Although biofuel startup LS9 Inc. only in March raised $5 million in Series A venture funding, company president Robert Walsh said Tuesday at AlwaysOn's Going Green show in Davis, Calif., that LS9 already is looking to raise more funds as it prepares to build a pilot plant for its synthetic petroleum product. The company's biofuel is designed to closely resemble petroleum-derived fuels, yet be renewable, clean, domestically produced and cost-effective.

LS9 was founded in 2005 by two scientists and is backed by Flagship Ventures and Khosla Ventures. Walsh, chatting after sitting on a panel on biofuel technoloyg, said both venture firms will re-up in the second round of funding and that another venture investor would likely participate. --David Shabelman

See LS9 press release

Nortel Networks Corp.'s longstanding position on the M&A sidelines — combined with its impassioned insistence that it is indeed interested in M&A — is starting to look more than a little strange.

The company has not made any acquisitions since its December 2005 purchase of Tasman Networks Inc. for $99.5 million, but it has repeatedly stated since then that it was interested in doing more deals. On Monday, during a conference call  hosted by CIBC Oppenheimer analyst Ittai Kidron, the company insisted that it was not just paying lip service to the notion of M&A. When Kidron asked Steve Slattery, president of the company's enterprise division, why Nortel had not been more active in M&A, Slattery insisted that assessment was wrong.

"I can tell you that our M&A folks have been working feverishly for 18 months looking at a variety of opportunities," Slattery said, noting that Nortel was interested in outright acquisitions as well as minority investments and partnerships.

"We are constantly evaluating opportunities," he said. "But we are not going to overpay for an asset. It has to be accretive."

The curious thing about Nortel's insistence that it has not yet found the right kind of purchase is the fact that all around it, peer companies are buying like mad. Most recently this past June, when private equity buyers bought Avaya Inc. for $8.2 billion, questions swirled about why Nortel hadn't moved more swiftly to buy this company that could have enhanced its enterprise business.

Slatterly did not directly discuss Nortel's past accounting crisis, the loss of goodwill that resulted and the speculation that this had impaired its ability to acquire other companies. But he did say: "We don't feel hamstrung in our ability to execute. We just want to make good decisions."

Kidron seemed as confused as everybody else in  its aftermath.

In a research report on Tuesday, he wrote, "Nortel's business trends remain solid near term, yet we believe the company needs to consider M&A to shorten the time for its participation in [key business] segments." —Andrea Orr

See June 5 story from TheDeal.com
See December 2005 story from TheDeal.com
See February 2005 story from TheDeal.com

Tags: deals, m&a, mergers, Nortel

For allt the fanfare around this summer's IPO of VMware Inc., which made the term virtualization the tech buzzword du jour, it's now becoming clear that there's a lot more work to be done, and technologies to be developed to further streamline the data center. Case in point: VMware, which pioneered virtualization, is looking outside its walls for technologies to improve on its own technology.

On Tuesday the company said it acquired Dunes Technologies, a Swiss company that makes software for managing virtual machines. And as The Deal reported on Monday, venture money continues to flood into virtualization technologies.

It's easy to draw parallels between virtualization and search, which also enjoyed an explosion of investor interest when Google Inc. went public a few years back. That comparison only goes so far. While it's possible to endlessly tweak Internet search technologies and develop new applications to search blogs or video and better prioritize search results, there's something fundamental about search technology that would always favor Google, as the first major player in the space. When it comes to virtualizing the data center, on the other hand, there are dozens of different pieces of equipment to address and equal or greater number of approaches to take. Judging by the flurry of venture investment and acquisition activity in this area, it would appear that virtualization is still wide open with any number of companies having the potential to dominate. —Andrea Orr

See Sept. 11 story from TheDeal.com
See Aug. 15 story from TheDeal.com
See VMware announcement

Tags: VMware, virtualization, ipo, m&a, vc, venture+capital

Tech Confidential caught up with Susan Mac Cormac, head of Morrison & Foerster LLP’s cleantech practice, at the AlwayOn Going Green conference in Davis, Calif. She moderated the morning panel on emerging clean energy technologies.

Mac Cormac said a lack of education on the part of venture capitalists runs the risk of creating bubbles in certain areas of cleantech in part because it now encompasses such a broad spectrum of complex technologies.

“This is not like IT because if you’re going to make smart investments you’re going to have to understand the technology and the environmental impact,” she said. “Most of the VCs don’t have that expertise; but because they don’t want to miss the trend, they follow other VCs rather than doing the research themselves.”

