management, roughly $370 million is available for new investments both inside and outside of Michigan.

During 2011, Michigan startup companies received $191 million in capital investment. There were 38 total investments, which included 22 new companies that raised a first round of funding.

In 2011, four Michigan VC firms—Arboretum Ventures, Plymouth Venture Partners, and the local offices of MK Capital and Arsenal Ventures—successfully closed funds and raised a total of $348 million. The MCVA report says that Michigan now has six funds that are over $100 million. Small and mid-size funds continue to grow, as well, with eight funds between $50 million and $100 million and 13 funds with less than $50 million. There were three significant exits in 2011 out of a total of 13 exits: Accuri Cytometers (reported to be $205 million), Ecosynthetix ($100 million), and Micronics (undisclosed, but it’s electronics giant Sony that purchased the company).

Staying with the theme of optimism, the MCVA report predicts that by 2016, Michigan will be “a nationally known top venture capital location,” with both venture and angel capital communities playing a “meaningful” role in Michigan’s revitalization. While that remains to be seen, the numbers do seem to indicate strong forward motion.

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Two Boston-area companies that don’t do a lot of talking in the media are making some noise today.

They don’t have much in common, except that each is working on a really big technological problem in society with a pretty novel approach (and they’re getting some funding news out before the holiday weekend). As usual, there’s much more to these companies than just their funding news, so stay tuned.

—Liquid Metal Battery, an MIT spinout working on grid-scale energy storage, has raised $15 million more to complete its Series B financing. Khosla Ventures led the round, joined by Bill Gates and energy firm Total. I have no idea what a liquid metal battery is, but presumably it could be a more cost-effective way of storing energy from sustainable sources like wind and solar, as compared to existing alternatives.

—Recorded Future, a data analytics startup based in Cambridge, MA, has raised a $12 million Series C round led by new investor Balderton Capital. Previous investors Google Ventures, Atlas Venture, IA Ventures, and In-Q-Tel also participated in the round. Recorded Future is developing analysis and visualization tools to help government agencies and financial institutions make predictions based on data across the Web.

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Here’s a potpourri of San Diego tech news, large and small, fresh from the local fields of innovation.

—San Diego’s Qualcomm (NASDAQ: QCOM), the world’s biggest manufacturer of wireless chipsets, said it has renewed its global QPrize venture investment competition for the third time. The $1 million pool is almost double the total pool Qualcomm offered when it created the QPrize in 2009 to accelerate wireless technologies in key business sectors. Qualcomm plans to hold regional competitions in China, India, Israel, Korea, North America, Brazil, Western Europe, and Eastern Europe, and award $100,000 in convertible note financing to a finalist in each region. The company plans to award another $150,000 in financing to a grand prize-winner chosen from the eight finalists.

—Newbury Park-based Sauer Energy, a wind power technology developer, said it has acquired 100 percent of the assets of San Diego-based Helix Wind, a San Diego maker of small vertical axis wind turbine systems that ceased business operations at the end of 2010. Helix, which was trying to commercialize its iconic design for helical-shaped turbines, had an accumulated deficit of nearly $42 million. In a statement, Sauer Energy CEO Dieter Sauer says, “We purchased only the assets, therefore there are no liabilities, no obligations or debt whatsoever to Sauer Energy.”

—San Diego-based Pelfunc, founded by Sanjay Nichani and Ray Fix, launched their mobile app “Skqueak” for the iPhone in Apple’s iTunes App Store. Skqueak lets users record audio while simultaneously sketching or animating a design over a photo, map, or other image. The result is a kind of multimedia postcard that can be shared through social media and embedded in blogs.

—Qualcomm’s top European executive, Andrew Gilbert, met with reporters to talk about the wireless giant’s technology licensing strategy for wireless charging systems that can be used to charge electric vehicles (EVs) as well as smartphones and other devices. Gilbert also showed off an all-electric Le Mans prototype racer, and said Qualcomm remains on schedule with its plans to install its wireless charging technology for as many as 50 EV taxis in London.

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It seems like it takes most tech companies about 10 years to run their course—if they survive the first few years, that is. Boston-based Ember is no exception.

The wireless-networking firm said today it is being acquired by Silicon Laboratories (NASDAQ: SLAB) of Austin, TX, for an initial price of $72 million plus earnouts. Silicon Labs makes chips for consumer devices like TVs and cell phones, as well as applications in telecom, industrial, and automotive markets. The acquisition appears to be a good fit, as Ember’s technology—particularly its wireless networking software—will strengthen and broaden Silicon Labs’ offerings across industries.

The deal seems to be an OK, but not great, outcome for Ember’s investors. Over the years, the firm raised some $89 million from venture capitalists and strategic partners including Polaris Venture Partners, GrandBanks Capital, RRE Ventures, Vulcan Capital, STMicroelectronics, Hitachi, and MIT.

Ember CEO Bob LeFort defends the acquisition on three counts. One, “This was more than a fair deal financially,” he says, in terms of the multiple of the company’s revenue. Two, he says, “This is also about the employees and the potential, and it’s the right thing for the company.” And three, he says, the firm’s investors saw Silicon Labs as the right acquirer at the right time, because Ember needed more investment to reach a bigger market. While everyone loves a $15 billion IPO, he says, “It just made sense. This is not a reluctant deal for them.”

Indeed, Bob Metcalfe of Polaris—an Ember board member and a professor at UT Austin—calls Silicon Labs “the perfect partner going forward,” in terms of its product line (more on that below).

The deal is pretty significant for those of us who’ve followed Ember since its early days. The company started in 2001, the brainchild of MIT grads Rob Poor and Andy Wheeler. Their vision was to build software for wirelessly networked sensors and systems for supply-chain management, factories, and other applications.

Poor and Wheeler eventually moved on to other companies, but Ember evolved to become a maker of software, chips, and tools for secure wireless networking. Its main market is smart energy—working with utility companies and selling its technology to smart-meter makers like Itron and Landis+Gyr, so the meters can talk to the utilities and help make the power grid more efficient and reliable.

