Check it out here: www.techflash.com.

With the launch today, we are also breaking some news that will be of interest to many people in the tech industry. We’ve uncovered a new company created by Bill Gates. Read all the details in this story on the new site.

We also have details on Madrona Venture Group’s closed door meeting this week with portfolio companies. More here.

TechFlash is very much in the early stages of development, with new features and functionality to appear over time. We’ve appreciated all your support and patience over the past few weeks, and we’ll be incorporating many of your suggestions as we move forward with the new site.

We are really looking forward to getting back to covering the Seattle technology community. There’s a lot of news happening out there, and we’re going to do our best to cover it.

– John Cook, johncook@bizjournals.com

– Todd Bishop toddbishop@bizjournals.com

The new capital is expected to convert into the company’s second round of funding, with Earth Class Mail founder Ron Wiener saying that he is looking to raise $12 million to $25 million in that round. Bellevue’s Ignition Partners, one of the original venture backers, is expected to participate in the series B.

Those are big numbers, especially in this rocky climate. But Wiener said the company is doing well, benefiting from corporations  and government agencies that are looking for creative ways to cut costs and make their organizations environmentally friendly.

Earth Class Mail has developed a way for people to access their postal mail online, essentially automating the mail room.

Customers view scanned versions of their mail online. Since they can decide to have the mail shredded and recycled, the company says that customers who use the service recycle as much as 90 percent of their postal mail. That compares to 20 percent for those who receive their mail through traditional channels.

While the company’s retail business has slowed a bit in recent weeks, Wiener said he can barely keep up with demand from large enterprise customers and national post offices. (He says a major deal with a European post office will be announced later this year.)

“We’ve been reeling from having too many prospective customers, including about 40 national posts, and only a handful of senior sales executives to respond,” said Wiener.

The company already has a major deal to manage the flow of mail at Sprint, including facilities in Reston, Virginia and Overland Park, Kansas.

Still, Earth Class Mail is a capital intensive business since it requires the physical task of scanning millions of pieces of mail. But Wiener said the company is better positioned than many startups which have yet to generate revenue and don’t have proprietary technology.

Wiener also said the company recently transformed its business to licensing the technology, which is less capital intensive than the outsourced model it previously employed. That means the company, nearing 100 employees, gets paid on a “per envelope” and “per-user-per-month” basis.

“Investors are much more interested in our company since we made this change to our model,” he said.

Total funding in the company, which attracted attention last year as the subject of a reality TV show called “Startup Junkies,” now stands at $21.4 million. That includes $3 million in secured debt.

“So far, we have not run into any challenges, that’s not to say we won’t,” said Wiener about the company’s fundraising efforts. “We’ve been fortunate to be able to demonstrate fantastic customer traction, especially in recent months.”

– John Cook, johnharoldcook@gmail.com

Thirty six deals representing $226 million were reported during the quarter, which compares to 41 deals and $288 million for the same period last year, according to the MoneyTree report from PricewaterhouseCoopers and the National Venture Capital Association. It was the third consecutive quarterly decline.

Despite the economic woes that have hit the economy in recent months, the state is still on pace to surpass $1 billion in venture capital investments this year.

If that occurs — through three quarters the tally stood at $872 million — it would be the third consecutive year that more than $1 billion has been invested here.

However, the venture market has essentially frozen in recent weeks as investors in private companies reevaluate their positions and hunker down on existing portfolio companies. IPOs and acquisitions aren’t getting done, which is more bad news for venture investors.

Reports have surfaced of venture deals falling apart and widely circulated e-mails and presentations from high-profile venture firms such as Benchmark Capital and Sequoia Capital warning of the economic crisis have caused venture investors to become more cautious.

Meanwhile, venture-backed companies in the region such as Redfin, Jive Software and Zillow.com have laid off staff in order to cut their cash burn.

Nationally, the venture market also is slowing with quarterly investments down seven percent. In a press release, NVCA President Mark Heesen said the most recent numbers do not reflect the economic crisis that is now causing many venture investors to pause.

