How do we get in the solar-energy game?

Q:We are a team of three capable photonics engineers.

Feb 1st, 2008
Th Mchang

Milton Chang

Q:We are a team of three capable photonics engineers. Is it too late to jump on the solar-energy bandwagon? If not, how do you think we can get in the game?

A: That depends a lot on the ability of your team, the amount of financial resources you can pull together, and your personal goals and appetite for risks. You may want to study what has happened to many of the start-up companies during the telecom bubble to get a hint about what might play out in solar. The good news is it is not too late because both the needs for telecom and concern for green energy are here to stay. However, it is important is to understand the environment so you can make the right choices.

It is interesting to note that almost all the companies that benefited from the telecom bubble were started long before the bubble came along. If you hadn’t mentioned there are three of you, implying that your goal is to start a company, I would have suggested you join a solar-energy company that already has revenue and is growing nicely. This tack would significantly reduce your risk of uncertainty, and we can cite many examples of high financial reward from stock options in successful companies in a growth industry, even when joining them years after they started.

However, most people think of building a major company with IPO potential when they have invented a fundamental breakthrough technology. If that is your situation, you must seek funding from a group of big venture capitalists. But keep in mind that, unless you can put together $50 million, $100 million, or more in the course of the build-out, you are not in the game. In this line of business, you have to move fast and you have to invest in the entire business infrastructure to compete with the big boys. Because technology marches on at a fast pace-and you don’t want to miss the market window-this is no place to build an idealistic company over time. This is a big-stakes horse race and, like the telecom industry, there will be a few winners and many losers. Winning is not going to be easy, because winning requires a company valuation of many hundreds of millions of dollars.

While technology is an important ingredient in a hot technology business, it is rarely a sustainable competitive advantage in today’s environment. Financial muscle is! Technology advances, and the pace of innovation can be increased by throwing people and money at a problem, and marketing and manufacturing muscle must also be used to further dilute the technical competitive advantages.

Another alternative is to let another company leverage your technology. But this is no easy task either. You must couple your invention with a strong IP (intellectual property) strategy to surround your invention with patents and carry the work some distance to validate the technology and establish credibility to attract interest. Funding for this scenario is more modest and can be made available from boutique VCs who specialize in photonics. This is not a bad approach because your team is better equipped to execute this scenario, the outcome is not binary, and your financial reward may be comparable to the last scenario because you would have a bigger wedge of a smaller pie.

Yet another tack is to start a business that supports the industry, such as a service business that installs solar panels, or makes specialized accessories, tools, or instruments for solar applications. In this case, you would be in a position to “compete down” with your photonics expertise, deploying the latest technology with better system definition than competitors who do not have your level of photonics education. For the part you don’t know, such as getting permits from local municipalities and meeting building codes, you can soon learn or hire someone from the construction industry to help you. I am not suggesting there are not already strong competitors in service oriented businesses, but you can always carve out your niche with a personalized approach to get your fair share and grow over time.

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MILTON CHANG is managing director of Incubic Venture Fund, which invests in photonics applications. He was CEO/president of Newport and New Focus, and currently sits on the boards of Precision Photonics and OpVista. He holds a B.S. degree from the U. of Illinois and a Ph.D. from Caltech. He is a Fellow of IEEE, OSA, and LIA, a former president of LEOS and LIA, recipient of Distinguished Alumni Awards from both universities, serves on the board of trustees of Caltech, and is a member of the Committee of 100. Visit www.incubic.com for other articles he has written.

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