Reached by e-mail, Poor says, “From what I can tell it’s a great thing.” Citing Ember’s talent, technology, and reputation in the wireless industry, the firm’s co-founder elaborates: “The Silicon Labs acquisition means that Ember will have the financial and marketing resources to do even more. Also—as someone who cares deeply about the people that make up a company—I’m really glad about the acquisition since it will give everyone at Ember a little more room to breathe and innovate.”

The vast majority of Ember’s 60-odd employees are staying through the merger, LeFort says, and the company is keeping … Next Page »

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We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win…

—John F. Kennedy, September 1962

I teach entrepreneurship to about 50 student teams a year from engineering schools at Stanford, Berkeley, and Columbia. For the National Science Foundation Innovation Corps this year I’ll also teach roughly 150 teams led by professors who want to commercialize their inventions. Our extended teaching team includes venture capitalists with decades of experience.

The irony is that as good as some of these nascent startups are in material science, sensors, robotics, medical devices, life sciences, etc., more and more frequently VCs whose firms would have looked at these deals or invested in these sectors, are now only interested in whether it runs on a smartphone or tablet.

And who can blame them.

Facebook and Social Media

Facebook has adroitly capitalized on market forces on a scale never seen in the history of commerce. For the first time, startups can today think about a Total Available Market in the billions of users (smartphones, tablets, PCs, etc.) and aim for hundreds of millions of customers. Second, social needs previously done face-to-face (friends, entertainment, communication, dating, gambling, etc.) are now moving to a computing device. And those customers may be using their devices/apps continuously. This intersection of a customer base of billions of people with applications that are used/needed 24/7 never existed before. The potential revenue and profits from these users (or advertisers who want to reach them) and the speed of scale of the winning companies can be breathtaking.

The Facebook IPO has reinforced the new calculus for investors. In the past, if you were a great VC, you could make $100 million on an investment in 5-7 years. Today, social media startups can return hundreds of millions or even billions in less than 3 years. Software is truly eating the world.

If investors have a choice of investing in a blockbuster cancer drug that will pay them nothing for fifteen years or a social media application that can go big in a few years, which do you think they’re going to pick? If you’re a VC firm, you’re phasing out your life science division.

As investors funding cleantech watch the Chinese dump cheap solar cells in the U.S. and put U.S. startups out of business, do you think they’re going to continue to fund solar? And as clantech VCs have painfully learned, trying to scale cleantech past demonstration plants to industrial scale takes capital and time past the resources of venture capital. A new car company? It takes at least a decade and needs at least a billion dollars. Compared to iOS/Android apps, all that other stuff is hard and the returns take forever.

Instead, the investor money is moving to social media. Because of the size of the market and the nature of the applications, the returns are quick—and huge.

New VCs focused on both the early and late stage of social media have transformed the VC landscape. (I’m an investor in many of these venture firms.) But what’s great for making tons of money may not be the same as what’s great for innovation or for our country.

Entrepreneurial clusters like Silicon Valley (or New York, Boston, Austin, Beijing, etc.) are not just smart people and smart universities working on interesting things. If that were true we’d all still be in our parents’ garages or labs. Centers of innovation require investors funding smart people working on interesting things—and they invest in those they believe will make their funds the most money. And for Silicon Valley the investor flight to social media marks the beginning of the end of the era of venture capital-backed big ideas in science and technology.

Don’t Worry We Always Bounce Back,

The common wisdom is that Silicon Valley has always gone through waves of innovation and each time it bounces back by reinventing itself.

[The idea of each of these waves of having a clean beginning and end is a simplification. But it makes the point that each wave was a new investment thesis with a new class of investors as well as startups.]

The reality is that it took venture capital almost a decade to recover from the dot-com bubble. And when it did, Super Angels and new late stage investors whose focus was social media had remade the landscape, and the investing thesis of the winners had changed. This time the pot of gold of social media may permanently change that story.

What Next

It’s sobering to realize that the disruptive startups in the last few years not in social media—Tesla Motors, SpaceX, Google driverless cars, Google Glasses—were the efforts of two individuals, Elon Musk and Sebastian Thrun (with the backing of Google). (The smartphone and tablet computer, the other two revolutionary products were created by one visionary in one extraordinary company.)

We can hope that as the Social Media wave runs its course a new wave of innovation will follow. We can hope that some VCs remain contrarian investors and avoid the herd. And that some of the newly monied social media entrepreneurs invest in their dreams. But if not, the long-term consequences for our national interests will be less than optimal.

For decades the unwritten manifesto for Silicon Valley VCs has been: We choose to invest in ideas, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win.

Here’s hoping that one day they will do it again.

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Qualcomm (NASDAQ: QCOM) plans to use its well-established model in technology licensing as it advances innovations in wireless charging of electric vehicles (EVs), smartphones, and other devices, according to Qualcomm’s top European executive, Andrew Gilbert.

The San Diego wireless giant, which announced the formation of a wireless charging standards organization with Samsung last week, also remains on track to demonstrate its new charging technology for electric vehicles (EVs) in London this year, Gilbert said. The San Diego wireless technologies giant announced its plans to showcase the new technology with as many as 50 battery-powered taxis in November, shortly after acquiring HaloIPT, the startup developing the technology.

PM David Cameron (left) and Andrew Gilbert

Gilbert came through San Diego accompanied by a deep-green, all-electric Le Mans prototype racer that England’s Drayson Racing Technologies unveiled in London a few months ago. The Lola-Drayson B12/69 EV, which replaced a 5.5-liter Judd engine with a pure electric drive on a standard Le Mans chassis, is projected to reach speeds of 200 mph, and was designed for pit stop recharging with the HaloIPT charging system.

The Drayson racecar traveled thousands of miles to get to San Diego, but Drayson has not conducted any road tests with the vehicle yet. Gilbert said Drayson plans to begin testing its EV racer in coming months as part of a broader campaign to get the International Automobile Federation to sanction an EV competition—perhaps as soon as the souped-up EVs can race for more than 15 minutes before recharging.