“If venture backed companies can’t exit due to continued poor market conditions, venture firms will have to commit additional time and unplanned follow-on rounds of financing to those existing portfolio companies, which will channel resources away from new deals.,” Heesen said.

In Washington state, software investments, at $50 million, just beat out biotechnology for the largest cash haul. Meanwhile, the industrial/energy category, which includes clean tech investments, saw $40 million invested.

Here are the top deals from the report:

Light Sciences Oncology, biotechnology, $41 million.

AltaRock Energy, industrial/energy, $26 million.

Dexterra, telecommunications, $21.5 million.

Pathway Medical, medical devices, $16.5 million.

Tableau Software, software, $15 million.

HaloSource, industrial/energy, $11.5 million.

Impinj, semiconductors, $10.5 million.

UBmatrix, software, $10 million.

RFSurgical, medial devices, $8.2 million.

HyperQuality, business products and services, $7.6 million.

– John Cook, johnharoldcook@gmail.com

– TrackSimple of Seattle has raised $2.5 million from Ignition Partners, with PeHub reporting that the startup offers a “platform that captures customer events.”

–The New York Times profiles SpinSpotter, the Seattle startup that allows users to critique news articles and point out biases or inaccuracies.

– Seattle’s Gist, which helps people better manage information overload, is profiled by ReadWriteWeb which compares the Paul Allen-backed startup to Xobni.

– Amazon.com’s electronic book reader, the Kindle, won’t be available for sale in the United Kingdom before Christmas due to network issues, according to Silicon Alley Insider.

– According to the AeA, the U.S. technology industry added 78,300 jobs during the first seven months of the year. But that was before layoffs at Redfin, Zillow.com and other technology companies started hitting earlier this month.

Turns out he’s the CEO of a new company called Kashless.org.

Tobias isn’t saying much about the company yet, but did say it’s in the ReCommerce space, which he described as “clean tech meets software.”

The Kashless.org website says the company is building a “community and platform enabling person to person product reuse, sharing, lending, trade and other ‘cashless’ transactions.”

It continues: “By increasing reuse, Kashless.org will divert a significant amount of waste from the landfill and extend the useful life of many products.”

It says the company is fully funded for 3 years.

Tobias said he’s been running the company out of his home, but is looking for 1,000-2,000 square feet of office space in the Seattle area for a staff of five to ten people.

“I’m hiring people and I’m fully funded,” Tobias said, declining to provide any more details.

Tobias departed suddenly as chairman and CEO of Imperium Renewables in December 2007.

Shortly after that, Imperium dropped plans for a $345 million IPO, and the company has had a series of well-publicized troubles including layoffs and the loss of a key contract at its Grays Harbor refinery.

– Eric Engleman, eengleman@bizjournals.com

The elimination of 40 employees brings staffing at Zillow to about 105 employees.

In a blog post titled “Difficult times, difficult decisions,” Zillow.com Chief Executive Rich Barton said the cuts were necessary in order to prepare for what he believes will be a prolonged recession.

“This was an incredibly painful decision for me and the leadership team, but, in the end, we concluded that we had no choice but to securely batten down the hatches as we sail into a major economic storm,” he wrote.

Zillow is one of the most heavily-funded Internet startups in Seattle, having raised a whopping $87 million from Benchmark Capital, Technology Crossover Ventures, Par Capital and others. It still has a lot of cash on the books and the current reduction in staff is a move to try to extend the life of the business if a recession drags on.

Barton noted that the company’s business, which is based on advertising revenue, continues to grow.

“While our revenues do not yet cover our expenses, those revenues have been growing at a rapid pace and we will continue to have open positions in areas that are directly tied to revenue, such as advertising salespeople,” he wrote.

He also said Zillow’s online traffic grew by 42 percent to 5.4 million unique visitors last month.

Zillow is not the only Seattle area online real estate startup that is cutting back. Earlier this week, Redfin announced that it was cutting 20 percent of its work force in part due to the troubles in the overall real estate market.

And there’s talk that other venture-backed companies will be trimming back soon, especially following warnings of prominent venture firms such as Benchmark (a Zillow backer) and Seqouia Capital (which bankrolled Zillow competitor Trulia). Companies like Zillow that rely on online advertising revenue and hired aggressively over the past few years may be in one of the weakest positions, said industry observers.

