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Boulder's high-tech toys: Local startups mix technology, playDec 03, 2012 (Daily Camera - McClatchy-Tribune Information Services via COMTEX) -- Correction: An earlier version of this story misidentified Nathan Seidle, the CEO of SparkFun Electronics. Boulder's toy story is growing. The Cubelets made by the "elves" at Modular Robotics likely will sell out in a couple dozen hours after they're manufactured and listed on the firm's website. The founders of Ubooly Inc. have resorted to using their kitchen as a staging area for the iPod-enabled stuffed toys as they await shipping to the likes of Walmart.com. Seven months after President Barack Obama took a smartphone-driven Sphero ball for a spin on University Hill, Orbotix's device is in 3,000 stores, including hundreds of Apple Stores and Barnes & Noble outlets. In the first 24 hours of ATOMS Express' Kickstarter debut, the electronics-engrained plastic blocks -- which connect to one another and other items such as Legos or clothing -- already were 17 percent closer to meeting the company's $100,000 fund-raising goal. A cluster of startups aimed at pairing tech and play has popped up in this entrepreneur-friendly city and the burgeoning young firms each are hitting inflection points that could propel them to greater success and change the toy industry as a whole, company officials and industry observers say. "The demand is gigantic," said Nathan Seidle, CEO of SparkFun, a Boulder-based company that sells parts for electronics projects and organizes electronics-building tutorials for children. "There are so many kids that are comfortable with a display on some sort of portable electronic device. They're so used to that and when they see they can cross over into the real realm -- make something that spins or make noise ... that is tactile -- they absolutely make the connection." Exceeding demand At Modular Robotics' 3,500-square-foot office off 30th and Bluff streets in Boulder, more than a dozen employees -- affectionately referred to as "elves" by the company's founder, Eric Schweikardt -- assemble Cubelets. Each Cubelet is an injection-molded plastic block that contains six circuit boards and additional electronics elements that grant the cube a default behavior that could include a light sensor, mobility or sound. When snapped together with more of their magnet-lined pals, the Cubelets can form a unique robot that could, for example, make a sound when the temperature drops. Cubelets are designed to help children think about the world differently and understand complex systems, Schweikardt said. "Basically, they're little toy building blocks of intelligence," he said. Cubelets originally were a graduate school project aimed at providing a physical tool for computer-aided design and architecture projects. When lookie loos popped their heads in the labs, requesting the blocks for themselves or their kids, Schweikardt and colleague Mark Gross quickly discovered their blocks had a broader appeal. In 2008, the project was spun off into a toy company with the help of a grant from the National Science Foundation. Modular Robotics set up shop in Boulder and earlier this year landed $3 million in venture capital funding from Foundry Group and Bullet Time Ventures. The financial infusion allowed the company to hire more staff and put the firm on track to automate portions of its manufacturing processes. Scaling up could allow the firm to nail a planned mass-market entry in 2014, but whether the company could be successful domestically remains to be seen, Schweikardt said. "It's not totally clear that we can do it," he said. It remains critical for the company's future for Modular Robotics to remain laser-focused on improving its production capabilities domestically or overseas, he said. Cubelets are selling quicker than they could be made -- the 414 Cubelets targeted for production last week likely would be sold within dozens of hours of them landing on the company's website. "Which has been an enviable problem, but a problem nonetheless," Schweikardt said. The manufacturing concerns are something that could make or break a startup company, said Seidle, of SparkFun Electronics, which provided parts and advice to companies such as Modular Robotics. "I think the greatest challenge is getting above 1,000 units and getting to 10,000 units ... I call it the pit of despair," he said. "It's really hard to get through that." Unfortunately, manufacturers for those mid-sized needs are limited, especially domestically, Seidle said. "I'm hoping that someone fills that gap," he said. High potential The potential for the hybrid tech-enabled toys could outweigh some of the obstacles that exist, Thompson said. SparkFun, he noted, has experienced success in its school-based programs aimed at promoting electronics education. The company recently started a Kickstarter campaign to raise $150,000 to embark on a national education tour in 2013. "I think when they start looking at education through physical means, they can learn so much better with these physical things rather than just a textbook," Thompson said. "It's just a powerful thing." A few trends are benefiting the broader market for the types of toys being developed out of Boulder, said Seth Levine, managing director of the Foundry Group, the Boulder-based venture capital firm with a portfolio that includes Federated Media Publishing, Cheezburger, Zynga and also Orbotix and Mod Robotics. "For starters, it's become much less expensive to produce physical goods, both to prototype them as well as to build relatively small build runs," Levine wrote in an e-mail to the Camera. "In addition, there's a greater ability for companies to integrate software with physical devices (because of the quickly lowering costs of the components to do this)." "This allows devices to be both more dynamic in their operations -- you can program the same physical object to do different things through software -- as well as upgraded post production so products stay current." Levine said he and others at Foundry were attracted to the