Last month, Google announced that its systems were subjected to coordinated cyberattacks beginning in December. The intrusions probably originated in China. They targeted Google source code and more than 30 other defense, tech and financial companies as well. The Gmail accounts of human rights activists on 3 continents were compromised.

Google threatened to retaliate against the Chinese government, but has yet to take action.

Now, according to Washington Post sources, Google has approached the National Security Agency for help defending itself and its users from similar attacks in the future.

Terms of any possible deal between Google and the NSA have not been finalized, but they would likely cover a review of possible vulnerabilities in Google’s hardware and software and the hacking techniques used during last month’s attack.

If the deal were consummated, Google says it will not disclose information regarding what was stolen and will not violate company policies or laws designed to protect the privacy of US citizens’ online communications. In any deal, the NSA will not become privy to users’ searches or e-mail accounts.

Cyberspace cannot be protected, Director of National Intelligence Dennis Blair told the Post, without a “collaborative effort that incorporates both the U.S. private sector and our international partners.”

The Google-NSA deal worries privacy advocates, who remember all too well the NSA’s warrantless wiretapping of Americans’ phone calls and e-mails in the aftermath of the Sept. 11, 2001 terrorist attacks.

One would think that the continuous tumult caused by Big O’s effort to overhaul health care would give deal makers pause for thought, or that the festering recession might dampen M & A activity in health care, as it has in other sectors of the economy.

But that’s not the case, not by a long shot.

In fact, health care M & A activity is more robust this year than it has ever been, according to Dealogic.

Driven by Pfizer’s mega-acquisition of Wyeth and Merck’s deal for the Plough, the health care sector has accounted for about 30% of all mergers and acquisitions in the US this year based on dollar value. That’s 3 times normal.

And that doesn’t even account for several tech sector deals, such as Dell Inc.’s acquisition of Perot Systems, which have a distinctly health care-oriented subtext, or the recent $4.2 billion LBO of health data mining company IMS Health.

Several things have driven the frenzy.

In the health information technology arena, the Big O’s Economic Hail Mary set aside $30 billion to encourage providers to adopt electronic health records and that has driven up the value of a raft of EHR companies, both public and private.

Meanwhile, Big Pharma has decided that acquiring new drugs is cheaper and less risky than growing their own.

For their part, lenders remain confident that health care is destined to grow, no matter what happens in Congress.

To be sure, the health reform debate has been lethal for M&A activity among providers and Big Insurers, 2 areas that had been hot beds of such activity in years past. And most small- and medium-sized life sciences and biotech companies are on life support, having proven largely unable to secure financing for their risky bets on future drugs.

Nevertheless, Dealogic reports there have been 707 deals in the sector so far this year, a bit higher than last year. Other perennially strong sectors like energy, tech and telecommunications have experienced substantial drops over the same period.

And in the food and beverage sector–which has been plagued by US consumers’ quirky new tendency to save money–deal volume is off 82% compared to a year ago.

Three times in the recent past, the Feds have fired fastballs at Google in the form of antitrust reviews. And they have very little to show for it.

First, the Feds gave a look-see at Google’s pending book-scanning settlement — a deal aimed at protecting book publishers which the Feds ardently believe have been rendered an endangered species by the search giant.

Then, government officials questioned the overlapping board membership involving the Google and another somewhat popular company, Apple.

Most recently, they’ve questioned why Google and other normally business-aggressive tech companies suddenly get all Shirley Temple-like when it comes to snapping up each other’s prized employees.

All the attention has turned Dana Wagner, a former antitrust lawyer at the DOJ who joined Google last year, into a veritable spokesperson for the company. Wagner has been talking up public officials, academics and reporters pretty much non-stop in an attempt to quiet the storm. 

After highlighting the company’s foundation and “don’t be evil” corporate philosophy, Wagner’s mantra is that his company actually owns a 2.66% share of the advertising market.

Say what?

Wagner insists Google’s market is not search advertising, where it owns a 70% market share, but the entire advertising arena which includes everything from highway billboards to Oxyclean pitchmen. 