Even though the recent layoffs may bring to mind the struggles of the dot com bust, some are hopeful that the carnage won’t be nearly as bad this time. More than 20,000 people lost jobs at technology companies in Washington state during the last down cycle.

“I think there will be some job losses in the tech sector, but nothing like what we saw last time,” said Craig Sherman, an attorney at Wilson Sonsini Goodrich & Rosati who works with startups. “Because, again, we didn’t have a bulge of over hiring. People are looking at other ways to save money, slowing hiring rather than letting people go and looking at every possible way of stretching dollars.”

– John Cook, johnharoldcook@gmail.com

“If we’ve learned one thing from funding so many startups, it’s that they succeed or fail based on the qualities of the founders. The economy has some effect, certainly, but as a predictor of success it’s rounding error compared to the founders.

Which means that what matters is who you are, not when you do it. If you’re the right sort of person, you’ll win even in a bad economy. And if you’re not, a good economy won’t save you. Someone who thinks “I better not start a startup now, because the economy is so bad” is making the same mistake as the people who thought during the Bubble “all I have to do is start a startup, and I’ll be rich.”

Graham — who argues that technology startups aren’t as dependent on the general economy — points to Microsoft as an example of a company that was started in a down cycle.

“Technology progresses more or less independently of the stock market. So for any given idea, the payoff for acting fast in a bad economy will be higher than for waiting. Microsoft’s first product was a Basic interpreter for the Altair. That was exactly what the world needed in 1975, but if Gates and Allen had decided to wait a few years, it would have been too late.”

A good read.

“Today we released the AdWords display ad builder, which lets you create professional-looking display ads in AdWords without needing to hire a designer or start from scratch,” Google wrote in a blog post.

This is a direct assault on AdReady’s business, which is probably why SearchEngineLand notes that “depending on your point of view this is either validation of AdReady or an ‘AdReady killer.’ ”

Led by former Classmates.com executive Aaron Finn and backed with $12 million from Madrona Venture Group, AdReady has won some marquee customers recently in MSNBC and The New York Times.

But will that be enough to ward off the Google juggernaut?

AdReady is differentiating itself by focusing on media companies that are fearful of Google

In fact, Finn told me today that he believes Google’s announcement will only drive new media partners to AdReady’s white label solution. That’s because many online publishers do not want their ad inventory handled by a powerful third party. AdReady’s technology also allows small advertisers — say a car dealer or restaurant — to place display ads in various ad networks, he said.

Still, every startup fears the blog post announcing that Google is moving into its market.

That was the feeling of Finn, who said the past 24 hours have been pretty wild as the news leaked out on Google’s plans. In an e-mail to employees, Finn said he was feeling nervous, proud and motivated.

“It does make you feel nervous, but I also feel good that Google would almost identically copy what we have been doing,” he said in an interview.

Finn thinks there is room for both to operate in display advertising, but he is happy to have a two-year head start.

“When we first funded AdReady, we assumed that Google would have the ability to do display ads,” said Finn. “It always surprised us that they had not moved into display. Having a two-year year head start has been very good for us.”

– John Cook, johnharoldcook@gmail.com

Silicon Alley Insider: Wake Up People: Ballmer Just Said He’d Still Buy Yahoo.

As the speculation spread, Microsoft issued this statement this afternoon: “Our position hasn’t changed. Microsoft has no interest in acquiring Yahoo!; there are no discussions between the companies.”

Deciphering the meaning of executive remarks can be tricky, at best, but for comparison, it’s worth looking back at what Ballmer was saying about Yahoo this summer. Here’s what he told analysts in July:

“We had a set of principles, we talked about them, it didn’t work out. Fine, we’re done. We can move on. Does that mean that nobody will ever talk to anybody again? I suspect the answer to that question is also no. It’s a long time in a big world, but we’re comfortable proceeding as we are on our own with our people, with our strategy, independent innovation and I think what we really still have in search and advertising is a two-horse race.”