During his San Diego pit stop, Gilbert also noted that Qualcomm and Samsung announced the formation of the Alliance for Wireless Power (A4WP) last week during the CTIA conference in New Orleans. As Gilbert noted, wireless electricity transmission has been around since the days of Nikola Tesla (1856-1943) and there may be as many as 20 other companies developing wireless charging technologies. The alliance plans to focus initially on wireless charging technology for devices, but the group expects to gradually draw in members from the automotive sector as well.

Qualcomm has been working in the transportation sector since the company began, mostly in telematics, and continues to provide “silicon and software” for content streaming, navigation services, and related technologies, including GM’s OnStar service. “We work directly or indirectly with … Next Page »

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Verdezyne, the Carlsbad, CA-based company developing industrial biotechnology processes for making adipic acid and other sustainable chemicals and fuels, has raised more than $10.6 million, according to a recent regulatory filing.

A spokesman for the company confirmed the financing, but would not comment beyond the filing, which shows the financing consisted of debt and rights to acquire securities.

Last year at this time, Verdezyne raised an undisclosed amount of funding from BP Alternative Energy Ventures, DSM Venturing B.V., OVP Venture Partners, and Monitor Ventures. Previous investors include Southern California’s Tech Coast Angels, the Life Science Angels, and other individual investors.

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Is natural gas the new next big thing? It is called a revolution in energy and a game-changer. Daniel Yergin claims that “the rapidity and sheer scale of the shale breakthrough—and its effects on markets—qualified it as the most significant innovation in energy so far since the start of the twenty-first century.” The President has proclaimed that the United States is “the Saudi Arabia of natural gas.” It is “the energy equivalent of the Berlin Wall coming down,” says Robin West, CEO of PFC Energy.

They may be right. Over the course of the next several years, we are likely to witness a dramatic evolution in energy. It will not be overnight, but it is likely that there will be steady movement away from coal and petroleum and towards natural gas.

Natural Gas Supplies are Up Dramatically

The statistics are intriguing. From 1990 to 2010, global proved reserves of natural gas have increased by 49 percent. Because of changes in technology, more can be expected to be found. The U.S. is one of the world’s top five producers with large reserves in New York, Pennsylvania, Texas, Montana, and North Dakota. It is likely the U.S. will become a net exporter of natural gas early in the next decade—a possibility that was inconceivable only a few years ago.

This increase in natural gas supply has put pressure on prices. In early 2011, MIT professor John Deutch noted that, “…oil is three times as costly as natural gas for a given amount for energy, and that is almost double the ratio that has prevailed over the past twenty years.” In early 2012, the U.S. Energy Information Agency predicted that with increased production, average prices will remain below $5 per thousand cubic feet through 2023.

Technical Innovations

Two innovations are responsible for much of the increase in natural gas supply: Horizontal drilling and hydraulic fracturing (or fracking). These developments have allowed drillers to economically harvest gas that was difficult and too expensive to obtain. While these are not new technologies, they have become vastly more cost effective and much more widely utilized in the past decade.

• Horizontal drilling achieved commercial viability during the late 1980s. Horizontal drilling is the process of drilling a well that begins vertically or on a slant and then angles to a target location.

• Hydraulic fracturing (or fracking) is a technique that was first used in the 1940s. It injects large amounts of water, under high pressure, combined with chemicals and sand, into shale. This fragments underground rock, creating pathways for otherwise trapped natural gas to flow through to a well.

Potential Benefits and Concerns

Increases in the supply and use of natural gas present both benefits and concerns.

Benefit—Improved Air Quality and Reduction in Greenhouse Gases. The use of natural gas—particularly as a replacement for oil and coal—has compelling environmental advantages. Compared to coal-generated electricity, natural gas reduces nitrogen oxide emissions by 80 percent. Natural gas emits about 29 percent less carbon than oil and 453 percent less than coal. As a transport fuel, natural gas emits about 20-30 percent less lifecycle carbon than oil. In electricity generation, compared to coal, natural gas reduces emissions of sulfur dioxide by 100 percent.

The MIT study, “The Future of Natural Gas,” concluded that “substitution through increased utilization of existing combined cycle natural gas power plants provides a relative low-cost, short-term opportunity to reduce U.S. power sector CO2 emissions by up to 20 percent, while also reducing emissions of criteria pollutants and mercury.”

Concern—Drilling. Natural gas recovery has been widely criticized for the impact that drilling has on the environment. These concerns fall into three basic categories: Polluted waste water, the potential for earthquakes, and the risk of contaminating drinking water.

• Polluted wastewater. The fracking process generates large amounts of dirty water. Water is forced underground, along with sand and chemicals, to free natural gas for extraction. These waters are then extracted. This is a significant concern and waste waters need to be handled properly and disposed of safely. “Some operators have conspicuously misbehaved and some regulators have fallen short,” says the Rocky Mountain Institute’s Amory Lovins, “making fracking controversial even in normally drilling-friendly places like Texas and western Colorado.”

• Earthquakes. Earthquake concerns are raised both from the fracking process and from disposal of waste waters pumped underground. A Washington Post editorial suggests that “more study and probably more regulation will be needed” as more experience accumulates. But they note, “Of the 144,000 storage wells of this type in America, only a tiny fraction have been linked to earthquakes.”

• Contaminated drinking water aquifers. Critics warn that fracking is contaminating drinking water aquifers. Methane has been found in water wells in gas producing regions, but, according to Yergin, this could occur for a number of reasons (improperly sealed wells or naturally occurring shallow layers of methane, for example). The industry argues that fracking occurs a mile or more below drinking water aquifers and is separated from them by thick layers of impermeable rock. Further, they note, there are more than a million wells where fracking has been employed in the United States dating back six decades.

An MIT study concludes, “The environmental impacts of shale development are challenging but manageable. Research and regulation, both state and Federal, are needed to minimize the environmental consequences.” Not everything is known about these issues; they require continued scientific monitoring and research. As more experience and knowledge is attained, more regulation and oversight may be necessary.

