Livescribe Joins the $100M Venture-Backed Club

You wouldn’t know the IPO market remains sluggish — not by the new $39 million Series C just closed by Livescribe, the Oakland-based maker of two so-called smartpens, the Echo and Pulse. The round — led by Crosslink Capital, with participation from Scale Venture Partners, Qualcomm, TransLink Capital, Presidio Ventures, Keating Capital and existing investors VantagePoint Venture Partners, Lionhart, and Aeris Capital -– not only enticed an almost ridiculous number of investors; it brings the company’s total funding to a stunning $100 million. Livescribe is just 3 years old.

Cleantech companies Silver Spring Networks, Nanosolar and Better Place have all raised considerably more than $100 million from venture investors, but, the argument goes, such capital-intensive cleantech companies are trying to fundamentally alter how we consume energy. Facebook and Zynga have raised considerably more, too, but they’re also massively profitable consumer enterprises. But $100 million for a company that makes a pen?

In fairness, Livescribe makes a paper-based mobile computing platform whose centerpiece is a smartpen, and while investors are taking a huge gamble on the platform, “smart” is very much understating Livescribe’s products. Its first pen, the Pulse, contains a microphone, speaker, on-board Flash memory and a tiny camera that work together to record audio while the user is jotting down notes.

For example, if I were using one, I could tap on a word that I’d written during a long interview, then listen to the audio that was recorded at the time I wrote that word. Other neat features include the ability to upload all that audio and written information to a PC, and a translation mode that allows you to write a word in English, after which the pen provides the word in Mandarin, Spanish or Arabic.

The company’s newest product, the Echo, released in July, is even more advanced. The design has been modified for easier handling. It also comes with a headphone jack, a micro-USB port, and much more storage. You can order a 4-gigabyte (GB) or 8GB model, compared with the Pulse, which offered a 1GB and 2GB model.

CEO Jim Margraff says Livescribe’s software has also grown much better over the company’s short life, despite some complaints at the company’s own “rants and raves” forum.

“When we launched Windows desktop, then Mac, we had our share of bugs,” he says. “But I know our customer service calls are down dramatically. … I think the quality of our desktop software is quite strong now.”

It’s certainly impressive in theory. Not only can users search their notes, but when viewing a particular page on a PC or Mac, the recorded playback initiates automatically. Users can also communicate with far-flung colleagues through what Livescribe has dubbed “pencasts,” interactive PDFs that Echo users can upload to Livescribe’s site and share with anyone using one of the newer versions of Adobe Acrobat Reader.

Additionally, last fall, Livescribe launched a third-party app store that already includes an array of engaging apps, including Spanish travel phrases, guitar chords for beginners and video poker, played by drawing chords on the special dot paper that comes with the pen.

I asked Margraff if the company might be trying to tackle too much, too soon. He maintains that Livescribe is “expanding at the appropriate rate. We’re always pushing the edge a bit, but we listen very carefully to our customers,” including linking soon to collaboration services — including Microsoft’s Sharepoint, Google Docs, and Evernote — and adjusting its prices downward.

Though the company initially retailed its pens at $199, today, it has four levels of pricing, ranging from its $129 2GB Pulse to its $199 8GB Echo Pen. It also offers a “pro pack” for $249 that includes a 4GB Pulse, along with a black leather carrying case and some other extras.

“You can’t believe how many electronics are packed into [the pens],” says Margraff, whose last gig was inventing best-selling toys for LeapFrog Enterprises, including its LeapPad Learning System and FLY pentop computer.

Still, Margraff, who says that Livescribe “isn’t discussing” whether or not it is profitable, acknowledges that “ubiquitous deployment will only happen at lower costs. At Leapfrog, we really pushed on price. In the future I want to make [the Pulse and Echo] very affordable, too.”

Investors must be counting on it.

The pens are most ideal for students, businesspeople and journalists — a huge market if the price is right. According to the 2008 U.S. Census, the student population of people ages 14 and older alone was roughly 36.6 million. That gives Livescribe — which employs 90 people and has so far sold 500,000 smartpens through retailers including Amazon, Best Buy, Target and Apple —  a lot of room to grow.