Because of these big challenges, Mac Cormac said firms like Kleiner Perkins Caufield & Byers, VantagePoint Venture Partners and Draper Fisher Jurvetson are hiring experts in certain areas of cleantech so they can better judge their opportunities. —David Shabelman

See Sept. 11 story from TheDeal.com

Tags: Clean Tech, vc, venture+capital

To compete with cable and satellite TV companies. AT&T Inc., Verizon Communications Inc. and a slew of competitive local exchange carriers, or CLECs, are pouring millions of dollars into Internet protocol television, or IPTV. Instead of using traditional broadcast, cable or satellite transmissions, IPTV delivers video using the same techniques developed for computer networks.

By the end of 2010, Verizon will have spent $23 billion to develop its FiOS fiber optic network. The FiOS service has 500,000 customers, with a primary draw being its IPTV service. Meanwhile, by the end of 2008, AT&T will have spent $6.5 billion on its U-verse IPTV service. Earlier this month, AT&T announced that U-verse has attracted 100,000 customers since debuting in January.

The closed network approach deployed by the telecoms pits them not only against the cable and satellite TV companies but also to some extent against the thousands of companies delivering video over the public Internet with content delivery networks from companies, including market leader Akamai Technologies Inc. and Limelight Networks Inc., which went public earlier this year. Also delivering products and services that marry the Internet with the TV are computer industry giants, such as Microsoft Corp., Apple Inc. and Hewlett-Packard Co., and TV makers, such as Sony Corp., and makers of set-top boxes with embedded IPTV capability.

For dealmakers, the IPTV sector is teeming with opportunities. Tech Confidential identifies 15 online video seed-stage fledglings and 10 venture-backed startups in our recent special report on digital convergence.

Continuing to spotlight the sector, we're exploring the state of IPTV technology development at our Convergence 2.0 Conference in New York City on Monday, Sept. 17. Please join me for a panel that includes:

• Scott Paterson, CEO, JumpTV Inc., the world’s largest broadcaster of ethnic television channels over the Internet with more than 280 channels from 70-plus countries and subscribers from more than 80 countries. JumpTV recently acquired an online global sports network from XOS Technologies Inc. for $60.25 million.
• Shelly Palmer, managing director, Advanced Media Ventures Group LLC, who writes the media biz blog Media3.0 and is the author of "Television Disrupted: The Transition from Network to Networked TV."
• Eric Small, vice president, entertainment products, AT&T, who is responsible for the telecom's U-verse service.
• Tom Westdyk, managing director, CIT Communications, media and entertainment group. Recently closed deals include an $850 million acquisition finance for Pacetec Holding Corp. and a $580 million acquisition financing for Knology Inc.

—Mary Kathleen Flynn

See Sept. 5 story in Investor's Business Daily
See Aug. 17 story on Limelight in TheDeal.com
See June 15 story on seed-stage companies in TheDeal.com
See June 18 story venture-backed companies in TheDeal.com
See info on Tech Confidential's Convergence 2.0 Conference
See July 19 story on Xos Technologies in TheDeal.com
See Media3.0 blog
See Sept .4 story on CLECs in TheDeal.com
See Feb. 16 story on Knology in TheDeal.com

Tags: media, web 2.0, vc, venture+capital

As pricing pressure heats up in the microprocessor sector, Advanced Micro Devices Inc. is making strides against its competitors, primarily chief rival Intel Corp. According to research firm iSuppli Corp., AMD in the second quarter of 2007 gained 2.5 percentage points on its rivals, compared to the first quarter, and took a 13.4% share of overall microprocessor revenue.

It's still not enough to make a dent on Intel. The chip giant in the second quarter may have suffered a 2 percentage-point decrease in revenue share, but it still commands 78.8% of the market, iSuppli reported.

Still, the second quarter marked a major gain for AMD, since the company has seen its market share decline by nearly 6 points from 16.8% in the third quarter of 2006, to 10.9% in the first quarter this year. Its second-quarter resurgence was due to shipments for notebook, desktop and server microprocessors, despite a decline in the overall microprocessor average selling prices, iSuppli said. Intel has also suffered a decline in its microprocessor ASPs. This week, AMD introduced its newest, fastest high-end chip, codenamed Barcelona, and is banking on that chip in part to help it garner even more market share.

