HD electronics maker VizionWare short circuits.

Sponsored Post: Open Mobile Summit: Last chance for discounts.

The Open Mobile Summit, San Francisco Nov 19-20, explores the open agendas of all the different players – from handsets and software to operators, application and mobile web players. See the agenda here.

Register today and save $300 with the code VBEAT, or follow this link. Do it before Oct 7., and save $400. Plus: There are 10 passes at just $495 for qualified application developers. To apply, email karen@openmobilesummit.com. Speakers include:

Marco Boerries, EVP, Yahoo
Mary McDowell, EVP, Nokia
Rich Miner, Google
Fred Devereux, Pres Wireless West, AT&
Hossein Moiin, Group VP, T-Mobile
Barry West, President, XOHM Sprint
Jai Jaisimha, VP, AOL
Bart Decrem, CEO, Tapulous
Alan Brenner, SVP, RIM
Yves Maitre, SVP, Orange
Bill Stone, CEO, Handango
Jonathan Christensen, Skype
Ryan Hughes, VP, Verizon
Jerry Panagrossi, VP, Symbian
JP Rangaswami, MD, BT Design
Jill Braff, SVP, Glu Mobile
Len Lauer, COO, Qualcomm
Rich Green, EVP, Sun
Justin Siegel, CEO, MocoSpace
Jay Sullivan, VP, Mozilla

There will also be some VCs, like Rich Wong (Accel Partners), Shanda Bahles (ElDorado Ventures), Rob Theis (Scale VP), JT Treadwell (STG) and Chris Sacca (Lowercase Capital).

Sponsored Post: PartnerUp’s Weekly Opportunities.

Below you’ll find this week’s PartnerUp Opportunities of the week.

PartnerUp, a Deluxe Company, is an online community for entrepreneurs and startups that help them find people for their businesses, such as co-founders, business partners, advisors, board members, and skilled technical people. In addition, PartnerUp helps entrepreneurs ask for and offer up advice, find commercial real estate, and find resources for their businesses.

The PartnerUp team blogs on the StartUp Blog, an up-and-coming blog about entrepreneurship, small business, and startups. If you get a chance, check it out at startup.partnerup.com.

You can find thousands of additional opportunities by signing up for PartnerUp or browsing PartnerUp’s Business Opportunities Directory.

Co-Founder/Business Partner

Business Partner, Cafe Rumba
Partner, Acquisition Company
Partner, Pherasys Integrated Technologies
Business Partner, i-Net Commerce
Partner, IBEX Bicycles

Board Members/Advisors/Mentors

Board of Advisors, Car-Buy-Her
Board Member, Intype Mobile LLC
Advisor, Commercial Real Estate management Web Application
Board of Advisors, Atalasoft Inc
Board Member, Spinal Cord Injury Recovery Center

IT/Software/Web
Lead Programmer, Green Diamond
Chief Hardware Engineer, GPS Receiver
Programmer/Tech Director, Wireless Coupons
Web Designer, Startup
CTO, HowThree LLC

Sales/Marketing/Business Development

Director of Business Development, Microsoft Dynamics
Director of Sales, Electricity
Director of Business Development, Desert Rain Software
National Sales Professional, Universal Ad Hub
VP of Marketing, SecureDreams

Browse thousands of additional opportunities at PartnerUp.

PartnerUp is offered as a free service thanks to the generous support of:

Zoho uses Google Gears to go offline — what about Gmail?.

There’s a lot to like about Zoho Mail, the next step in Zoho’s rapid roll-out of a broad range of business applications . But for a non-Zoho user, there’s one thing that’s kind of galling: You can access your Zoho Mail through integration with browser extension Google Gears. It’s a smart, useful feature, and that only makes it more annoying that Google hasn’t provided similar offline functionality for Gmail.

Back in July, there were rumors that Google would use Gears to create desktop versions of Gmail and Google Calendar. (Gears’ big selling point is its ability to bring web applications offline, although it has much more potential than that.) Well, those six weeks have come and gone. In the meantime, we had a brief-but-terrifying Gmail outage, making the need for Gears integration even more apparent.

It would be foolish to think that Zoho poses any immediate threat to Gmail. Google is probably taking its sweet time to get everything just right on the Gmail/Gears integration, as ReadWriteWeb speculates. And that makes sense, since the point isn’t just to pull emails from your Gmail account onto your desktop — you can do that already with applications like Mozilla’s Thunderbird and Microsoft Outlook — but to bring Gmail’s rich features offline. Still, the fact that Zoho used Google’s own technology to bring this functionality to Zoho Mail makes the wait particularly exasperating.