Benefit—Energy Security. Increased utilization of natural gas may reduce our dependence on imported oil from unfriendly sources. While this is not a total solution, “the past image of the US as helplessly dependent on imported oil and gas from politically unstable and unfriendly regions of the world no longer holds,” (says) John Deutch.

Benefit—Impact on the Economy. There can be little doubt that a significant reduction in the export of U.S. dollars to foreign nations to pay for energy imports will be a positive development. It is likely to reduce the nation’s trade deficit and enhance the value of the dollar. It is likely that new jobs and investments will develop in the creation of enhanced energy infrastructure to support growing utilization of natural gas. In Washington, there are several examples developing:

• WaterTectonics is an Everett-based company that specializes in water cleaning systems including electrocoagulation treatment, chemical treatment, and automated pH adjustment. The company has seen significant growth in the treatment of flowback and produced water in natural gas extraction.

• World CNG is a Kent, WA-based company specializing in the aftermarket conversion of light- and medium-duty passenger and cargo vehicles to use compressed natural gas instead of conventional gasoline or diesel.

• HotStart is a Spokane Valley company that creates engine heating devices in markets including oil and gas. Much of the company’s growth has been in delivering large pipeline pump engine heating solutions that significantly reduce wear and tear.

Concern—Alternative Energy. Juliet Eilperin of the Washington Post wrote recently, “Perhaps the biggest force working against not just Solyndra but clean energy in general is this: Because natural gas has gotten so cheap, there is no longer a financial incentive to go with renewables.” Investor interest, at least for the moment, is moving in a new direction.

Conclusions

Is natural gas the next big thing? There are few certainties in forecasting, but natural gas looks big. Overall, this is a good thing, albeit with legitimate concerns. There are three reasons to move to new sources of energy: Environmental, economic security, and national security. Natural gas may be environmentally beneficial. It is certainly an improvement to U.S. economic and national security. If it can ultimately provide a bridge to a cleaner, more efficient energy future—and is regulated appropriately—it will indeed be a boon to the world.

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Startups with ideas for improving energy efficiency in the transportation, construction, and utility industries got their first big chance to promote their businesses at last week’s semi-annual demo day at Greenstart, San Francisco’s cleantech startup accelerator.

It was the second such event at Greenstart, which was established last summer and hatched its first batch of companies in December. For the most part, Greenstart’s 2011 graduates were working on big challenges ranging from construction materials to biofuels to smart electrical sockets; only one, an online game called Wa.tt, was a pure software play. But Greenstart founder Mitch Lowe kicked off last week’s proceedings by offering a redefined focus for the accelerator, one that hews much closer to the kind of software- and Internet-related problems that can be solved on startup time. “Our mission is to accelerate digital cleantech,” Lowe said.

It’s a change Lowe foreshadowed in a February interview, back when the current class of startups had just entered the program. Startups have a better chance of making a dent in the energy business if they focus on distribution and efficiency— areas where software innovation can make a difference—rather than energy generation, Lowe said. “There are some business models where you can iterate and learn more quickly,” he said.

Greenstart’s three-month program is all about that iteration, with guidance from a network of mentors experienced in the energy, investing, and product design. A new addition this time around: David Merkoski, the former executive creative director at Frog Design, who was brought onto advise companies about branding and user-interface questions. In remarks before Wednesday’s startup pitches, Merkoski said “design tools” and “design thinking” can help startups solve not just product problems, but business and strategy problems. “This is where Greenstart separates from other accelerators,” he said.

The five companies chosen for the spring term were drawn from a pool from 150 applicants, according to Lowe. “It is harder to get into Greenstart than it is to get into MIT,” he said. “This is the cream of the crop.”

Here are thumbnail introductions to the five companies, based both on their presentations and one-to-one interviews with founders (except in the case of Scoot Networks, whose CEO, Michael Keating, said he didn’t have time to speak with me).

GELI 

GELI founder and CEO Ryan Wartena. Photo courtesy of Greenstart.

GELI—the name is an acronym for Growing Energy Labs Incorporate—hopes to become the leading software provider in a market that doesn’t quite exist yet: software for grid-scale batteries. Founder and CEO Ryan Wartena, who earned a PhD in electrochemical engineering at Georgia Tech, points out that companies have invested $10 billion over the past eight years building new types of energy storage devices for the grid, and that they’re expected to spend another $30 billion over the next decade. Yet the renewable energy business is plagued by a daily imbalance between supply and demand. “Imagine you have solar on your house but you want to make a margarita at night,” Wartena says by way of explanation. If battery makers and utilities could manage energy storage devices using a common stack of open-source software for communications and power conversion, such imbalances could be smoothed out more efficiently and profitably.

GELI’s operating system can talk to various appliances and power conversion systems and lets utilities and facility owners monitor demand and sell energy back into the grid at optimal times. The main customers for the software, Wartena, thinks, will be battery manufacturers. “What we are delivering is software that will allow them to monetize multiple value streams for their batteries,” he says. “It’s great that everyone is trying to make a cheaper battery, but they’re missing a piece. If we do this open source project, we can get developers building applications so that [battery makers and owners] can participate in the market for load management.”

kWhOURS

KWhOURS founder and CEO Colin Davis says his passion is for “making it easier for people to do the right thing.” In the construction business, there are lots of ways today to do the right thing when it comes to making buildings more energy-efficient. But the first step is always an “energy audit,” and Davis noticed while working as a consultant for an energy operations company that the process is by no means easy. “You wander around a building with a notepad for two weeks writing a few hundred pages of notes, and then you transfer that manually into an Excel spreadsheet and run different scenarios, and then the data dies and the next person to come long has to start from scratch.”

kWhOURS founder and CEO Colin Davis. Photo courtesy of Greenstart.