Both microprocessor makers have been doing deals to expand their markets and focus their businesses. On Sept. 10 Intel sold certain assets of its modular communications platform to Radisys Corp., a maker of computer applications, for $25 million plus about $6.76 million in inventory and other unnamed consideration. In July, Intel of Santa Clara, Calif., paid $218.5 million, or $23 a share, for a 2.5% stake in virtual software company VMware Inc., which went public with much fanfare in August. Then in July, AMD invested $7.5 million in Transmeta Corp. in exchange for stock. Transmeta develops chip technologies for other companies and has become increasingly aggressive in enforcing patent rights. —Cheryl Meyer

See Sept. 9 story from SFGate.com
See Sept. 11 brief from TheDeal.com
See Aug. 15 story from TheDeal.com
See July 9 story from Tech Confidential

Tags: AMD, semiconductors

Venture capitalists led off the morning session at the AlwaysOn GoingGreen conference Tuesday. Raj Atluru of Draper Fisher Jurvetson, Samir Kaul of Khosla Ventures, Ray Lane from Kleiner Perkins Caufield & Byers and Bill Green of VantagePoint Venture Partners all discussed the challenges they face investing in green technologies.

The challenges are substantial — from the amount of capital the companies need to build plants to the time needed to “influence” government officials for subsidies, and actually developing technologies that can be cost-effective compared with the energy options in the market today. But perhaps the greatest challenge is that VCs are having to push out their time frames for when they expect to see returns on their investments.

“We strive [to invest in] companies that can be competing technologies in five to seven years without subsidies,” Kaul said. “If you want to push even further to solve the climate conflict, within seven to 10 years. It takes time.”

The VCs said the difficulties are even more pronounced in the U.S., where energy prices are much cheaper than in many other countries. Also, the U.S. government is not funding competing technologies aggressively — one reason why current opportunities for VCs often are found overseas.

For example, VantagePoint invested in a Swedish company, Chemrec AB, that converts so-called black liquor, which is a bi-product of pulp mills, into a highly concentrated form of biomass that can be used to produce electric power and motor fuel. Green said if plants are built to scale it can produce one-third of the motor fuel needed in that country.

But many of the best opportunities may still lie in the U.S., which is the largest consumer of energy in the world. States including Arizona and California are ripe for widespread adoption of solar energy, and consumers are slowly waking up to the necessity for change.

“This country can respond to wakeup calls,” Kaul said. “We are behind. We’re behind in investing. But the smartest minds are now working on this.”

For more on cleantech investing and dealmaking, see Tech Confidential's special report. —David Shabelman

See info on AlwaysOn GoingGreen conference
See Tech Confidential's special report on cleantech

Tags: Clean Tech, vc, venture+capital

Chipmaker Intersil Corp. late Thursday proved that analog chip engineers still command a hefty price.

The company announced it would buy Planet ATE Inc., a tiny maker of semiconductors used in equipment that tests newly minted integrated circuits, for $46 million up-front and a potential $12 earnout. Tech Confidential spoke Tuesday morning with David Zinsner, Intersil's chief financial officer and head of M&A, who said the five-year-old startup raised roughly $10 million from several angel investors, Anthem Partners, Shepherd Ventures and Digital Coast Ventures. The 14 employees (all but one are engineers) own about half the company, Zinsner says.

Assuming the earnout is paid, the price tag breaks down to a cool $4.5 million per engineer, which attests to the fact that analog chip design is as much of an art, learned over years of practical experience, as it is a science. In its $467 million acquisition of Xicor Inc. three years ago, it paid $25 million per engineer. Zinsner's boss, Intersil CEO Rich Beyer, once told us, with tongue only slightly in cheek, that he was afraid to let his engineers drive home at night for fear they might get in an accident. These guys are well paid and protected jealously.

Planet ATE's product transfers a signal from a semiconductor that is being tested into the testing equipment itself. Intersil has several products that are used in chip testing, but "we have little to no penetration in the market," Zinsner says. "It didn't make sense to grow this organically," he adds.

Planet ATE is earning $10 million to $12 million in annual revenues, is more profitable than most other analog chip makers and has a group of new products on the way, Zinsner says. If Intersil can hang on to its newest analog engieneers, it might just have found itself a bargain. —Olaf de Senerpont Domis

See April 2004 story from TheDeal.com

Kara Swisher over at the BoomTown blog thinks so. She cites sources who say the social network is talking about another round of venture capital at some hefty valuations that would give Facebook Inc. the freedom to operate independently for a few more years.