Zoho evangelist Raju Vegesna has a quick overview of the application’s features, and they sound pretty cool. For one thing, it gives you the option of seeing each email in the order it arrives, like Outlook (and most other desktop email tools), or to see them grouped into conversation threads, like Gmail. There’s also a mobile version Zoho Mail website that’s customized for the iPhone. Zoho Mail is also integrated with Zoho Chat. Finally, Zoho Mail is free, and, as with other Zoho applications, you can also use it with your Google or Yahoo accounts.

The Pleasanton, Calif.-based company is owned by AdventNet.

Twofish raises $4.5M to create economies for virtual worlds.

Twofish has raised $4.5 million in a second round of funding for its business of creating the economic infrastructure behind virtual worlds. The deal is another indication that the virtual goods economy is heating up, even as the real world economy spirals downward.

The Palo Alto, Calif. company made the announcement at The Virtual Goods Summit, a packed conference in San Francisco attended by several hundred people this morning. Twofish creates a “digital resources planning solution,” sort of like enterprise resource planning (ERP) for virtual worlds. The Twofish Elements solution is an economic infrastructure that allows virtual world creators to run virtual banks, track inventory, and set up an e-commerce system.

The company essentially outsources the process of setting up the system so that the game creators can focus on building a quality virtual world. Twofish can increase profits, better engage customers and reduce fraud. Its primary competition comes from game companies that wants to do this kind of work internally, but I’ll mention a few others in a second.

The whole virtual goods movement, popularized in Asia, offers an alternative business model to online game subscriptions. Strategy Analytics says virtual goods already make up a $1.5 billion industry. We’ve covered the topic, particularly on Facebook apps, previously. That makes it a viable alternative business model, along with advertising or “try before you buy” downloadable games. Virtual goods and ad models allow game companies to offer “free to play” games. Again, those are popular in Asia and that model is migrating to the United States. Here, we have yet to see a gigantic hit.

If you’re playing a fantasy game, for instance, you might not mind paying 50 cents for a better sword so that you can take on the ogres. The Twofish technology handles the transaction in real time. The investors include Triplepoint Capital, Rustic Canyon Ventures, and Venrock.

Lee Crawford, chief executive of Twofish, is up on stage right now. A couple of his competitors, Dan Kolkowitz, head of Playspan, and Chris Donahue, of Live Gamer, are also on the same panel. All of them can create a secondary market for gamers, who sometimes want to create their own virtual items and sell them. Donahue says that Live Gamer acquired the secondary market for Sony’s online games this year.

Crawford said the company’s solution gives real-time data so game-makers can monitor just how much money is coming in from virtual goods. One of the tricky things to balance is pricing, since users may balk at high-priced items that don’t do much for them in the game.

Susan Choe, chief executive of online games company Outspark, says that you need $200,000 in revenue a month before you consider adding the secondary market, which comes with costs. Choe noted that one company on the stage promised her that a secondary market could triple the virtual goods revenues, but she isn’t quite convinced that it is happening yet.

Remaining objective when fear is in the air.

[Editor's Note: Taking a break from the doom and gloom of the economic downturn, venture capitalist William Quigley offers a more optimistic assessment of the current situation.]

It is hard to believe that just 8 years ago, venture capitalists were facing what we all thought would be the ‘great crash’ of our lifetimes. Meaning the one and only significant crash we would see before we retired. After all, even with two world wars, a cold war, and an unprecedented energy shock in the 1970’s, the 20th century only had one Great Depression. The Dow dropped 90% from its high during the Great Depression. NASDAQ dropped 80% from its high after the tech bubble burst. Market collapses of that order are only supposed to happen once in a lifetime. But now, due to the financial crisis of 2008, the consensus opinion among wall street and venture investors is that we are at the beginning of another great crash and long term economic malaise (note Sequoia’s amazing comment about a 15 year secular bear market).

If this were my first bubble bursting experience, I might buy into that dire consensus view. But it isn’t and I don’t. The figure that stays with me more than any other during these trying times is the performance of the Internet and hospitality sectors from 2002 to 2007. In the dark days of 2002, two years after the tech bubble collapsed and a year after the terrorist attacks, the hospitality sector was crushed (who wanted to fly) and many Internet stocks were trading near their cash balances. What happened? Over the next 5 years, Internet and hospitality stocks, which you could barely give away in 2002, were the #2 and #3 best performing sectors out of 75 tracked by the Wall Street Journal. The only better performing sector was coal - due to unprecedented growth in emerging market energy consumption.

