Listening to the rhetoric about how the federal government needs to spend big to make sure the U.S. stays on technology’s cutting edge, I wonder if big carrots are better than baby ones.

Over the last 26 years, Pennsylvania’s Ben Franklin Technology Partners program has done a lot with a little state money. Mark Heesen, president of the National Venture Capital Association, recently praised the program, which provides young technology firms with small investments to nudge them ahead to where a venture capital firm may want to invest.

Other states who’d rushed to copy Ben Franklin when it was created in 1983 tended to shut down their programs when the governorship changed, Heesen said. Not Pennsylvania, which has continued to nurture home-grown tech firms. Ben Franklin has survived three Republican and two Democratic administrations even as its funding has expanded or contracted during budgetary feasts or famines.

This year, the four nonprofit centers that receive Ben Franklin funds, including one based at the Philadelphia Navy Yard, saw their total allocation cut to $16 million from $27.6 million last year. That may not be famine, but some technology companies will go hungry this year.

So we’ll see fewer announcements like Monday’s in which Ben Franklin Technology Partners of Southeastern Pennsylvania said it invested a total of $950,000 in five companies. I wrote about one of them two weeks ago - Innova Materials L.L.C., an advanced materials company based in West Philadelphia, which got $225,000.

Ben Franklin invested in two firms in the “cleantech” sector, which has nothing to do with killing germs, but rather energy efficiency. CogniPower L.L.C. , of Malvern, received $200,000, to develop its method of monitoring current in power converters. BuLogic Inc., of Philadelphia, received $150,000 to work on wireless control systems for energy conservation.

Fort Washington-based ListenLogic L.L.C. got $250,000 to follow $125,000 that Ben Franklin injected earlier this year. The firm tracks tweets, blogs, and other online forums to let businesses know what’s being said about them.

Finally, Snipi Inc., of Center City, which is using a social media platform to try to make online shopping easier, received $125,000.

Last year around this time, those connected with the Philadelphia area's venture capital industry were worried along with the rest of us.

Markets were falling. The federal government was rescuing major financial institutions. The economy was teetering.

KPMG L.L.P., which conducts a survey with the annual Mid-Atlantic Capital Conference in Philadelphia, found a very dark mood. Venture firms, which always want to fund the growth and expansion of new companies, were instead planning to cut costs at those companies, said Brian Hughes, a KPMG partner based in Philadelphia.

Just as two straight quarters of positive gross domestic product growth in 2009 have indicated contraction has ended, so too this year's KPMG survey shows a brighter outlook by the venture capital world.

The survey of about 300 Philadelphia-area venture capitalists, entrepreneurs and professional advisors found that 87 percent of respondents expect total venture capital investment to increase in 2010, up from 32 percent last year.

For the second straight year, the No. 1 industry sector to put money to work is expected to be "cleantech," which encompasses companies involved in areas such as energy efficiency and alternative fuels. Perhaps that should come as no surprise because that's an emphasis of the Obama administration's economic stimulus effort as well.

Venture firms are profit-making enterprises out to put their money to work in what they hope will be fast-growing businesses. They raise money mainly from institutional investors, such as pension funds and endowments.

While everyone loves a good success story of venture-backed home runs like Google, eBay and even Staples, more common are the singles and doubles - companies that may get acquired or go public but never reach household-name status.

In fact, that's how venture firms make money for their limited partners. They have to "exit" with an initial public offering or engineer the sale of an investment. And that's been a problem for nearly two years.

Mark G. Heesen, president of the National Venture Capital Association, said last week that he's very concerned about the state of the industry. A shakeup has been underway as those venture firms that were formed during the dot-com bubble era are reaching a point in their development where they need to be finding ways to return capital to their limited partners.

A healthy equity market produces 85 to 100 IPOs a year, according to Heesen. Only six venture-backed companies went public in 2008, and there've been just 10 venture-backed IPOs so far this year.

The KPMG survey asked about the barriers to going public, and Hughes said the biggest hurdle is lack of investor appetite for IPOs. With the M&A activity beginning to pick up, that alternative has been more attractive to venture firms.

