Fifty Best Tech Startups

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The entrepreneurs behind these startups all have lofty goals. Former SAP (SAP) executive Shai Agassi's Project Better Place is building a network of electric car charging stations around the world to try to usher in a new era in transportation, garnering tax incentives in Israel, Denmark, and Hawaii. Document and e-book-sharing Web site Scribd has seen rapid growth in traffic and on June 12 signed a deal with Simon & Schuster (CBS) to sell nearly 5,000 e-books on Scribd. On the consumer Web, Max Levchin, CEO of widget software maker Slide, has a different goal: He wants to either sell Slide or take it public for a value that exceeds the $1.5 billion eBay (EBAY) paid for his last company, PayPal.

memory and e-mail help

Several companies on our list hope to capitalize on the new frugality by offering corporate customers technologies that can cut costs or help augment sales. Fusion-io sells a device that lets computers store information on flash memory chips like the kind used in iPods or digital cameras. Flash memory is faster, lighter, and draws less power than traditional disk drives. Dell (DELL) (also an investor), Hewlett-Packard (HPQ), and IBM (IBM) have included Fusion-io's technology with some of their products. In April, the startup received $47.5 million from LightSpeed Venture Partners and other investors. The company got a brainpower boost in February when Apple (AAPL) co-founder (and recent Dancing with the Stars contestant) Steve Wozniak joined as chief scientist.

Xobni—the name is "inbox" spelled backwards—wants to remake corporate e-mail. Its software, which has been downloaded more than 2 million times, works with Microsoft's (MSFT) Outlook program to help users find messages and attachments faster, and organize conversations by the people they're held with. The company has raised over $14 million in venture capital, including $7 million from Cisco Systems (CSCO) and $3.2 million from BlackBerry maker Research In Motion's (RIMM) investment arm.

In the clean technology arena, VCs are getting choosier. Venture investments in cleantech companies soared 54% in 2008, to $4.1 billion, providing a bright spot in the chilly venture market. The sector is also benefiting from provisions of the government's stimulus package aimed at promoting construction of energy-efficient buildings and electrical grids, development of batteries for electric cars, and other green technologies.

Investors are realizing that startups cultivating alternative energy sources like solar, wind, and biofuel power consume lots of cash, face powerful competitors, and need to deal with government regulations. "There's so much that they can't control," says Paul Deninger, vice-chairman at investment bank Jefferies (JEF). Now VCs are turning to startups with more modest goals, including reducing the energy used by lights, buildings, and computer networks, he says.

two cleantech plays

Companies on the BusinessWeek-YouNoodle list illustrate both types of cleantech plays. Bloom Energy, founded by a former NASA scientist, is developing fuel cells for homes and businesses that produce clean, efficient electricity through chemical reactions. Its main product is a cell that can convert natural gas and plant products into hydrogen fuel. Bloom has raised an undisclosed amount of funding from investors including Kleiner Perkins Caufield & Byers.

Los Angeles-based Nila, on the other hand, makes energy-sipping LED movie and TV lights that are lighter and easier to carry around sets than traditional movie lights. Nila's lights have been used in the 2008 James Bond film Quantum of Solace and by CNN (TWX) for coverage of last summer's political conventions.

The ground is shifting for investors in consumer Internet companies as well. A couple of years ago, entrepreneurs flocked to build social networks or add-on applications for them. The field has become so saturated that smart startups are carving out niches alongside the established players.

Zynga's Texas Hold Em poker is one of the most popular applications on Facebook, and the maker of casino, word, and party games on the Web is generating annual sales of about $100 million, at a profit. Zynga's success reflects a trend toward social media companies selling premium games and virtual goods (like poker chips), vs. trying to build a business based solely on assembling a big audience for ads.

Meanwhile, Ning, co-founded by Marc Andreesen of Netscape fame, has raised $104 million to offer free software that lets users build their own social networks. So far, Ning says its software has been used to create 1 million social networks.

No one can predict the next Google, Twitter, or Facebook, but this list includes 50 startup companies worth watching.

Ricadela is a writer for BusinessWeek in Silicon Valley.

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