“We need to move past intuitive market definitions and actually look at how consumers, advertisers and publishers are shifting their spending,” Wagner told the Washington Post. “Market definition is job one, and hopefully people aren’t bringing too many preconceived notions to that.”

Never mind that Google maintains a 30% operating margin, which is all but impossible if the playing field were actually level. Or that when old friend Microsoft tried a similar tactic in the 1990s, the strategy was dismissed as disingenuous. (more…)

The global recession has been worse than a cold shower for early-stage companies, and now it has moved up the food chain to venture capital firms and their star players as well. 

The National Venture Capital Association is reporting for example, that the number of active VC firms has dropped from a 2007 high of 1,019 to 882, and that 15% of all venture-capital principals—the guys who decide whether to invest in start-ups—have left the industry since that time.

The exodus has impacted a stunning array of well known firms and partners. Sequoia Capital, the beast of Menlo Park, which has the pelts of Google, eBay, Cisco and other high flyers on its mantlepiece, has said good-bye to Pierre Lamond, Michael Beckwith and Eric Upin, for example.

Venrock’s managing partner Tony Sun has decided to accept a gold watch, as has Shanda Bahles, a stalwart for 20+ years over at El Dorado Ventures.

Boston-based Atlas Venture Partners has let go at least 6 investment partners in 3 years. The recent departures were triggered by the firm’s decision to close a new fund at $280 million, well short of its $400 million fund-raising target.  Atlas also closed offices in Munich and Paris and Munich last year.

Advanced Technology Ventures, Atlas Venture, VantagePoint and the Foundry Group have also shed partners, according to the Wall Street Journal.

“About once a week, a general partner leaves or a venture fund closes,” Jim Watson the managing general partner of CMEA Capital told the Journal.

The cause of the problem has been a freefall in IPOs and acquisitions involving companies in which the VCs have invested. In 2008, VC funds invested $29.7 billion into young companies but generated only $24.9 billion in revenues, according to VentureSource.

Business scholars have concluded that venture capitalists pay little or no heed to those magnificent, 50-page business plans produced by young companies, preferring instead to rely on instinct and experience to sort the myriad opportunities before them.

That’s especially true about the stuff on educational credentials, prior start-up experience or success raising capital, or the wondrous prior achievements of management team members.

“In general, business plans don’t matter,” concluded Brent Goldfarb for the New York Times.

The senior author of the counterintuitive paper is an associate professor at the Robert H. Smith School of Business, a part of U. Maryland.

The conclusion was no surprise for Jeff Fagnan, a GP at Massachusetts-based Atlas Venture, which provides early-stage funding to small companies.

“I’ve never given funding to an entrepreneur who had a business plan with him when he walked into my office,” Fagnan confirmed for the Times. “Most of the information you find there…is not relevant.”

Fangan looks instead for “market validation.” For him, that means whether the company has actually sold its product or minimally, secured likely customers. And Fangan wants to hear this in a PowerPoint or white-board presentation, or from “somebody just talking.”

So how, then, does the entrepreneur gain an audience with Fangan?

“The No. 1 way is referrals (by a respected figure in business or banking),” responded Fagnan. If he asked such people for a business plan, he added, “they would probably say they don’t have one.”

But the study authors and most people interviewed for the Times piece hedged their bets, adding that it’s still useful to create a business plan.

It helps entrepreneurs sort through growth strategies, competitive threats and so on, they said.

For the record, Fagnan is a judge on MIT’s annual business plan competition. And Goldfarb’s school requires its students to take a business planning course.

“Our (study) got some press just before this requirement was due,” Goldfarb told the Times.“Some (students) questioned the assignment.”

El Pollo Loco, a chain of 418 grilled-chicken restaurants based in the Southwest, is engaged in an ugly cock fight with industry giant Kentucky Fried Chicken.

Last month, KFC launched a grilled-chicken product amid great fanfare. It was the largest new-product launch in the history of the bespectacled Colonel’s storied franchise, and a lightning strike to the grill of El Pollo Loco.