How different is that from what Ballmer said today? It’s difficult to know without seeing the full context of his remarks, but the decline in Yahoo’s share price could give Microsoft more leverage than in the past. Yahoo’s stock recently dipped below $12, before rising more than 10 percent today after Ballmer made the comment. For the record, Microsoft’s original Yahoo bid was $31 per share.

At the same time, Microsoft’s shareholders may be more open to a Yahoo deal in the past. Microsoft shares closed up more than 5 percent today, just under $24.

– Todd Bishop toddbishop@gmail.com

So far this week, I’ve seen two three press releases from companies looking to pick up Entellium’s customers following wire fraud charges last week for the Seattle company’s top two executives.

Here’s how one started from Vancouver, B.C.-based Maximizer Software:

Help is on the way for small and medium-sized businesses affected by Entellium’s recent news of corporate turmoil. Maximizer Software (CA:MAX: news, chart, profile) , a leading provider of simple, accessible customer relationship management (CRM) solutions, is offering Entellium customers 25 percent savings on its newly released Maximizer CRM 10.5 for businesses that may be concerned about the security of their customer data.

And here’s the other from Redwood City, Calif.-based EnterpriseWizard:

EnterpriseWizard Inc., the leading provider of adaptive, codeless CRM solutions for B2B organizations, today announced that it is offering Entellium customers a free upgrade to EnterpriseWizard CRM and transfer of their data.

And here’s another from Murray Hill, New Jersey-based iEnterprises which writes that it is “pleased to offer Entellium users an immediate and promotional upgrade to Empower CRM.”

That follows news last week that Salesboom.com also was targeting Entellium’s customer base.

– John Cook, johnharoldcook@gmail.com

Micronics said the new funding, plus a previous round of funding raised from private investors earlier this year, is expected to total $9 million.

Micronics is developing disposable devices that can test biological and environmental samples faster than current molecular diagnostic tests.

The $50 million Southwest Michigan First Life Science Fund is a venture fund that invests in early stage life science companies that are “committed to establishing a presence” in the southwest Michigan region.

– Eric Engleman, eengleman@bizjournals.com

An excerpt:

“[T]he Court should deny Plaintiffs attempt to hijack Microsoft s Windows Update service to distribute class notice. Microsoft has told consumers and businesses that it uses Windows Update for software updates to the Windows operating system, never for general informational messages. Microsoft has used Windows Update consistent with that technical purpose. Plaintiffs plan, however, would use Windows Update to foist irrelevant notice on persons owning over 120 million PCs that are not the subject of this case, who should not be forced to spend time reading a notice that, as to them, amounts to spam. Nor should Microsoft be forced to risk the good will of those customers or expend resources addressing their reactions to class notice they should not receive. The Court should deny Plaintiffs unprecedented request to divert Windows Update from its important technical purpose.”

In their Oct. 2 motion proposing the idea (PDF, 13 pages) the plaintiffs’ lawyers said Windows Update would provide a means of “efficiently and directly” notifying consumers who might be eligible for the class action.

Microsoft and PC makers used the Windows Vista Capable designation before the operating system was launched in January 2007. The program, launched after Windows Vista was delayed, was an effort to assure computer users that the PCs they were buying would be able to run Vista when it came out.

Earlier filings in the case revealed internal Microsoft e-mails in which company executives privately expressed concerns about Windows Vista, even as the company praised it publicly. Microsoft is also opposing efforts by the plaintiffs to depose CEO Steve Ballmer as part of the case.

– Todd Bishop toddbishop@gmail.com

While the economic crisis may have caused at least one of the acquisition offers to disintegrate, ClayValet founder Mikhail Seregine blamed the shut down more on his own inexperience as a startup CEO than the general economy.

“We didn’t feel like we had a compelling case to raise more money,” said Seregine, adding that the sales just didn’t materialize when the shifted to a business-to-business focus. “I am disappointed, of course. And I am disappointed with some of the decisions I made.”

If he had it to do over again, Seregine said he would have partnered with a more experienced co-founder and formed an official advisory board. That sort of guidance would have been invaluable, said the 28-year-old former Amazon.com worker.

ClayValet, which employed three people, raised about $400,000 from an angel investor. Some of that money will be returned, said Seregine.