The big idea at kWhOURS s is to supply engineering service companies with tablet-based software for conducting commercial building assessments. The software, called Field, is already being used to run audits of everything from 7-Elevens to military bases. “We guide people through the process,” Davis says. “We standardize it, and you get it in reusable, digital form.” He claims big engineering firms will be able to save millions of dollars a year using the software.

The Cambridge, MA-born startup is already two years old, and has been selling a Windows-based version of Field for more than a year. But with Merkoski’s help, Davis used his time in Greenstart to … Next Page »

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New England clean energy, life sciences, and Internet startups pulled in funding this week. Plus there was some big acquisition news.

—Hologic (NASDAQ: HOLX), a Bedford, MA-based maker of women’s health products, said Monday it will acquire San Diego-based molecular diagnostics company Gen-Probe for $82.75 a share, for a total of $3.7 billion. The deal represents a 20 percent premium over Gen-Probe’s (NASDAQ: GPRO) Friday closing share value of $68.71 and is expected to close in the second half of this year.

—Cambridge, MA-based Mersana Therapeutics nabbed $4 million in debt financing, for a total round size of $10 million, an SEC filing shows. The company is developing technology to deliver cancer drugs to tumors without affecting healthy tissue.

—CustomMade, the Cambridge-based startup whose website connects artisans with shoppers looking for custom goods, said it raised a $4 million funding round led by previous investor Google Ventures, as well as Schooner Capital. Its existing investors, Launch Capital, NextView Ventures, Facebook co-founder Andrew McCollum, and First Round Capital all joined the deal, which comes atop a $2 million funding from last September.

—MIT awarded its $200,000 Clean Energy Prize to Radiator Labs, a startup founded by Columbia University students that seeks to make radiator heating systems more energy efficient with an enclosure that controls the amount of heat transferred to a room.

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On September 16, 2011, President Obama signed into law the America Invents Act, the most important modification to U.S. patent law in 60 years—and some even argue, since 1836. Some changes went into effect immediately, such as fee penalties for submitting paper applications and strict rules on when multiple defendants can be joined together in one lawsuit.

These immediate changes were not as important to most inventors and tech companies. Instead, the big focus has been on the switch from the “first-to-invent” guideline for awarding patents to a “first-to-file.” Another change of great interest are the new types of challenges that can be used by third parties to prevent a patent from issuing, or to get it revoked. The changes in patent challenges take effect on September 16, while the new first-to-file rule begins next year, on March 16.

This doesn’t mean inventors and tech companies should be in standby mode, however. Actions that inventors and companies take now could affect patent applications and patents filed for and issued after the new provisions take effect. Thus, it is imperative for inventors and tech companies to start preparing immediately for the new world under the America Invents Act.

As a patent litigator, inventor, and professor of patent law, here are my five most important steps you or your company can take in advance of the First-to-File switchover:

—Get your documentation and lawyers ready to file patent applications on all of your current inventions by March 16, 2013.

All applications filed after March 16, 2013, that cannot trace all claims that were submitted at any time in the application to an earlier application fall under the new first-to-file rules—which in the vast majority of situations, can only hurt the applicant. Thus, under nearly all circumstances, make sure to file before March 16, 2013.

—Be careful about disclosing, selling, or using your invention in a commercial manner.

Under existing law, patent applicants have a year to file after selling, using, or disclosing their inventions. While it appears that the intent of … Next Page »

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San Diego’s EcoATM is ringing up $17 million in a Series B round of venture funding today to expand the operation of its automated kiosks, which recycle cell phones and other handheld electronic devices and immediately dispense cash or gift cards.

After deploying several generations of its kiosks in shopping malls, retail stores, and companies throughout San Diego and a few other places, the company has largely proved its business model and is ready to expand throughout California and beyond, CEO Tom Tullie says. As co-founder Mark Bowles wrote a few years ago, EcoATM began in 2008 with the idea of rewarding consumers to recycle their mobile phones by making it easy for them to get a “trade up” discount coupon, cash, gift card, or to make a charitable donation.

Each kiosk uses machine vision, electronic diagnostics, and artificial intelligence to identify and evaluate each device being recycled. The machine checks the spot prices in worldwide secondary markets for electronic devices to determine how much cash or store credit to offer for each trade-in. EcoATM collects the devices and sells them to resellers or recyclers, but Tullie declined to say how much of a cut the company gets on each device sale.

The company estimates the global annual market in recycled cell phones at about $5 billion. Of course, consumers also can sell their mobile phones and devices online or take them to electronic recyclers, but many find EcoATM’s kiosks convenient and appealing.

“I was actually looking to raise about $12 million, and got talked into raising more,” Tullie says. “The speed at which we’ve been able to build the business and get the technology to this stage surprises even me.”

Singapore billionaire Koh Boon Hwee is the new big lead investor, according to Tullie, who would not say how … Next Page »

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San Diego’s innovation economy added 75 new technology companies and 695 jobs during the last three months of 2011, according to the Connect Innovation Report for the fourth quarter of 2011. New jobs created in San Diego’s innovation sector during the fourth quarter of 2011 accounted for more than half of the 1,182 jobs added across the spectrum of San Diego’s tech industries added throughout the year.

The number of new jobs created during the quarter also was about 2.5 times the 195 jobs added during the fourth quarter of 2011. And it was about 2.5 times more than the 196 jobs created during the previous quarter in San Diego.

In a statement from Connect, labor market specialist Gary Moss of the San Diego Workorce Partnership says job growth has grown steadily since July of 2010. Nevertheless, he calls the spurt of new jobs added at the end of last year “very encouraging.”

The quarterly Connect report, which can be found here, says patent activity for the San Diego area also hit an all-time high during the fourth quarter, local mergers and acquisitions doubled, and invested venture capital increased by 25 percent compared to the same quarter in 2010.

The long-term trend in venture capital investing, however, has been declining. The report notes that over the past five years, for example, venture investing in San Diego has declined by roughly 46 percent (from the fourth quarter of 2007 to the fourth quarter of 2008). Venture capital investments declined in 2011 to $829 million, although it did surge in the fourth quarter, according to MoneyTree data reported by Pricewaterhouse Coopers, the National Venture Capital Association, and Thomson Reuters.