It didn’t buckle the contender’s knees. In fact, El Pollo Loco’s CEO Steve Carley unleashed a furious counterattack including TV commercials challenging KFC to a taste test.

He even set up a toll-free number that the Colonel could to call to arrange a showdown.

Yum Brands’ KFC, which has 11,000 outlets world-wide, claims it wasn’t ruffled by the challenge.

“We’re certainly more focused on Kentucky grilled chicken than on any advertising or online efforts of competitors,” KFC spokesman Rick Maynard told the Wall Street Journal.

Maybe so, but when a flood of calls came in to the hot line from people claiming to prefer KFC’s entry, El Pollo Loco’s handlers determined by tracing the caller IDs that some of the calls originated from HQ over at KFC.

“We’ve been grilling our employees to see if anyone’s done any undercover dialing,” Maynard said.

For El Pollo Loco though, this was a chance to make some serious gravy. It posted follow-up videos on YouTube outing KFC’s purported sham calls and claiming it had gotten under the Colonel’s oven-baked skin.

The spat has now escalated to the grandest stage of all, as king-maker Oprah Winfrey--who in the last year alone got the other Big O elected president and quadrupled the value of Twitter—announced that viewers could download coupons from her Web site for a freebie at KFC.

Once again, El Pollo Loco was ready. The coupons, it turned out, were good through mid-May, excepting Mother’s Day.

The contender posted yet another video on YouTube.

“What does KFC have against Moms?” it asked, while offering to honor KFC’s coupons on the holy day.

Continuing an apocalyptic trend, venture capital investment in Q1, 2009 has dropped 50% from the same quarter a year earlier. 

Young companies raised a paltry $3.9 billion in the first quarter of 2009, as compared with $7.78 billion in Q1 2008, according to VentureSource.

That represented the lowest quarterly investment in 11 years.

Remarkably, it was $2 billion less than the quarterly investment total in Q4, 2008 when the Great Economic Crisis matured into a fire-breathing dragon. 

VentureSource reported that only 477 venture-backed companies closed equity financings in Q1 2009. The number was 706 one year earlier, and 601 in Q4 2008.

Angel and first-round financing fell even more sharply, to $682 million in Q1. That’s just one-third of the spend a year earlier.

Much of the problem is traceable to the enormous drops in the portfolio values of pension funds, foundations and endowments that typically finance VC firms.

These limited partners had started becoming gun-shy regarding VCs even before the Great Economic Crisis due to underperformance for nearly a decade.

“LPs are using this to demand a back-to-basics approach,” said Maria Cirino, a co-founder and managing director of .406 Ventures, an early-stage venture firm in Boston. This means smaller funds and investment strategies with a tighter focus, she said.

IT, a staple for VCs, recorded its worst quarter in 12 years with $1.68 billion invested. That’s off 52% from Q1 2008.

Health care did a bit better, netting investments worth $1.35 billion in Q1 2009, down “only” 34% from a year earlier. The sector saw 118 deals close in the quarter, much lower than the 156 that got done in Q4 2008.

One day after UBS agreed to hand over the names of 250 wealthy US account holders as part of a $780 million settlement with US prosecutors on a tax-evasion probe, the Justice Department sued the Swiss banking giant to hand over 52,000 more.

The Feds have been on UBS’ tail since 2007 when a former executive told them the bank was representing to US customers that it didn’t have to disclose their identities to the IRS, according to the Wall Street Journal.

US prosecutors believe UBS has stashed a minimum of $20 billion and perhaps several times that, on behalf of US clients. The accounts generated a minimum of $200 million in annual revenues for the bank.

It was the first time in centuries that Swiss regulators permitted a bank to reveal account holders’ identities. Some Swiss lawmakers opposed the move on grounds it would destroy the Swiss banking industry.

“Client confidentiality, to which UBS remains committed, was never designed to protect fraudulent acts” such as violating the US tax code, UBS Chairman Peter Kurer told the Journal.

UBS acknowledged as part of the settlement that some of its managers knowingly cooked-up a scheme to assist US taxpayers looking to evade paying taxes.