two startup toy companies because they were fans of the respective devices. On a broader scale, they could see that "the nature of change is playing." "Games today are more interactive and, importantly, more open ended (there are fewer 'rules' for how a play object is to be put together or used)," Levine wrote in an e-mail to the Camera. " ... The toy category is huge and the possibilities for both firms are enormous. Both companies truly believe they are part of a revolution in robotics and are quite literally changing the way that children play." The newest startup, the Seamless Toy Co., has received a favorable response from investors and customers alike with its ATOMS Express robotic building blocks designed to help "kids make things that do things" through connecting the blocks to each other, other toys or via an iOS app. Seamless Toy Co. received $70,000 in angel financing and is more than halfway toward its $100,000 Kickstarter goal with 32 days to go. Founder Michael Rosenblatt's vision for his firm is grand. "It's to build the first legitimate toy company for the i-generation that taps into the power that these phones have." Industry obstacles The toy industry has held its own during the economic downturn, said Richard Gottlieb, chief executive officer of Global Toy Experts, a New York-based industry consultancy. "There are three kinds of businesses that are recession-resistant -- not recession-proof, but recession-resistant: Anything that goes in the medicine box, ice box or the toy box," he said. "As a result, we never struggle as much as most industries do." However, 2012 hasn't been the most favorable of years for Gottlieb's industry, which typically is plus-or-minus 1 percent to 2 percent this time of year. The latest figures indicate sales are down about 3 percent, he said. "There is more play available than there is demand," he said. "We're not just in the toy business anymore. The toy business competes with anybody who provides play for a fee." By that definition, competitors include video games, mobile applications and amusement parks. Toy companies have made efforts to integrate apps with physical toys and some retailers eyed having whole departments dedicated to the hybrid toys, he said. "We are seeing quite a bit of it and, no, it hasn't looked good so far," he said. "So far, it doesn't appear to have been the magic bullet that people thought it would be." The Hong Kong Toys & Games Fair in January could give a good taste of whether toy developers are reassessing their app products. The fair also will serve as the launch pad for the latest innovations within the industry. "I just think there's not a lot of creativity going on right now, and I think the industry is struggling with that," Gottlieb said, referencing the lack of new titles in the board games sector. Big plans The hybrid, app-based Ubooly Inc. has not encountered similar hurdles. The Boulder-bred startup this year launched a stuffed animal powered by an iPhone or iPod. Ubooly -- a furry orange creature that could be an offspring of Teddy Ruxpin and a Furby -- is an interactive toy that can tell jokes and play games on command. Ubooly Inc., which also got an initial boost from Kickstarter, recently raised $1 million to complement a $1.5 million round raised earlier this year, according to Securities and Exchange Commission filings and co-founder Carly Gloge. "We've got great things lined up," Gloge said. The company has hired more engineers, bringing its employment base to seven people, to help it build up inventory on Walmart.com and Fab.com. "The nice thing about us is really the technology is all in the app; the product is simpler to produce," Gloge said. As such, Ubooly can scale. And having a cluster of tech-infused toy companies can only help, she said, noting the mentoring her firm received through the TechStars program and serial entrepreneurs such as Orbotix CEO Paul Berberian. Having released its Sphero robotic ball 12 months ago, Orbotix became an unofficial elder among the startup toy firms, Berberian said. "The thing that is different about us is we sell to a different demographic. ... We're happy to share," he said. Since Sphero's release, the ball landed in more than 3,000 stores in North America, gained accolades and interest through its viral videos and social media efforts -- and had its product land in the hands of the U.S. president when Obama visited Boulder last April. "2012 is just the beginning," he said. "2013 is where things are really going to explode for us." Orbotix has developed 20 applications for Sphero to-date, including the recently launched augmented reality app, which allows for users to take a virtual 3-D character for a stroll around one's house. When the video for "Sphero Augmented Reality: Sharky the Beaver" was released two weeks ago, it gained more views more quickly than video of Obama piloting the ball outside The Sink. Coyly hinting that Orbotix likely would announce "something" at the upcoming Consumer Electronics Show, Berberian added the company is within tasting distance of profitability. "The revenue growth is the fastest I've ever experienced in the six other companies I've ran," he said. Contact Camera Business Writer Alicia Wallace at 303-473-1332 or [email protected]. Local high-tech toys Here's a list of some of the toys recently launched by Boulder-based startups. Included are the product name, developer, cost and website. ATOMS Express Toys: Seamless Toy Co.'s electronics-equipped blocks that can be used alone or with other toys to result in creations such as robots and "magic wands," $49 to $99 for kits; kickstarter.com/projects/atoms/atoms-express-toys. Cubelets: Modular Robotics Inc.'s magnetic building blocks that can make a variety of robots, $25 to $49 for individual Cubelets and $160 for a kit; modrobotics.com. Sphero: Orbotix Inc.'s robotic ball controlled by a smartphone or tablet, $129.99; gosphero.com. Ubooly: Ubooly Inc.'s plush toy powered by an iPhone or iPod touch, $29.95; ubooly.com. ___ (c)2012 the Daily Camera (Boulder, Colo.) 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