For the year, Connect counted 109 new software companies, 67 new life sciences companies, 54 in communications, 21 in computers and electronics, and 42 new clean tech startups.

Mergers and acquisition deals involving San Diego companies totaled $1.2 billion in the fourth quarter. For the year, Connect said M&A activity thrived in 2011, nearly doubling to $6.6 billion. Two San Diego companies went public in 2011, generating $729 million .

The Connect report says San Diego hit a record for patents in the fourth quarter, with 1,215 being granted, compared to 940 in the fourth quarter of 2010. In addition, there were 1,702 patent applications in the fourth quarter, approaching the record of 1,725 set in the second quarter.

Grants awarded to scientists by the National Institutes for Health (NIH) plunged by more than 75 percent, dropping in $67.5 million during the quarter from $277.6 million in the fourth quarter of 2010. In the previous quarter, the NIH awarded $275 million in grants to researchers in the San Diego area. The report attributes the dramatic drop to the NIH operating under a continuous resolution signed by President Obama in November that allowed the federal government to continue operating with an approved budget.

The report says additional spending cuts are expected to further restrict NIH funding as the government’s efforts at deficit reduction are projected to bite deep into research grant awards.

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It was a light week for tech news in San Diego. Our roundup today is short and sweet.

—Fueled by strong growth over the past nine months, San Diego’s Zui.com introduced “Facetube,” a social network intended to empower pre-teens to share age-appropriate content. The company that began in 2008 as KidZui also re-branded itself earlier this year due to the popularity of its Zui.com search engine. More than 2 million unique visitors visited Zui.com in March.

—Bandsintown, the San Diego-based app developer with the No. 1 free concert tracking application on Facebook and the iPhone, said it has branched out to Android devices with a free app that can now be downloaded from the Android Marketplace. Bandsintown, acquired by New York’s Cellfish in September, enables music fans to track their favorite artists’ shows and helps groups promote their music and sell concert tickets.

—Independa, a San Diego startup combining health IT and wireless health technology to help enhance independent living for older adults, said it raised an additional $750,000 beyond the $1.6 million in seed-round venture funding disclosed seven months ago. CEO Kian Saneii said the company plans to use the funding to expand sales, support, and engineering operations, as well as marketing efforts aimed at broadening its customer base. The company said its additional funding came from Miramar Venture Partners, City Hill Ventures, and other investors.

— San Diego’s Fallbrook Technologies said it has demonstrated performance gains and potential fuel-saving benefits of a variable speed supercharger drive that incorporates its continuously variable transmission technology. The cleantech company said its independent analysis shows that that vehicle manufacturers could move to smaller and more-efficient engines with no loss in performance or drivability by using a supercharger equipped with its “NuVinci” technology.

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As the Presidential campaign heats up, one of the most pressing issues on the minds of candidates and voters alike is the future of American growth and competitiveness. So it is our great pleasure to announce an exclusive Xconomy gathering dedicated to exploring this vital issue with some of the most knowledgeable experts on the subject you will find. The discussion promises to be free from electioneering and political hyperbole, and the setting promises to be memorable. And if you love basketball, there is a special treat (read on).

The Xconomy Napa Summit: Keeping America Competitive will take place in the heart of California’s wine country on June 7 & 8, 2012. We are convening an amazing body of leading innovators, investors, entrepreneurs, and Xconomists—our informal advisors—for in-depth and personal chats, entrepreneur-investor stories, and extremely candid panel discussions.

We couldn’t be more excited about the group of folks who will join us for this deep dive into America’s future. Among our speakers: Ray Rothrock of Venrock, incoming chairman of the National Venture Capital Association; genomics pioneer Lee Hood; legendary investor Bill Draper of Draper Fisher; super angel Dave McClure, founder of 500 Startups; Harry Shum, former director of Microsoft Research Asia and now VP in charge of search product development for Microsoft; Ann Marie Sastry, CEO and founder of battery maker Sakti3; Matt Mullenweg, Founder of WordPress maker Automattic; Pete Flint, CEO of Trulia; and Curt Carlson, CEO of SRI International.

And for those of you, like me, who love hoops and think sports offer some real insights on innovation, Bill Walton, NBA Hall of Famer and innovation advocate, will speak at our dinner on entrepreneurship and competitiveness.

Here are the details:

June 7, 2012: Silver Oak Vineyards

915 Oakville Crossroad, Oakville, CA 94562

Registration and cocktail reception begins 5:30 PM

Vineyard tour and dinner commences at 6:30 PM

June 8, 2012: Villagio Inn & Spa – Historical Barrel Room

6481 Washington Street, Yountville, CA 94599

Program from 8:30 AM to 4:30 PM

We only have room for a small number of attendees to this invitation-only event. Registration is $1250, and includes wine reception, vineyard tour, and all meals (lodging is separate).

To request an invitation—and for more event information, including the full list of speakers—please visit our Napa Summit event listing here.

I hope to see you in wine country.

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The Michigan Pre-Seed Capital Fund, which supports high-tech startups, recently announced it has awarded more than $444,000 in microloans to 12 companies through the Michigan Microloan Program. To qualify for the loans, which range from $10,000 to $50,000, companies must be located in Michigan, have the rights to innovative technology, be pre-revenue, and have the potential for rapid growth and sales of over $10 million in five years. Companies must also be private entities working to commercialize technology of interest to the 21st Century Jobs Fund, which focuses support in the areas of life sciences, alternative energy, homeland security, and advanced automotives, manufacturing and materials. The 12 companies that received microloan funding earlier this month are:

2 of 10, Chesterfield, is commercializing innovative products for carrying concealed weapons geared toward the Homeland Security and law enforcement markets.

Applied Computer Technologies, West Bloomfield, is an auto infotainment firm that is developing technology to help prevent accidents due to driver distraction.