The original 250 names had been identified in conjunction with a criminal investigation, but the larger roster is being sought by Justice as part of a separate civil probe.

The marked expansion in the number of names sought by US officials could be disastrous for the Swiss financial sector if large numbers of those 52,000 accounts turn out to involve tax evasion. Swiss banks generate 10% of the nation’s GNP and employ 5% of the work force.

Some things people will not give up no matter how bad it gets out there, and chocolate is one of them.

But times have been far from rosy in the industry ever since large chocolate producers started dipping  into the premium market and putting the squeeze on niche players.

Last year, chocolate sales in supermarkets, pharmacies and convenience stores totaled $4.99 billion, an increase of 2.2%. 

That’s healthy growth during an economic crisis and newly released premium products by the big dogs, Hershey and Barry Callebaut are largely responsible for driving those numbers, according to the Wall Street Journal.

Even Mars entered the fray, and the world will never be the same thanks to mint chocolate and raspberry almond M&Ms.

Still, when all things economic started getting really nasty in Q4 2008, “growth in the premium chocolate segment slowed,” according to Josiane Kremer, a spokesperson for Barry Callebaut.

So the little guys’ livelihood is threatened, the big dogs’ investors are howling about timing and the resulting competition could scare the clothes off Lady Godiva.

There are consumers who prefer to stick with known brands like Hershey’s but others “want to support small and local producers and that’s where their loyalties are going to lie,” said Krista Faron a senior analyst at Mintel.

And there are consumers who, if chocolate were wine would happily drink Thunderbird. They could care less about cocoa sourcing and the relation between confectionary production methods and product finish.

Or, as Faron summarized, “chocolate may very well be recession-proof — it’s just a matter of how much consumers want to pay for it.”

Amid the unfolding economic crisis, VC investment in clean tech dropped 35% in Q4 2008 when compared to the previous quarter. It was the sharpest fall in 2 years.

A total of $1.7 billion was invested in clean tech during Q4 according to the San Francisco-based market tracking company Cleantech Group.

(Hat tip: Gooz) Clean tech includes solar, clean coal, wind and other technologies that help control industrial pollution and emissions.

Officials at Cleantech Group believe the dropoff is likely to persist through Q1 of this year, but remain optimistic that investment will pick up especially since the Big O indicated he wants to invest heavily in the sector.

“The fundamentals are still strong when it comes to clean tech,” Brian Fan told the Wall Street Journal. Cleantech’s senior director of research added “we know the world has to get off coal and has to replace oil.”

Despite the Q4 downturn, VC investments in the space rose 38% for the year, to an all-time high of $8.4 billion. These numbers have risen every year since 2001 when investments totaled $506.8 million.

There were 241 disclosed investment rounds in the sector in 2008. The most frequent investors were Khosla Ventures (21 separate investments) and Kleiner Perkins Caufield & Byers (18).

Solar power accounted for 40% of the investment in the space, followed by biofuels, transportation and wind.

Many of the larger investments during Q4 2008 were sunk into so-called thin-film solar companies, which produce solar panels from materials other than silicon and are hence notably cheaper.

Right now, 16% of all US retail hiring processes involve pre-screening job applicants with an online personality test created by Unicru, which was acquired recently by Massachusetts-based Kronos, Inc.

Kronos processed 10 million tests in 2008 alone, assessing things like self-control, adaptability and friendliness in an effort to weed out applicants poorly suited to retail work before the interview phase.

The test requires applicants to agree or disagree with 130 statements like, “you have to give up on some things that you start,” and “any trouble you have is your own fault.”

Many companies believe the test is effective. For example Kristopher Arnes, a Best Buy executive told the Wall Street Journal that Kronos’ automated screening process saves 250,000 to 300,000 hours in HR costs per year.

Whole Foods Market dropped the test however, finding that sunny personalities don’t necessarily translate into knowing how much cumin and allspice to throw into the couscous. 