And what is next for the entrepreneur?

At the moment, he is trying to oversee an orderly shut down of the company. As part of that effort, Seregine posted on the Seattle Tech Startups list that his two colleagues are now available for work. He also said the 700 square feet Capitol Hill office space — including desks, furniture, high-speed Internet and some core technology — is available to any takers.

“It’s the perfect starter package for a frugal startup,” he wrote.

Beyond that, Seregine said he is weighing his options including the possibility of another startup.

“Most likely I will take a position now that prepares me for starting a new company in a couple of years,” he said.

– John Cook, johnharoldcook@gmail.com

And I am sure there will be plenty of lessons to learn at the Northwest Entrepreneur Network’s annual Entrepreneur University, which will be held Nov. 6 at the Washington State Convention & Trade Center. Scheduled speakers include Clark Kokich of Avenue A Razorfish, Kelly Smith of Curious Office Partners and Kabir Shahani of Appature.

We have two complimentary tickets for the first two people who respond to me via e-mail. Just include your name, company name, e-mail and phone number.

UPDATE: That didn’t take long. It took just six minutes for the two tickets to be gobbled up.

Good to know we have some cost conscious entrepreneurs in the audience who recognize a value when they see it.

Thanks to all who participated.

– John Cook, johnharoldcook@gmail.com

But as I made the rounds at the party, two topics of conversation kept bubbling up. (And no one would characterize either as good news stories.)

The first was the Entellium debacle, a monumental blow up in which two top executives of the Seattle software startup were charged last week with wire fraud in what a federal prosecutor described as a classic case of “cooking the books.”

Seattle’s venture community is tight, which means many don’t want to talk on the record about mistakes of others. But the message last night from several sources was clear. Why weren’t audits completed? Where was the board? How did these executives pull this off?

One accounting professional told me that it has become customary for venture capital firms to waive audits of early-stage companies in part because of the added expense. But when that topic arises next time, he said there is one word he will now share: “Entellium.”

A venture capitalist, however, noted that they require audits of all companies that have started generating revenue. (We reported last week that Entellium’s accounting firm never completed an audit.) And many agreed that a $20,000 to $40,000 audit could have uncovered the fraud, an expense that would have been well worth it given the $50 million that federal prosecutors say was invested in the company.

One party guest noted how the Entellium story would have been much bigger had it not been for the economic meltdown, which was the second major topic of discussion last night.

In fact, the mindset appears to have changed in the past two weeks in the technology community. Earlier this month, many sources were putting a brave face on the situation thinking that the technology community — which was the cause of the last economic pinch — may escape this one.

That no longer appears to be the case, with many people citing the grim warnings coming out of top Silicon Valley venture capital firms like Sequoia and Benchmark Capital.

An angel investor last night cited two examples of how entrepreneurs who were thinking about leaving big companies to create startups have decided to stay put, while a third entrepreneur had a term sheet pulled by a venture capital firm.

The reason the offer was pulled? The venture firm said it was passing on new deals at the moment in order to “double down” on existing portfolio companies.

Both scenarios spell potential trouble for the startup community. After all, if entrepreneurs are afraid to make the leap and venture capital firms are unwilling to fund new startups, a vicious cycle may occur in which innovation stalls. (Heck, my wife just turned on NPR for me to hear this statement from the reporter: “Isn’t it a terrible time to start a business?”)

This follows news that Portland-base Jive Software chopped one third of its staff, or about 40 employees,, and Seattle-based Redfin cut about 20 percent of its staff. There’s also word that a Seattle venture firm plans to bring together CEOs from portfolio companies soon to discuss measures for weathering the storm.

It may not be that bad. A lawyer at the party told me that certain areas of the economy such as health care and biotechnology are holding up fairly well (that’s a sector accustomed to hard times) and a venture capitalist indicated that there are ways for new companies to capitalize on the market downturn.

But the overall feeling was one of major concern. The tech community is not immune from the problems on Wall Street. So everyone better buckle in for a wild ride.