Still 88 percent of those surveyed predict GDP growth of between 0 and 5 percent in 2010, compared with the negative GDP predictions of last year, said Hughes, who is co-leader of KPMG's venture capital practice.

Meanwhile, 53 percent of the respondents are now looking to inject new capital into companies as they begin to hire and plan for expansion in 2010, Hughes said.

After a year of watching business run for cover, consider these signs that 2010 may be a little better those trying to build and grow companies.

Let others focus on election day tomorrow or dread the employment report coming up on Friday.

I’m looking forward to a week of events that celebrate entrepreneurship. Starting Tuesday, the two-day Mid-Atlantic Capital Conference at the Convention Center is expected to attract 1,000 people to learn about 40 area companies, including TerraCycle Inc., of Trenton, and iPipeline Inc., of Exton.

More intriguing is what’s happening on the University of Pennsylvania campus that celebrates ideas at a much earlier stage. It’s Innovation Week at the Weiss Tech House, a student-run organization that’s proof a little money, a little structure and a lot of teamwork can produce amazing things, including new companies.

We all remember that guy in college who sold dormroom carpets out of his trunk. Well, this technology-steeped generation has grander ambitions.

Begun in May 2003, the Weiss Tech House at 33d and Walnut Streets began as a 3,000-square-foot space where Penn undergraduates could pursue their ideas. The ground floor is called the lab, but it’s more like a workshop with paint sprayer, band saw, drill press and other tools.

Upstairs are conference rooms outfitted, not with cocktail napkins on which to sketch ideas, but whiteboards, including one that runs wall-to-wall and was partly filled with hieroglyphic-like scribbling in brown marker on the day I visited.

Anne Stamer manages the day-to-day activities of the Weiss Tech House, but she stressed that this is very much a bottom-up organization. Students run the six committees, including the Innovation Fund committee that decides on the merits of student ideas.

The Innovation Fund is an in-house, mini-venture capital fund that provides cash but doesn’t take equity stakes in student projects. If accepted, the student and his team receive a $1,000 grant and access to the Tech House’s technical, legal and business mentoring resources.

From the start, the goal has been to teach people how to turn an idea into a product. “We try to let people know that their ideas could be valuable,” Stamer said.

While commercialization is not mandatory, many students find they want to see how far they can push their projects, she said.

Certainly, there’s been no Google or even a MyYearbook.com that’s emerged from Weiss Tech House. But a number of companies have been formed around innovations born there. They include:

* First Flavor, now in Bala Cynwyd, which makes edible film strips that taste like a food or drink that are used in advertising campaigns. It’s worked with big companies such as Campbell Soup, Diageo and Bacardi.

* Humanistic Robots Inc. , a Bristol company developing a device to clear land mines. It was awarded a $2 million Defense Department grant in February to turn its prototype into a commercially viable product.

* Innova Materials, an advanced-materials company in West Philadelphia that is providing its IonArmour antimicrobial technology to other companies for use in health-care and consumer products.

Alexander Mittal, the CEO of Innova who will give a talk about his entrepreneurial experiences Tuesday at 7 p.m. at Huntsman Hall as part of Innovation Week, called the Weiss Tech House a “very valuable program” at Penn.

Through Weiss Tech House, he built a team that helped him develop the antimicrobial technology that helps inhibit the growth of bacteria, fungus and mold on product surfaces. Now his Innova Materials employs eight people from its offices in the University City Science Center.

What impresses Stamer the most is the youthful fearlessness of many of the Tech House participants. “They are students, but they say, ‘We can do anything,' ” she said.

Whether it’s new solar panels or a new rowing machine, that’s just what they’re doing at Weiss Tech House.
 

In mid-August, Inc. magazine reported that DSG Inc., of Malvern, was the fastest-growing privately held firm in the Philadelphia area.

I wrote a column about the annual Inc. 500 list, focusing on local firms such as software developer DSG.

Two months later, it turns out that DSG was not on top locally.

