By ROBERT PEASE
A new partnership, inspired by dedicated Internet startup incubators, has emerged to provide fledgling photonic businesses the initial capital and management resources to launch into the competitive markets of telecommunications, biotech, and other laser and optical applications. Incubic LLC (Mountain View, CA) was formed by a team of entrepreneurs with technical experience and private capital with the goal of providing seed capital and years of industry experience to new companies showing potential for success.
The partnership includes Milton Chang, chairman and founder of New Focus (Santa Clara, CA), a venture-backed telecommunications and photonics products company; Bill Nighan, former director of engineering at Spectra-Physics (Mountain View, CA), a developer and manufacturer of lasers and laser systems; and Tom Baer, president and CEO of Arcturus Engineering (Mountain View, CA), a manufacturer of new photonic biomedical instrumentation. Combining their individual talents, the team believes they can help new companies avoid startup pitfalls and significantly increase the chances of success.
"Most importantly, we provide our hands-on experience in the field, our relationships with the top venture firms in Silicon Valley, and our firm belief in fair, win-win relationships to help create value in a better way," says Nighan.
Chang adds that once the team decides an idea is viable, it can provide all the capital needed to develop a business model, put together a management team, and develop the product and business to a point where the startup can bring in additional investors. Follow-on investments would be obtained more quickly because the Incubic partnership has worked to build credibility with a network of angel investors and venture-capital funds, the partners believe.
Incubic is basically institutionalizing Chang's approach to providing seed capital and advice to photonics startups in their earliest phases. Chang has incubated over a dozen companies without a single failure. Incubic's purpose is to continue that trend efficiently create value within a startup company, lowering risk and time, while enhancing the end result. Instead of starting from scratch and competing for resources, startups can work with Incubic and get "on the air faster."
"Ideally, they would start with us before going down a wrong path," says Nighan. "Still, we are flexible in how or when we apply ourselves to the individual startup situations."
Internet incubators across the United States have been operating similarly for some time, with notable success in rapid value creation. In the photonics space, where a need for high-bandwidth Internet is prevalent, these incubators are few and far between. Incubic recognized a need for similar incubation geared toward the special needs of the photonics business. But there are some key differences.
"In the photonics field, the business models typically center on high technological differentiation," says Chang. "The talent pool for both management and technology leaders in this area is more limited than that which is applicable to Internet businesses. The manufacturing and reliability requirements for photonics and telecommunications products are specialized and demanding. Lastly, the capital equipment required to effect the feasibility is specialized and expensive.
"We're addressing those areas to enhance the startup process. We are also building a facility to increase our efficiency. Our experience is in the business of photonics and we're applying it to create new and great new companies. We're seeing the beginning of a real photonics business renaissance right now. It's very exciting," adds Nighan.
How does a startup qualify for incubation? According to Incubic, there are several classic questions to ask of the entrepreneur. What is the idea? Have you demonstrated devices? Have you filed any patents? Do you know customers who would like to buy this product and for what? What companies provide similar products? At what stage is the development of your idea? What kinds of resources are required to develop the technology into a marketable product? Under the most optimistic scenario, what is the cost of production and what will people be willing to pay for the product? What is your guess at the market size?
Providing the right answers to these and other questions can be essential in determining if a new company has the "stuff" to compete with the "big boys." A brand new technology, a solution to a specific problem, a new application for existing technology, or even a creative new idea for meeting a specific industry need could lead to the means to launch a successful new company.
"From our standpoint, there are certain market areas that are highly valued right now, such as components for the physical layer of telecommunications," says Nighan. "But we have a long-term view, so we try to predict which areas will be important a few years from now as well. For example, the biotech area. Above all, the overall relationship between Incubic and a new startup we might incubate must be a win-win, symbiotic relationship for all involved. Without that win-win scenario, the deals can't truly succeed."
What does the incubating company gain from its investment of time and money in a startup? Most private investments in the early startups are in exchange for equity or stock in the new company, says Nighan. The early phases are the highest risk, however, so it's usually best to look for private investors who provide "smart money." This type of investment comes from an "angel" willing to provide some time, effort, and advice in combination with the capital.
"Our own efforts are to provide smart money to the startups," says Nighan. "In other words, capital plus management expertise. This can be significantly more valuable than just money."