AutoBike, Troy, is designing and developing a bicycle for the casual rider that automatically shifts gears.

BAHRS (Break Away Hook Release System), Grand Rapids, is commercializing a mechanism to help anglers release snagged fishing lures. BAHRS won Grand Valley State University’s 2010 Idea Pitch Competition.

Eco-Fueling, Saline, is commercializing a retrofit device for diesel-engine vehicles that increases fuel economy by more than 10 percent while reducing emissions through the use of an ethanol additive.

ENRG Power Systems, Detroit, is developing a high-performance plasma drive ignition system for automotive and industrial applications.

Green Flag Credit, Grosse Pointe, is commercializing online marketing technology for the retail automotive sector.

I Pillbox, Canton, is developing a “smart” pillbox.

PerkPerk, Ann Arbor, helps consumers find and access club discounts and coupons.

Sentry Medical Technologies, Ann Arbor, is a medical device company developing technology that helps monitor and correct subconscious patient behavior.

Sterilogy, Bloomfield Hills, has developed a personal hand-sanitizer delivery device for use at home and in medical facilities.

truApp, Ann Arbor, offers an online platform for college students to showcase their work and experience to employment recruiters.

Since the Michigan Microloan Fund was established in 2009, 55 companies have received $2.3 million in subordinated loans.

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It’s rare that chips and salsa lead to a startup funding deal. But this isn’t your average startup, and I’m not talking about the usual kind of chips and salsa.

CoolChip Technologies, a Boston-area tech startup looking to make data centers more energy-efficient, raised $500,000 in seed funding earlier this month. What the company didn’t reveal, however, was that the money comes from Founders Fund, the San Francisco venture firm started by PayPal co-founders Peter Thiel, Ken Howery, and Luke Nosek. What’s more, there is a bit of controversy and intrigue around the startup’s technology.

Here’s the story behind the financing deal. It begins with CoolChip CEO William Sanchez, an MIT lifer (undergrad, master’s, and PhD just weeks away) originally from the Bronx, who started the company in 2010. But long before that, Sanchez discovered salsa dancing as a sophomore in college and says it kept him sane while he adjusted to life in Boston. Over the years, he has kept it up and even formed a salsa teaching and performance company. He says he still dances about twice a month.

Why is this important? Because one of his good friends from salsa, Gleb Chuvpilo (a fellow MIT techie), used to work with Peter Thiel on a few different ventures over the years. For the uninitiated, Thiel—in addition to being PayPal’s former CEO—was Facebook’s first outside investor. In the interim, he founded a global hedge fund (Clarium Capital Management), helped start an analytics and data visualization software firm (Palantir Technologies), and more recently set up a fellowship to encourage college kids to drop out of school and start new businesses (20 Under 20). Chuvpilo worked with Thiel on finance at Palantir and managed portfolio risks at Clarium Capital.

So when Thiel visited MIT last spring to give a talk at the Stata Center, Chuvpilo and Sanchez signed up to be his “secret service” and … Next Page »

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It was already a star-studded bevy of speakers convening for XSITE, the full-day Xconomy Summit on Innovation, Technology, and Entrepreneurship slated for June 14 at Babson College. Now, that lineup boasts some additional stars, as Atlas Venture partner Fred Destin and Brad Hargreaves, co-founder of the vaunted New York startup space General Assembly, have just joined the party.

Both of these speakers will be taking part in a plenary session on new fundraising models for startups.

The new faces help round out what promises to be an incredible day of insight and illumination on innovation—from what it takes to found and run a startup to managing high-growth companies to IPO and beyond. In case you missed our previous announcement, other featured speakers include Evernote CEO Phil Libin; Garrett Camp, co-founder of both StumbleUpon and the disruptive car service Uber; Brian Halligan, co-founder and CEO of HubSpot, and Katia Beauchamp , co-founder of Birchbox. There will even be a keynote featuring Jayashree Subrahmonia, VP of engineering and delivery for Watson Solutions at IBM, who will be demonstrating and talking about Watson, Big Blue’s Jeopardy-winning computer.

For the full list of speakers to date, and for registration information (the Early Bird rate ends next week), check out our event page here.

One thing we are really curious about is General Assembly’s plans for Boston. As we previously reported, a recent tweet-–somewhat ironically, from Destin, not Hargreaves—indicated that GA is planning some sort of not-yet-announced Boston expansion. All will likely become clear before XSITE, though no doubt Hargreaves will be able to tell us more in person. For now, though, all he will reveal is this statement: “With some of the world’s best universities—and no shortage of world-changing ideas—Boston’s startup ecosystem is truly inspiring. Starting in May, General Assembly is excited to be joining this community, offering classes and workshops in technology, design, and entrepreneurship.”

So you heard it here first—GA is definitely coming to town in some form or fashion.

One more thing about XSITE: If you are at a startup, we hope you didn’t miss the incredible offer from CommonAngels and the New England Venture Capital Association, both of whom have purchased 25 tickets for you. The groups are tapping their networks to give away most of these tickets—but CommonAngels has set aside 10 for Xconomy to hand out, and we still have a few left. So if you would like one of those, and you are at a startup, just write to us at events@xconomy.com, and tell us a little bit about yourself.

For the rest of you, XSITE is one of the premier days for the New England Innovation Community. We hope you take advantage of the Early Bird rate and register now.

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Enacted with great fanfare in early April, the JOBS Act is intended to improve access to the public capital markets for startup companies. The cornerstone of the act is the creation of an “IPO on ramp” which provides “emerging growth companies” up to five years following their IPO to come into full compliance with various disclosure and accounting requirements. By reducing the cost and complexity of going public, at least to some extent, the act should encourage eligible companies to pursue IPOs.

An emerging growth company (EGC) is any company that had annual revenues of less than $1 billion (indexed for inflation) during its most recently completed fiscal year, other than a company that completed its IPO on or before December 8, 2011. Approximately 90% of all IPO companies over the past five years would have qualified as EGCs. Emerging growth company status ends after five years or earlier if the company’s annual revenues reach $1 billion (indexed for inflation); the company has been public for at least twelve months, files one Form 10-K and achieves a public float of at least $700 million; or the company issues more than $1 billion in non convertible debt during a three year period.

