How do we get VC funding for our product?

We have developed a new class of semiconductor laser with minimal angel funding and with the help of a foundry partner; we are also very good at developing photonics instruments.

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Milton Chang

We have developed a new class of semiconductor laser with minimal angel funding and with the help of a foundry partner; we are also very good at developing photonics instruments. These lasers can be used for homeland security, military, and medical diagnostic sensor applications. We are unable to get any venture captial (VC) interest because no specific volume application has been identified. What do you suggest we do?

You are having difficulty getting funding because you have not yet defined the business. To an investor, this is like saying, “I am not convinced any of my options will work.” You may be overly concerned about whether the approach you take can succeed. However, keep in mind that your proposition need not be risk free-no start-up investment is. There are all kinds of investors; some are more willing to take risks than others. You just have to match up the risk profile of the investor to your business plan.

To enable a VC to consider your project, you must clearly verbalize a vision of what the company can ultimately be and the business model you plan to follow. Remember, professional investors want to quantify risks before making their investment choices. I can see two options.

One option is to become a dominant supplier of this class of lasers-to bet that a mass application of this laser will develop that allows you to become a sizable company. To succeed, you must be focused, directing all your energy and resources to stay at the cutting edge of this technology. Given your potential applications, government agencies may be willing to support the work, and because you do not have an expensive fab to maintain, you may be able to wait it out with only a modest amount of additional investor funding.

Another option is to focus on developing an application. Many companies in our industry start by obtaining government funding to develop the basic technology, and then seek VC funding to commercialize their products in an application. You can differentiate from this crowd by forming a strategic alliance with a company(s) that has been pursuing applications but without a strong a photonics team. You would be attractive because you have control of the source and may be able to use that to an advantage in the sensor scheme you develop.

Any traction in either of these two options can provide credibility to raise venture dollars. Entrepreneurs are often afraid to narrow down what they do, thinking that they might miss opportunities. My experience tells me otherwise; it is the lack of focus that causes companies to fail. Unless you focus to gain a rock-solid competitive advantage, you will not be able to “crack the nut” of stiff competition for business or for funding. Pick your best option through careful due diligence and planning-then go for it.

What are the important ingredients for an employee to climb the corporate ladder, as opposed to working for a start-up company?

I didn’t work long enough in a big company to speak authoritatively on the subject. I believe there are more similarities than differences in achieving success in the two environments. First, the bad and ugly of established companies, which I have picked up second-hand. Internal politics in a large organization often leads management to reward form over substance. Being liked and “going with the flow” is important, so one has to be careful to say the right thing in the right way.

A positive approach is to concentrate on the basics, no matter where you work. To advance you have to be really good at what you do, as well as excel at relationships and people skills. In a big company, you just have more people to take into consideration. I would also put in a plug for having a broad knowledge base-knowing something about business, customers, and marketing. Excellence in your area of expertise and a broad knowledge of how the company works is a strong combination.

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MILTON CHANG is managing director of Incubic Venture Fund, which invests in photonics and in businesses related to core technologies. He was CEO/president of Newport and New Focus and currently serves on the boards of several companies, including Arcturus Bioscience, OpVista, Rockwell Scientific, and YesVideo. He holds a Ph.D. from the California Institute of Technology. He is a Fellow of the Optical Society of America and the Laser Institute of America (LIA), is a past president of the IEEE Laser Electro-Optical Society and LIA, and is a member of the Board of Trustees of Caltech. Visit www.incubic.com for other articles.

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