How could that be? I relied on data gathered and calculated by the publication for its list. The magazine requires verification for the information submitted by the companies, such as annual revenue.

The 2009 list ranks companies by the change in revenue from 2005 to 2008. DSG president and CEO Tony Varano on Monday said Inc. magazine told him it had made a data-entry error for the company’s 2005 revenue.

The project manager in charge of the Inc. 500 was out of the office. An Inc. staffer would say only that changes made to the list are rare and must be verified.

Last August, Inc. listed DSG’s 2005 revenue as $1.7 million, when it was actually $11.7 million. Its 2008 revenue was $32.1 million.

So while Inc. initially listed DSG as having three-year revenue growth of about 1,800 percent, it has now corrected it to 175 percent. Still fast growth, but the revision places DSG at No. 1,817 on the Inc. 500 list rather than the more lofty No. 82.

According to Inc. magazine, that makes Clear Align L.L.C., of Eagleville, with 2005-08 revenue growth of 1,305 percent, the fastest-grower locally.

Begun by president and CEO Angelique X. Irvin in 2003, the firm makes sensors that incorporate night-vision and other imaging technologies for military and security use.

What’s amazing is that Irvin never planned to start a business, much less build one that’s experiencing such rapid growth. (It’s No. 135 on the Inc. 500.) She’d begun work on a project for a defense contractor, then another, before she realized what she had was a company.

Totally bootstrapped, Clear Align now employs 53 people - many with Ph.D.s - at its Trooper Road operations. Its 2008 revenues were $5.5 million.

“You have to recognize it’s a combination of talent and luck,” she said.

But it’s also true that talented people can make their own luck.

High school football season is under way, but Brian Kerrigan can be forgiven if he’s more interested in Okinawa’s Kadena Panthers right now than the South Philadelphia Rams.

The company that he runs with his wife, Kari Altman, just landed a $1.3 million contract with the Department of Defense to supply team uniforms and equipment to 41 schools on military bases in Japan, Guam, South Korea and Okinawa.

For Team Sports Planet Inc., the contract comes at a critical time for the e-commerce firm that had been named one of the nation’s fastest-growing inner-city companies 16 months ago. The growth had stalled, thanks to the recession and the resulting drop in household income, Kerrigan said.

The Sporting Goods Manufacturers Association last week said its annual study of participation in team sports noted weakness in the numbers. “Frankly, many families have not been able to afford to pay the basic fees for their children to play in local recreational sports programs or to play on some travel teams,” said Tom Cove, president of the group.

Kerrigan and Altman are veteran dot-com entrepreneurs who had prepared for big growth, not retrenchment. Team Sports Planet’s sales were nearly $2 million in 2006 and about $2.5 million in 2007. But instead of staying on track to reach $5 million as they’d scaled the business, sales began to tail off.

Team Sports Planet, which had grown to 17 employees, had to cut its workforce to 10.

As the couple reconsidered their business plan, the company was invited in June to bid on a government contract to provide uniforms to 41 high schools and middle schools in the Pacific region operated by the Department of Defense Education Activity.

This September, more than 23,000 U.S. students are enrolled in kindergarten through 12th grade on those bases. Many play American football, baseball, basketball and other sports, but they rarely stay at the same base for long. Charles Hoff, public affairs officer for DoDEA Pacific, said that 30 percent of the students “transition” between schools each year.

Team Sports Planet previously had some teams on military bases as customers, so Kerrigan and Altman were eager to win this contract even as they found out how arduous it can be for a small business to meet the constantly changing requirements of a government bid.

But setting up a virtual catalog and online ordering system that the schools can use to place purchase orders for 12 different sports played to their e-commerce strengths. On Sept. 1, Team Sports Planet was notified it had been awarded the one-year contract with four option years, each valued at up to $300,000.

That’s also good news for other local companies that Team Sports Planet uses to fill orders, including an embroiderer and screen printer. Even the U.S. Postal Service office at Ninth and Dickinson could see more volume handling Overseas Military Mail.