– John Cook, johnharoldcook@gmail.com

It’s a key question for the Seattle region — home to Nintendo of America and Microsoft’s Xbox and Windows video-game operations. I asked Anita Frazier, an NPD video-game industry analyst, for her take on the industry’s prospects. Here’s what she said via e-mail.

“So far, the games industry has shown no sign of weakness in spite of a rocky economic climate this year. In previous times of recession, we’ve found no correlation between the state of the economy and the performance of the video games industry. That said, we haven’t seen anything like what we’ve experienced the past few weeks so I think we’re in uncharted territory but there is the argument that in difficult times, people look for more in-home entertainment because it’s less expensive and there is a general desire to ‘nest’ when times are tough.”

Also see this recent post on the Kotaku video-game blog: Xbox 360: Official Console of 2008 Recession.

– Todd Bishop, toddbishop@gmail.com

And today the Bothell company is using some of its own cash flow to buy a French company by the name of ADAR. With the acquisition, Winshuttle is setting up a new operation in Paris led by ADAR’s Bernard Haddad.

Winshuttle’s products allow business users to move data between Microsoft Excel and SAP. Founded in 2003, Winshuttle is led by Vikram Chalana. It was also recently named to the Inc. 500 list with revenue growth of 830 percent over the past three years.

– John Cook, johnharoldcook@gmail.com

In this post, Houston Chronicle tech columnist Dwight Silverman fact-checks an e-mail that Microsoft sent to technology reporters. He concludes that many of Microsoft’s points are valid — although they might quickly be rendered moot, depending on what Apple announces. At the same time, he adds, “to send this the evening before a revamp strikes me as premature at best and downright desperate at worst.”

Also check out this lengthy interview in which CNet News.com’s Ina Fried questions Microsoft’s Brad Brooks about the company’s assertion that Mac users effectively pay an “Apple tax.”

– Todd Bishop, toddbishop@gmail.com

Along with many other words not appropriate for publication.

So there’s some interesting symbolism in Microsoft’s choice of Windows 7 as the official product name for the next version. Announcing the news today in a blog post, Microsoft executive Mike Nash gave the impression that the choice is part of a broader effort by the Windows team to get back to basics.

“The decision to use the name Windows 7 is about simplicity. Over the years, we have taken different approaches to naming Windows.  We’ve used version numbers like Windows 3.11, or dates like Windows 98, or “aspirational” monikers like Windows XP or Windows Vista.  And since we do not ship new versions of Windows every year, using a date did not make sense.  Likewise, coming up with an all-new “aspirational” name does not do justice to what we are trying to achieve, which is to stay firmly rooted in our aspirations for Windows Vista, while evolving and refining the substantial investments in platform technology in Windows Vista into the next generation of Windows.”

Of course, the numerical moniker doesn’t exactly bring to mind an inspirational scene, but most of the Windows users I’ve spent time with couldn’t care less about the name as long as it works with their printers, runs their software applications smoothly, and generally lives up to some basic expectations upon launch. The company will give the first detailed look at Windows 7 at its Professional Developers Conference at the end of this month in Los Angeles, and at the Windows Hardware Engineering Conference in early November.

– Todd Bishop, toddbishop@gmail.com

The company today rolled out a contextual advertising platform that recognizes images in photos and videos — a person’s facial features, skin color, gender or age, for example — and targets ads to those images.

The company gives the example of an infant’s face in a photo — and says a website could serve up a Pampers or Gerber ad, or an ad for a financial service company that can help set up a college fund.
TechCrunch has more on the technology, noting that Eyealike is in talks with a large social network.

Seattle 2.0 list: Marcelo Calbucci puts together the latest Seattle 2.0 startup list, with Zillow.com, iLike, Robot Co-op, Pet Holdings and BuddyTV leading the way in terms of traffic. Calbucci also explains some of the changes to the list, noting that they now rank startups rather than individual Web sites.

Venture fund slow down: Just 55 venture capital funds raised $8.1 billion in the third quarter, down from 83 funds that raised $8.6 billion during the same period last year, according to The New York Times. The slow down comes as only one venture-backed company completed an initial public offering during the third quarter.

– Eric Engleman, eengleman@bizjournals.com