The JOBS Act provides a number of important benefits to EGCs:

• Reduced Financial Statement and MD&A Disclosure: In IPO registration statements, emerging growth companies are required to provide only two years of audited financial statements (instead of three) plus unaudited interim financial statements. In addition, an EGC need not present selected financial data in other registration statements or reports filed with the SEC for any period prior to the earliest audited period presented in its IPO registration statement. Similarly, an emerging growth company is only required to include Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) for the fiscal periods presented in the required financial statements.

• Exemption from Internal Controls Audit Attestation: Emerging growth companies are exempt from the requirement of the Sarbanes Oxley Act that an independent registered public accounting firm audit and report on the effectiveness of a company’s internal control over financial reporting. As a practical matter, IPO companies will still need to implement robust controls and procedures prior to going public.

• Delayed Application of New Accounting Standards: Emerging growth companies may choose not to be subject to any newly adopted or revised accounting standards unless and until these standards are required to be applied to non-public companies. This election must be made on an “all or nothing” basis and is irrevocable. Opting out may not always be beneficial, however, as it may make the ultimate transition out of emerging growth company status more painful.

• Exemption from New Audit Requirements: EGCs are exempt from any future mandatory audit firm rotation requirement and any rules requiring that auditors supplement their audit reports with additional information about the audit or financial statements of the company that the Public Company Accounting Oversight Board might adopt. Any other new auditing standards adopted by the oversight board will not apply to audits of emerging growth companies unless the SEC determines that application of the new rules to audits of these companies is necessary or appropriate in the public interest.

• Reduced Executive Compensation Disclosures: An emerging growth company is allowed to provide the “scaled” executive compensation disclosures previously available only to companies with a public float of less than $75 million. An EGC need not provide Compensation Discussion and Analysis (CD&A); compensation information is required only for three named executive officers (including the CEO); only three of the seven compensation tables otherwise required must be provided; and the Summary Compensation Table is only required to cover two years (as opposed to three).

• Exemption from Additional Compensation Disclosures: Emerging growth companies are exempt from the Dodd-Frank Act requirements, which are not yet in effect, to include disclosures about the relationship between executive compensation and financial performance and the ratio between CEO compensation and median employee compensation.

• Exemption from Say-on-Pay, Say-on-Frequency and Say-on-Parachute Requirements: Emerging growth companies are exempt from the requirements mandated by the Dodd Frank Act that companies seek stockholder approval of an advisory vote on their executive compensation arrangements, including golden parachute compensation.

• Confidential Submission of Registration Statements: An EGC is able to submit a “draft” Form S-1 to the SEC for confidential review instead of filing it publicly. A Form S-1 that is confidentially submitted must be substantially complete, including all required financial statements and signed audit reports. Confidential submissions do not have to be filed publicly until 21 days before the road show commences, enabling an EGC to maintain its IPO plans in secrecy and delay disclosure of sensitive information to competitors and employees until much later in the IPO process.

Emerging growth company status is also available to companies with annual revenues of less than $1 billion that completed an IPO after December 8, 2011. These companies will need to decide whether to adopt EGC standards in future SEC filings.

An eligible company may choose to forgo any of the exemptions provided to EGCs and instead comply with the requirements that apply to a company that is not an emerging growth company. However, the company must decide whether it will avail itself of the exemption regarding the extension of time to comply with new and revised accounting standards at the time the company is first required to file a registration statement or other report with the SEC after April 5, 2012. An emerging growth company is not permitted to choose to comply with some but not all of the non-EGC accounting standards.

The extent to which emerging growth company standards will be adopted by eligible companies and accepted by the market is uncertain. Institutional investors could, for example, demand that EGCs continue to comply with non-EGC standards for some or all matters. A pre-IPO emerging growth company should discuss with its IPO underwriters the impact of adopting the standards on marketability of the offering. An emerging growth company that went public after December 8, 2011, should consider market and investor expectations before adopting EGC standards.

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After stepping down as the founding CEO of San Diego’s Sapphire Energy, Jason Pyle tells me he’s accomplished a number of key initiatives at the algae-based biofuels startup, and basically that it’s time to move on.

His departure surprised me. Founding CEOs don’t often walk away from startups that have amassed a $1 billion valuation and that have drawn nationwide attention for developing potentially transformational technology. But Pyle says it was no surprise internally, where plans for the changeover have been underway for the past six months or more.

“From my perspective, this is essentially a positive thing for me and it should be for the company,” Pyle says. “I feel like I’ve done what I came here to accomplish.” The former Sapphire CEO also says he’s been emphasizing the critical importance of reducing U.S. dependence on imported oil in meetings with top government officials. In the statement the company issued last week, Pyle says he’s moving on to his “next endeavor.”

“There’s probably never a perfect time to do it, but you try to come up with the best time for everybody and work out the details,” Pyle says. He tells me he’s “deeply involved with a new enterprise that’s in stealth mode” and that a large part of the work is being done in San Diego. But he was unwilling to say anything more.

Succeeding Pyle as CEO is Cynthia “C.J.” Warner, who was recruited to serve as Sapphire’s president and chairman three years ago from her post as group vice president of global refining for BP. Warner has spent more than 27 years in petroleum-based crude oil refining, transportation, and operations, and she is taking over as the company focuses on its near-term goal—of producing green crude oil from algae that is consistently and reliably comparable to petroleum.

“The next two to three years of the company’s existence is going to be built around the commercial demonstration facility” under construction in Luna County, New Mexico, Pyle says.

Warner’s expertise is in refining processes and production. In an interview last October, Warner said, “all the first principles [about making crude oil from algae] have actually been proved out. So we don’t have any lurking issue that we simply don’t know how to deal with. Now what it really is all about is scale-up.”

Pyle, in contrast, describes … Next Page »

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