Kerrigan is fiercely proud to be running a business in the city that provides work for other city businesses and can serve customers all over the world. But winning this contract makes him especially happy because of whom they’re doing it for.

“It’s nice,” Kerrigan said, “to do something for the children of these men and women who serve in the military.”

Good-bye, Isolagen Inc. Hello, Fibrocell Science Inc.

In mid-June, the Exton-based Isolagen sought to reorganize its finances under Chapter 11 of the U.S. Bankruptcy Code.

The company had run out of cash at a critical point in its development: Its experimental wrinkle treatment is undergoing review by the Food and Drug Administration.

Lots of small drug developers have struggled over the last year with a difficult fund-raising environment. So it was far from clear whether Isolagen would be able to emerge from bankruptcy.

Last week, a bankruptcy judge in Wilmington approved Isolagen’s reorganization plan, which calls for the company to emerge under the name “Fibrocell Science.”

Isolagen chief executive officer Declan Daly will remain an executive in the new Fibrocell. He could not be reached for comment yesterday.

New investors will supply $2 million to fund Fibrocell’s continued operations and certain distributions that must be made under the reorganization plan.

As with any bankruptcy reorganization, current Isolagen shareholders will be wiped out.

Still Nothing On

A Malvern software company that’s been developing technology to connect television sets directly to the Internet has been acquired by a West Coast firm.

And in rarity, it looks as if the local operations will remain intact.

AnySource Media L.L.C., founded in 2006, was bought Aug. 27 by the publicly held DivX Inc., of San Diego, in a transaction valued at a maximum of $15 million.

DivX paid $7.5 million in cash up front. In addition, it could pay up to $7.5 million more should AnySource reach certain technical, revenue and distribution goals. AnySource had no revenues at the time of the sale.

DivX’s software is used in more than 200 devices, such as Blu-ray players, digital TVs and gaming consoles. The company had net income of $10 million, or 30 cents per share, on net revenues of $93.9 million in 2008.

AnySource Media co-founder and CEO Mike Harris joined the DivX management team. About 20 people work in Malvern, and will remain under Harris’ supervision.

Anyone who follows public companies should be familiar with the Securities and Exchange Commission’s EDGAR online database.

Earnings reports, acquisitions and stock offerings are all disclosed in various filings. But since mid-March, the online system has also been providing more information about the financings of privately held companies.

To protect investors, federal and state securities regulators require any company selling securities privately to register with them or to notify them that their offering is exempt from registration.

Companies raising money privately may file notice of an exempt offering using the SEC’s Form D. While companies have been filing them on paper with the SEC for years, it’s only been since mid-March that the agency has required that the form be submitted electronically, making it available over EDGAR for the world to see.

The capital raised by companies filing a Form D may come from venture capital or private-equity firms, or wealthy individuals. And the sums can be quite large.

A recent report by the SEC’s Inspector General’s office said 20,021 Form D filings were made in 2008. It estimated that those exempt offerings raised $609 billion of capital last year.

Among the local firms that have filed Form Ds recently are drug developer Avid Radiopharmaceuticals Inc., team-apparel maker Boathouse Sports, medical-device maker Neuronetics Inc. and Internet video provider RedLasso Corp.

Form D lists a company’s address, executives and directors, the industry sector in which it operates, and a range of its annual revenues. But the meat of the form is on Line 13 where a company discloses how much it raised.

The most recent Form D filing I read for a local company was by Xanitos Inc., of Radnor. Organized in 2008, the company is described as being in the business-services industry with revenues of $5 million to $25 million.

Xanitos’ Form D states it raised $4,175,525 from 17 investors in late July. I’d never heard of Xanitos, but I know of its CEO, Graeme Crothall, a serial entrepreneur who’s built three hospital housekeeping services companies.

I couldn’t reach Crothall by phone, but the Xanitos Web site describes the story of how he’s trying to build his fourth firm focused on keeping hospital rooms clean.

Vending machines dispensing pharmaceuticals and air-conditioning systems for truckers are two of the ideas that a state-funded economic development program has invested in.