Facebook thinks pretty highly of itself according to some numbers bandied about by board member Peter Thiel in a recent interview with TheDeal.com. He put forth a value of between $7 billion and $10 billion for a buyout of the company. Thiel, through the Founders Fund, put in $500,000 into the company in 2004 and has participated through several more capital raises totaling $32 million. Swisher's sources mention Microsoft Corp., venture funds and investment banks as potential investors, and say valuations are in the multibillion dollar range, which should make Thiel and other Facebook investors pretty happy. —Stacey Higginbotham

See Sept. 11 post on BoomTown
See July 20 story in TheDeal.com

Tags: facebook, microsoft, venture+capital

Hewlett-Packard Co. is stepping up its drive to license technology to companies outside its core computer and printer businesses, such as healthcare. In the latest deal, Irish medical device maker Crospon Ltd. is licensing HP's inkjet printing technology to develop a drug delivery patch. Terms were not disclosed.

HP has been licensing technology to companies outside its core computer business for some time, and indeed, like rival IBM Corp., it has added millions of dollars a year to its bottom line through licensing deals. Now it is actively seeking nimble venture-backed startups that can bring its technology to new markets, including medical devices. "We are doubling our efforts to do deals with companies like Crospon," explains Charles Chapman, a director of intellectual property licensing for HP. "We want to work with  smaller, younger, more agile companies."

Crospon is a one-year-old company that has raised €2.3 million ($3.2 million) in seed funding to develop a gastrointestinal device. Over the next 18 months, it will seek €3 million to €5 million to bring the HP-derived technology to market. The patch will take advantage of HP's inkjet expertise to deliver drugs to a web of blood vessels just under the topmost layer of skin. The patch will have up to 1,000 tiny needles per inch, but because those needles won't inject deep enough to stimulate nerves, the injections will be pain-free. HP has contributed technology that allows for microscopic wells beneath the needles to be filled with medicine. A layer of heat-sensitive film lies underneath the wells. When the film heats up, the wells contract, shooting the medicine through the needle into the skin.

Crospon CEO John O'Dea anticipates the patch will be useful for delivering multiple drugs to one patient, as well as helping deliver a regular doses of drugs, such as insulin to diabetics. The next step is to find the best drug candidates for the patch, which will take a few months, and then he expects it will be three to five years before a product hits the market. —Stacey Higginbotham

See Feb. 16 story in The Deal

Tags: Biotech, pharmaceutical, healthcare, medicine, vc, venture+capital

The credit crunch may be slowing down M&A activity, but venture capitalists have returned from their vacations ready for dealmaking.

Columbia Capital of Alexandria, Va., M/C Venture Partners of Boston, Oak Investment Partners of Westport, Conn., Battery Ventures of Wellesley Hills, Mass., and Centennial Ventures of Denver kicked off the end of summer surge in dealmaking with the year's largest funding, a $225 million investment in Zayo Bandwidth Inc.

Since the Aug. 31 financing venture firms have opened their wallets to invest another $450 million in just the last seven days.

Continue reading "VCs start September with a bang" »

Virtualization consulting and services firm CRI Technologies Inc. has raised $10 million in a Series A round led by Commonwealth Capital Management LLC and Sigma + Partners. A portion of that money went to acquiring more virtualization expertise through the purchase of Computer Resolutions Inc., a privately held consulting firm that has partnerships with sector darling VMware Inc.

Virtualization allows users to run several applications on a single server and enables more efficient usage of the server's resources. This saves space, energy and money for companies that manage hundreds and thousands of servers. For the financial sector, virtualization has become particularly exciting after EMC Corp. spun out its virtualization subsidiary in an IPO that was valued at $19 billion. A day later, Citrix Systems Inc. said it would acquire open source virtualization startup XenSource Inc. for $500 million.

Valuations like that are noteworthy, but the CRI deal is a little unusual in that it is a services play rather than a product company. Justin Perreault, a general partner with Commonwealth, tells Tech Confidential that a virtualization services company could generate venture returns.

"A huge part of our thesis is the size and duration of the virtualization trend," Perreault says. "In our view it is the umbrella term to allow IT people to re-architect their computing infrastructure. That shift to the new architecture is as profound in our view as all of the big platform shifts in the computer industry were." The platform shifts he's talking about were those like the shift from a mainframe to the mini-PC and the rise of client-server computing.

Whatever the excitement surrounding the sector, Perrault acknowledges that CRI's valuation isn't as exalted as one might think, given the excitement surrounding virtualization these days. "It's priced more along historical norms and rules of thumb for A rounds," said Perrault. —Stacey Higginbotham

See press release from CRI Technologies Inc.
See Aug. 31story from TheDeal.com
See Aug. 15 story from The Deal.com

Tags: vc, venture+capital