Meanwhile, a whole subculture of cheating has bloomed around the test. Applicants often share answers and test-taking strategies, use answer sheets found online or even have a friend, presumably one with a pleasant disposition, take the test for them.

But Kronos isn’t worried about that, or if they are they aren’t saying. For one thing they claim, there’s been no drop-off in their tool’s performance when it comes to employee turnover, sales performance and what have you.

And Kronos executives don’t give much credence to those online answer sheets. “The way in which the answers relate to the job requirements is…not obvious,” test developer David Scarborough told the Journal.

They better hope not.

Remember when the CEOs of GM, Ford and Chrysler flew corporate jets to Washington to beg for a bailout?

After receiving a righteous whuppin’ by politicians, bloggers and YouTubers, the group returned for a second go a month later in cars.

The fiasco was a killer for business-jet industry which had hoped the CEOs would defend the craft as time-savers.

They “didn’t have the guts to defend their actions,” Michael Boyd told the Economist.

No seriously, the aviation consultant does know the jets are a smidge unpopular these days. 

“Right up there with Saddam Hussein,” was the way Boyd put it.

In fact, many companies appear to have decided to rid themselves of their jets altogether. The US automakers, Time Warner, AT&T and Citigroup have put their jets up for sale and other companies cancelled orders for new ones. 

As a result, UBS reports a 62% increase year-over-year in the number of second-hand corporate jets on the market—that’s the highest number since the statistic was introduced.

“The market is dead,” states the UBS report in one particularly gloomy passage. Elsewhere, the report describes current affairs as “possibly the worst market since 1970.”

Surprisingly, not everyone agrees. The Economist cites a JPMorgan analysis of asking prices for used jets—they actually rose 3.4% in November.

To Jonathan Breeze, Jet Republic’s CEO, that means some firms don’t really want to sell their jets at all. They put their jets on the block for an unreasonably high price, assuring there will be no buyers. This way they appear to be in touch with the times while the top dogs gallivant around as usual.

The First Annual Bernie Madoff Award for Global Business Chutzpah goes to Siemens, Europe’s largest engineering firm which just copped a plea to bribery and corruption charges involving public officials and politicians on 4 continents.

The multinational agreed to pay $800 million worth of fines in America and another $540 million in Germany. That was in addition to the $280 million it coughed up to settle an earlier, similar charge.

But the size of the fines wouldn’t have, by itself, put Siemens over the top for the Madoff Award. It was the perverse sense of openness with which the process unfolded, as if people throughout the organization knew and accepted this was the way to do business.

According to the Economist, Siemens set up in full view 3 “cash desks” in its offices. Everyone knew employees could tote empty suitcases there and have them filled with cash to be used in paying off public officials for awarding contracts to Siemens.

Managers could pull out as much as $1.3 million at a time in support of efforts to secure contracts for the company’s telecoms-equipment division, according to the US Department of Justice.

Between 2001 and 2004, nearly $67 million was withdrawn in those suitcases, and all tolled according to Justice, Siemens paid foreign officials $805 million over a 6-year period.

No questions were asked, little documentation was required and managers needing money could approve their own requests.

Until 1999 Siemens actually claimed tax deductions for the bribes, booking them as “useful expenditure.”

“There was no complex financial structuring such as you would find among drug smugglers or money launderers,” Mark Pieth, chairman of OECD’s working group on bribery told the Economist. “People felt confident they were doing nothing wrong.”

Now that’s chutzpah!

In that thoroughly modern moment of desperation when your computer has frozen tighter than the credit market and it needs to be fixed like right now so you’ve dialed tech support, few things are as absurdly frustrating as an unintelligible foreign voice on the other end of the line.

But that happens quite frequently because companies can save 50-70% on call center costs by outsourcing the function to places like Bangalore and Manila.

Now Dell is offering an alternative. For $99 per year, new computer buyers can purchase a service package which comes with technical support based in North America, guaranteed.

And your call will be answered in 2 minutes or less.

Sans upgrade though, you’re likely to get someone from the Philippines, India or some other place that has a contract to provide technical support for Dell.