When the tech bubble burst, lead by collapse of the Internet and telecom sectors, there was widespread believe that these were not ‘real businesses’. It was easy to see why people felt that way. Few Internet or telco executives were talking about cash flow and profits. Of course, the reason for this was that the public markets were not rewarding those things. Five years after the dot com crash, investors came to realize that in fact Internet and telco centric business models (think Google, RIMM) were among the most profitable businesses of our era. This lesson is now well known. What does that mean? I believe this time around the entire tech sector will not be abandoned. If anything, there will be more conviction around the best businesses and business ideas. This very same phenomenon is happening now in the banking sector. In the middle of the panic phase of the financial crisis, investors speak highly of BofA, JP Morgan, US Bankcorp.

We can’t deny that people are worried, even scared, about what is happening on Wall Street. Venture capitalists read the headlines and assume the worst. I believe the root cause of the deep anxiety being felt about the stock market and economy is the speed and severity with which it has taken hold. People have only so much capacity for dramatic change, especially when that change is negative. The pace of mortgage defaults and bank failures this year has been too much for most of us to keep up with. Images of a banana republic come to mind. But consider this point. Over half of all subprime mortgages originated in the trouble years of 2005-2007 have already been written off – to zero. Many of the remaining troubled loans are being worked out. The upshot? There is a historical wealth transfer taking place between global financial institutions and US home owners. Housing debt ratios for consumers will be cut by 40% when the write-offs and loan adjustments are complete. Consumer leverage will be close to what it was in 2001, at the beginning of the housing bubble. While unsettling, the speed at which financial institutions and governments are disposing of problem assets and injecting liquidity into the economy will accelerate economic recovery by 2010, perhaps beginning in the second half of 2009.

And what of those shaky financial institutions that triggered the crash of 2008? The consensus view, reflected by their stock prices, is that more banks will disappear and most will be permanently impaired. Now look at the numbers. The book value of global financial firms was $4 trillion in 2007. Today, it stands at $4.2 trillion. This takes into account the $300B of asset write-downs (net of tax effect) offset by $300B of equity infusions and $400B of newly retained earnings. The stock prices don’t reflect it yet, but the bulk of financial firms have addressed their problems, either by taking massive write downs or merging with stronger partners. So why does it feel so awful? Because these corrective actions have place at a speed we have never seen before. The 1980’s S&L crisis was 5 years in the making and took another 5 to fix. 2000 banks failed during that period. This time feels worse because we are taking all of the bad news at once. In just a few months, US banks have written off more of their troubled loans than the Japanese banks did with their problem loans in 15 years. Have faith in this: once the bad loans have been charged off, a process that might take another 6 months, US banks will have confidence in their own - and each other’s - balance sheets. At that point, reasonable lending practices will return. That is what always happens.

Aside from the painful –- but ultimately positive — massive deleveraging by consumers, the scourge of inflation is being wiped out. Headline inflation (which includes food and energy costs) has been running 5% per annum over the past 5 years. It is now projected be near zero for the next 2 years. Reductions in housing, energy and basic consumer staples are the primary reasons for the decline. That means growth in real wages.

Goldman Sach’s recently proclaimed that a deep recession was likely. In their estimates, the US economy could contract by 7% in the next 12 months. We must keep in perspective, however, that just a few weeks ago Goldman was rumored to be on the road to collapse. I can’t help but assume that their deeply pessimistic institutional views have been colored by their proximity to the financial epicenter. But even if we assume that Goldman’s 7% economic contraction estimate is correct, that means that 93% of business and consumer spending continues. Certain sectors like automotive, housing and hospitality will undoubtedly be hard hit. On the other hand, affordable entertainment and productivity enhancing purchases, like investments in business technology, should fare much better.

In summary, this is not a normal economic cycle. The problems in our economy were created by irresponsible home borrowers and lenders, not the typical recessionary forces triggered by excess industrial capacity The blast radius of this crisis has threatened to engulf the whole economy because banks uniquely touch every aspect of commerce. They provide the liquidity for borrowing and lending. There is reason for optimism. With the measures being taken by banks and our government, we are working our way out of this mess. We understand the problems and are addressing them. When we get to a period where 90 days go by without a major financial institution failing, I believe the frayed investor nerves will start to heal. Until then, we must have the discipline to remain informed and objective.

William Quigley is managing director at Clearstone Venture Partners, where he focuses on investments in Internet and communications related technology. He blogs at The Quigley Report.

Google prepping special iPhone ads?.