Ben Franklin Technology Partners of Southeastern Pennsylvania said it invested $1.2 million in seven early-stage companies in the Philadelphia area.

Immune Control Inc., of West Conshohocken, received the biggest investment - $250,000. The pharmaceutical company, which is headed by Stephen Roth, who'd founded Neose Technologies Inc., is developing technology called serotonin-based immunotherapeutics.

The Ben Franklin program had previously invested $500,000 in Immune Control.

Two companies received $200,000 each:

* Leversense L.L.C., of Newtown Square. It's developing biosensor technology to be used in a variety of applications, including food toxin testing and AIDS research.

* Quiq Inc. , of Blue Bell. It's got a vending machine that dispenses medications rather than Doritos and Snickers bars. But don't look for the machine in your lunchroom. The company looks to put them in doctor's offices so that patients can pay for and get their prescriptions filled immediately.

Three companies got $150,000 each:

* OxiCool Inc., which the Ben Franklin team says has agreed to establish operations in Pennsylvania. It's developing an air-conditioning technology, which is just what we want to hear on a hot August day. One use could be for the cabs of tractor-trailers. Since idling is an air-pollution no-no, OxiCool's application would enable truckers to run an air conditioner without keeping their engines on.

* PivotPoint Software L.L.C., of Bryn Mawr. This start-up has developed an online service, called WizeHive, that lets workers upload, communicate and collaborate on files in real time. One of its co-founders is Michael Levinson, who is one of the partners of DreamIt Ventures, the technology business accelerator that just concluded its second summer program.

* RealWinWin Inc., of Philadelphia. Founded in 2001, this company was working helping commercial property owners reduce their energy use before it was hip to be green. Ben Franklin has previously invested $250,000 in the company.

And finally, Life Management Advisor L.L.C., of Chadds Ford, received $100,000. It's the type of business the Philadelphia area often produces. A software developer that helps financial advisors and planners sell and distribute their products to clients.

Yes, the Ben Franklin program is funded by the Pennsylvania state government, and there is still no budget for the current fiscal year. But a spokesman said these investments were approved before the end of its fiscal year on June 30.

Something amazing happened yesterday. The young entrepreneurs behind 10 technology start-ups gave presentations to a room full of people and none of them asked for money.

The setting was the ballroom of the Independence Visitor Center for “Demo Day,” organized by DreamIt Ventures, a business incubator that is “graduating” its second class of firms.

When the PowerPoints were over I asked Steve Barsh, a partner in DreamIt, why no one said, “If we just had $500,000, we could ….”

“Because,” he said, “they don’t need it.”

That may sound strange when we think about how many start-ups are undercapitalized. But it’s a reflection of how the Internet has lowered the costs of launching a business.

It’s how at least one company could go from an idea to generating revenue in six weeks during the three-month “crucible,” as DreamIt cofounder David Bookspan called the intense program.

In addition to spending their summer indoors at the University City Science Center in West Philadelphia, each DreamIt company received between $20,000 and $30,000 in pre-seed funding, access to legal and accounting advice, and mentoring from successful businesspeople.

In short, it’s all the help, encouragement and friendly rivalry a start-up could want. The program helps these entrepreneurs to find out if their business will succeed quickly, or fail fast.

Talk about fast. Jack Groetzinger and Russell D’Souza began DreamIt with their Scribnia Web site that lets users rate bloggers. When they sold Scribnia in July, the two set up SeatGeek to forecast the ticket prices of concerts and sporting events on the secondary market. They hope to launch it soon.

Also presenting was Trendsta, started by veterans of the locally based social networking site MyYearbook.com. Kidzillions wants to teach kids how to spend and save wisely. And Jobaphiles has a new spin on online job sites.

Of last year’s DreamIt graduates, one that’s going strong is Scvngr Inc., which has grown from 3 employees last summer to 32. Now based in Boston, the game developer has run its mobile phone-based scavenger hunts in 43 states. And it successfully hunted down $825,000 in funding from Highland Capital Partners.