“We’ve heard from customers that it’s hard to understand a particular accent and that they couldn’t understand the instructions they were getting,” Dell spokesman Bob Kaufman told the Washington Post. “This (new plan) illustrates Dell’s commitment to customer choice.”

Lyn Kramer, who operates a call-center consulting business isn’t buying that, however. “Most people in the customer service world believe that if you have sold me a product, then support for that product should be free,” she told the Post.

Meanwhile Sharmila Rudrappa, a native of Bangalore and professor of sociology at UT Austin added the issue had nothing to do with racism.

“When things go haywire, you want assurance, you want familiarity, you want someone to hold your hand and say it’s OK…you don’t want…to have to work at understanding the person at the other end of the line.”

And since when did the accents of Nashville, Boston, and Nova Scotia become so easy to understand?

While US lawmakers are busy bailing out banks, insurance giants and we’ll see about car companies, the Italians have rushed to bail out Parmesan cheese makers.

What’s next, buffalo mozzarella?

And how could it come to this for the iconic pasta-topper when demand remains strong in Italy and abroad?

It’s simple. Producers can’t cover their costs.

Marco Iemmi and his 7 employees for example produce 15 thousand 77-pound Parmesan wheels a year. Last year he sold them at 7.4 Euros per kilogram, but he spent 8 Euros per kilo to produce them.

“It’s a tragic situation,” Iemmi told the Wall Street Journal. “I’ll have to close up shop unless things improve.”

So thank heavens for the Italian government which announced it will subsidize Parmesan makers by purchasing 100,000 wheels and donating them to charity.

Most Italians on ‘Strada Principale’ support the bailout.

“Parmigiano is almost indispensable,” Antonio Piermani told the Journal. The Rome wine-bar owner buys 3 kilos per month and swears that any substitute “would compromise the taste of the dish.”

Italy’s cheese crisis is the product of a fragmented producer sector. The world’s supply of Parmesan comes from about 400 tiny, family-owned businesses located near Parma in northern Italy. They understand economies of scale, but refuse to consolidate.

“We have an ancient mind-set,” Iemmi explained. “Each one of us wants to take care of his own little business.”

Meaning producers have no leverage with wholesalers, and not even the Pope would dare to mess with the meticulous Parmesan production process that has remained unchanged for several hundred years.

There’s even price competition, at least in Italy where 80% of the world’s Parmesan is consumed. Grana Padano, another grated cheese has a similar taste and costs less to produce.

Chuck E. Cheese’s says it’s a place “where a kid can be a kid” and who can argue, but it’s also a place where adults get arrested for battery and disorderly conduct more often than you think.

The Chuck E. Cheese’s Brookfield Wisconsin franchise for example has prompted more calls to the police than any other restaurant in town, 2 years running.

Cops have had to break up at least 12 fights there since January, 2007 including a 40-person melee that spilled onto the stage reserved for the singing chicken and life-sized mouse!

“There’s a biker bar down the street, and we rarely get calls there,” local police Captain Timothy Imler deadpanned to the Wall Street Journal.

Imler blames the conflagrations on loud noise, crowded interiors and all the emotion wrapped up in children’s birthday parties these days. Oh and alcohol is served at most venues, and then there’s the phenomenon psychologists call the “momma bear instinct.”

Apparently when kids scope out the place they think “child’s play” and they’re off to the races. But adults for whatever reason see danger in all directions, like it’s the Serengeti or something. So they go into all-out child protection mode.

Like when someone cuts the line for Whack-a-Mole, for example.

“It’s part of protective parenting,” Frank Farley told the Journal. The Temple University psychologist added, “it is part of the species—all species, in fact…we do it all the time.”

To Chuck E. Cheese’s parent company, CEC Entertainment, this is no laughing matter. Some of its 538 locations have decided to halt alcohol sales, for example. There’s at least one store that posts armed security guards and the Milwaukee store has a dress code that bans gang-style apparel, not to mention knives, screwdrivers and glass cutters.

It’s “like something out of a Quentin Tarantino film,” Milwaukee Alderman Tony Zielinski told the Journal.