Just because Google will soon release its mobile operating system Android, it’s not ignoring the iPhone. In fact, the online ad giant is preparing to offer advertisers a way to tailor ads for iPhone users, according to Adweek.

For example, a normal American Airline web ad would offer a link to American’s site where users could buy tickets. An iPhone-specific ad might let you call American with just the push of a button or take you to an iPhone-customized site.

In its article, Adweek cites unidentified ad agency executives who have been briefed on Google’s plans. Google itself hasn’t confirmed the report. This seems to match what we’re hearing about Google’s warming attitude towards the iPhone. For example, we’ve been told about a noticeable shift of tone in presentations given by Android’s Rich Miner, away from a generally competitive stance to one that’s closer to, “We’re all in this together.” (Not that Google was ever particularly hostile. The first iPhone app I downloaded was Google’s.)

That attitude makes sense, given that the iPhone really offers some rich advertising opportunities, and 10 million of them have been sold so far.

The question now is, what kind of functionality will Google and its advertisers come up with, and how will it stack up against iPhone-specific features offered by ad networks AdMob and JumpTap.

[photo:flickr/rustybrick]

Expect to see start-ups and VCs hit standoff over valuations.

When the stock market goes into the dumps, it takes a while for the effects to trickle down to start-ups. That’s because start-ups are often are working away on a project that’s isolated from the larger market — and if they’re lucky, they have money from venture capitalists.

For the start-ups with no angel or VC backing, forget about raising money. They’re going to have trouble immediately. VCs are paying too much attention to their existing companies. But what about those lucky ones — those who already have a venture backer? The conventional wisdom is those companies will have an easier time getting money again when they need it, because VCs want to make sure the companies survive long enough so that they can earn a profit on the investment.

But it comes at a price. When the entrepreneur returns to the VC, an epic battle ensues over valuations. In a climate of fear, the power pendulum swings back to the VCs. The VC knows that an entrepreneur won’t be as likely to get money elsewhere, so he plays hardball. The entrepreneur is more ready to cave in on the valuation. That means when a VC gives the entrepreneur money, the VC can claim more ownership of the company with a given amount of investment (because the company is worth less.) Tension rises, and boardroom fights begin. I saw it all unfold last time, when I started covering venture capital in 2001.

Let’s take a look at the valuations of start-ups during the last boom, and how they trended in subsequent years. The National Venture Capital Association’s statistics are about as good as we’re going to get. They aren’t perfect, because they rely on valuations as voluntarily provided by the NVCA’s member venture capital firms, so the sample size may be too small to be completely reliable. But with that caveat, they do show that from 2000 through 2003, valuations fell pretty hard. You can see it took a while for the valuations to hit bottom, even though the market crash took place in mid 2000.

What does that mean for today? Well, the market’s crash these past two weeks is too fresh to have worked itself through the system. Companies are in the middle of tension-filled negotiations with their venture backers, but we don’t have any stats yet.

Now lets take a look at some recent valuations at one of the most aggressive venture capital firms in Silicon Valley: New Enterprise Associates. That firm has demonstrated how it has offered very rosy terms to entrepreneurs in recent years, bidding up value levels of companies like SolFocus and SugarCRM by offering large amounts of cash for relatively small ownership stakes. It did so because it believed: 1) the deals were competitive and NEA wanted to participate, and so outbid other venture firms to do so, and 2) because it has more money than other venture firms, and so was mandated to put its money to work.

That’s a decent strategy when you’ve got a robust economy. But when the market turns negative, NEA will have difficulty justifying these valuations. They and other investors are more likely to negotiate tougher. In some cases, the dreaded “down round” will emerge, which is where a VC invests at a valuation lower than the company’s previous ones — a particularly brutal snub because it suggests the company has lost value since it raised its last round.

NEA is the leading VC firms this year (so far) in the amount invested. The firm is second in the total number of deals (again, so far this year) to Draper Fisher Jurvetson. I don’t mean to pick on NEA. But the folks at PE Data Center have provided three examples of the firm’s investments, and they’re good for illustrative purposes:

SiBeam (formerly Silicon Microwave Systems) — The Sunnyvale, Calif. company is a developer of chips for the wireless industry. In March, the company closed a third round of funding (Series C) totaling approximately $40 million, alongside U.S. Venture Partners and Foundation Capital. The post-money valuation was $138 million, or exactly in line with the most recent average valuation of late-stage private companies, as provided by the NVCA (see chart). However, as you can see from the last boom-bust, late stage valuations came down significantly. That’s not to say we’re going to see exactly the same scenario play out this time (last time, it was a tech bust, this time it is a credit bust, and companies are generally on much sounder footing). But with the market closed for new IPOs and companies slamming the breaks on acquisitions (they feel poorer, because their lower stock prices are their main currency), there’s no doubt that late-stage companies are going to get seriously slammed on the valuation side if they raise money this year.

