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SPIE Professional July 2014

How do photonics startups start?

image for photonics startup businesses

So you have what you think is a great idea for a product that leverages cutting-edge optical technology and might even be a market “disruptor.” But how do you know if it warrants launching your own company? And if you decide it does, where do you start?

These are some of the critical questions addressed in industry workshops and panel discussions at many SPIE events throughout the year. Successful business, financial, and legal experts at these photonics industry programs help budding entrepreneurs bridge the gap between benchtop research and commercial product development.

“Leveraging our strong connections to and knowledge of the photonics industry, SPIE has developed a program to meet the business, marketing, and education needs of our constituents from industry, government, and academia,” says SPIE Senior Director Andrew Brown. Sessions that offer networking and valuable insights into photonics-centered business development opportunities can help photonics professionals expand their companies and products, develop new solutions, find new markets, and foster business creation, Brown says.

SPIE Optics + Photonics will have a two-day job fair and several photonics industry events in August, for instance.

Attendees at several special sessions at SPIE Photonics West in February received a plethora of tips about financing options for startups, protecting intellectual property, and building a management team.

Life sciences and healthcare ventures are particularly fertile ground for investment and economic growth, according to SPIE Senior Member Linda Smith, president of Ceres Technical Advisers, who moderated a panel of speakers with experience in startup financing for those fields.

In 2013, a reported $3.6 billion of private placements went to work commercializing technology and scaling businesses with core enabling technology in biophotonics, she says.

The panel included Jim Haack, senior vice president at Citibank, who discussed low-cost debt options for financing working capital and capital-equipment expenses and Faz Bashi of Angel Capital Association, representing early investors who typically provide a bridge to venture capital (VC) with up to $1 million at the R&D or startup stages.

Also providing advice for new entrepreneurs were Jonathan Wyler, venture partner at SV Life Sciences Advisers, and Jeremy Salesin, vice president of acquisitions at Intellectual Ventures. Salesin suggested a financing alternative – licensing your IP and partnering with a technology incubator.

Founding role doesn't mean permanent job

Putting together a strong management team, one of the first steps in starting a business and attracting working capital, was addressed in another session at Photonics West where John Dexheimer, president of LightWave Advisors of Connecticut, had a sobering warning for potential entrepreneurs. VC companies can help your startup, Dexheimer said, but the founder/CEO is often the first to go. “You no longer control your own company,” he said. “You have a 50/50 chance of being gone.”

Of 22,000 VC-backed firms in a survey, Dexheimer said, the founders of three-quarters had made little else at exit except a salary. In non-VC funded companies, the CEO was more likely to survive, and financial goals and product milestones were more likely to be achieved, Dexheimer said.

James Schaefer, a certified public accountant at Mark Schaefer Associates and an SPIE industry program speaker, echoed that warning. “Investors are looking more at the management team than the product/idea,” Schaefer said.

“If you are head of that team, you have to be able to present yourself to the investors so that they are confident you can make this idea/company work. They want to know how they can make their money back with minimal risk.”

Schaefer added, “You have a concept and an idea, but you have to look at it as being a business.”

Laws on IP and trade affecting photonics companies

SPIE industry programs can also deliver important information about how to protect your intellectual property and on international laws affecting the manufacture and trade of photonics devices and photonics-enabled products.

Speakers at SPIE Photonics Europe, for example, raised a warning about the EU regulations RoHS and REACH, which are endangering the availability of raw materials for high-end optical systems.

Attorney Kerry Scarlott advises optics and photonics companies about ITAR and other international trade regulations.

Kerry Scarlott, an attorney with Goulston & Storrs (USA), has been a frequent speaker at SPIE DSS and Photonics West on the US International Traffic in Arms Regulations (ITAR) and other international trade regulations that affect the optics and photonics industry.

The goal for protecting your IP is to safeguard your idea, your company, and its equity, according to Ken Itrato, a lawyer with the Faber Group. Talk with lawyers and other professionals to put together a patent-filing team, he says, but be sure to have some sort of agreement with anyone with whom you discuss your technology idea.

However, many potential investors are hesitant to sign a nondisclosure agreement (NDA), Schaefer said, because “we don’t want to have to be worried about being sued down the road due to inadvertently discussing something.”

The earlier you file for a patent, the better, according to Liz Nevis, an IP lawyer and consultant with Intermolecular who previously worked as an engineer in the laser industry.

“If you sit on it too long or disclose too soon, you could lose some rights,” she said. “The US gives you a year to file for a patent after public disclosure, but other countries don’t. So if you are considering participating in the world market, you need to keep this in mind.”

Building a strong team important for optics entrepreneurs

Financial and legal advisers to technology startups cited the importance of networking and mentoring as keys to success at the SPIE Accelerator Forum in February, “What Startups Need to be Successful.”

photo of Andrea BelzForum moderator Andrea Belz, CEO of Belz Consulting and professor of entrepreneurship at University of Southern California, said that most successful startups bring in a marketing person very early.

“The people part is the hardest part of all,” Belz said. “There is a big difference between a group and a team.”

Belz and other panelists at the forum recommended asking key questions early on to determine whether you have a commercially viable idea or product – questions that at first glance may seem to have little to do with that idea or product.

“You have to be solving a problem with a product or idea that is unique and has a big enough market and that you have the resources to handle,” said Schaefer, who has a number of clients involved in technology startups. “You have to ask yourself: Am I a scientist/engineer? Or am I a businessperson who is going to make this work?”

Who are your potential customers and how will you determine whether your product offers them something the competition doesn’t?

“How are you going to take your product all the way through execution to reach those customers?” said Ellen McGuirk, CEO and corporate marketing strategist with Masterplan Consulting. “You need to plot out a course or you can get off track quickly.”

Nevis also stressed the need for a good marketing person. “I have seen a lot of great ideas languish because they didn’t have the right person who could go out and speak in the language that the right people could understand,” she said.

Startup fast and repeat: key to success

Simon Poole, director of new business ventures for Finisar in Australia, advises optics and photonics experts who want to start their own business to “identify the opportunity, get into the market fast, and iterate.”

The serial entrepreneur, who turned to the commercial side of photonics after running an academic research group for seven years, emphasized the importance of speed in many areas of a new business.

Get into the market rapidly and quickly terminate employees who don’t work out, Poole says.

However, it’s also important to take the time to hire the right people – and to “smell the roses,” he says.

–Mike Hatcher, Kathy Kincade, and Kathy Sheehan contributed to this article.

DOI: 10.1117/2.4201407.05

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