CVRx –  The Minneapolis, Minnesota, company develops implantable devices designed to control hypertension. The company has raised several rounds of financing and New Enterprise Associates has participated in all of them. Other investors in the company include ABS Ventures, Kearny Venture Partners, SightLine Partners, and InterWest Partners. The company raised a third round $30 million in May 2006, at a valuation of $95 million, and then raised $65 million fourth round in April 2007 at a valuation of $267 million, and then a fifth round of $84 million in July year at a valuation of $424M valuation. Needless to say, those recent valuations are extremely high. Who knows, the company may be good enough to justify it. But expect them to come down, especially in light of the general decline in valuations for the health-care sector in general (see the chart below, courtesy of Dow Jones VentureSource).

DreamFactory Software – The Mountain View, Calif. company offers on-demand software, and raised a first round of $5.8 million at post-money valuation of $16 million in 2006. Then it raised $3 million more in March 2008, at a post valuation of $24 million. New Enterprise Associates led both rounds financing. As you can see from the charts, the valuations of the earlier rounds didn’t drop as significantly during the last bust. Earlier stage companies will have it slightly easier than later stage private companies. They’re more protected from the market, because they’re not searching for an IPO just yet. However, that’s not to say that investors won’t fight to hard to lower valuations even at this level.

Third quarter statistics on valuations won’t be out for another couple of months. And even then, those stats won’t reflect what happened in the current fourth quarter, which is when the real pain will be felt.  It may be next year before we can give a serious assessment of the true fallout for start-ups. Expect to see more companies go out of business too, as VCs in some cases decide not to invest at all.

Sarah Lacy has some interesting thoughts on the future of the VC industry, by the way.

[Image credit: Salim Virji]

How badly could a recession hurt cleantech?.

It’s safe to say that the cleantech investors who pumped tens of billions of dollars into cleantech over the past three years didn’t expect a serious recession any more than anyone else. Yet with one on the horizon, it looks as if heavily funded technologies like wind and solar power could get hit from more than one direction.

The obvious danger is a slowdown in venture funding, as pointed out in a leaked Sequoia Capital presentation and this contributor piece from Advanced Technology Ventures’ Todd Kimmel. Companies without large funding rounds to draw from will struggle to commercialize their products, especially mid-stage cleantech outfits, who need a lot of capital to move from pilot demonstrations to commercial installations.

More broadly, it’s questionable whether even the biggest companies will be able to tap into debt markets for ambitious projects like massive solar power plants in California’s Mojave Desert and San Luis Obispo County. Those look like safe investments that will be able to attract capital. But wind, which is a more proven technology than solar, is already having trouble getting enough capital, according to the WSJ Environmental Capital blog.

Another looming question is the price of oil. When oil was spiking upward, renewable energy looked like the obvious beneficiary. But a reaction was brewing in response to high pump prices: Falling demand. That promised to keep oil prices stable, but the fright in the markets appears to be causing a more serious contraction in oil prices. Today, oil fell below $80, marking a 13-month low.

As always, it’s impossible to predict with any certainty which way oil prices will head. But given a recession, continued low demand seems likely, and oil prices are set at the margin of supply and demand. While low prices are probably not permanent, consumers are notorious for their short memories. That means that in the interim, products like electric cars could lose some of their heroic aura. Biofuels like cellulosic ethanol, which look fine right now, could also suffer.

There are several other sectors that could be troubled, including green building materials — who would start construction now? — and water, which almost always requires a lot of money. But the final area that deserves special mention is carbon trading and emissions caps. The Associated Press reports that the Kyoto Protocol, which attempts to limit emissions worldwide, could be ignored as developing countries move to protect their assets.

At home, that could also be true. Take the Chicago Climate Exchange, for instance, which recently started up. Prices were higher than expected for its initial round of carbon offsets, but such commodities are likely to be viewed as luxury items in a recession. And for those who need excuses not to buy offsets, there are plenty of good ones, as Grist points out.

Reader poll: How long will the stock market be down?.

Executives and other expects are starting to make projections about how long the stock market will be down. Our latest reader poll asks what you think about this. We also ask in a second poll how long will the downturn last for tech companies. Please cast your vote.