Zero sales, lost investors, redundancies, and bankruptcy. It’s a risky business setting up a new company – particularly if you’re in the hi-tech sector.
When it comes to turning new technology into innovative products, the problem most blamed for the UK’s poor track record is lack of funding.
But the good news is that some innovations do make it through the money minefield. Here we trace the progress of four hi-tech firms that, over the past 18 months, have journeyed from drawing board to bringing their products to market.
Spread across the telecoms, control and digital special-effects sectors, these start-ups were profiled in The Engineer’s former Innovators column in 2000. They had to overcome fund-raising delays, technical hitches and difficult licensing negotiations. Not all of them ended up where they expected to be. Some didn’t survive the trip in their original form. But they have taken technical ideas and made money out of them here in the UK.
Whether it’s making paper-thin RFID devices or desktop workstations, small hi-tech companies are a major force in UK manufacturing. So the next time you buy an album, make a mobile phone call, surf the internet or watch one of the new Star Wars and Lord of the Rings films – celebrate the fact that there is UK innovation in there somewhere.
Optical Micro Devices: Cashflow problems but sales at last
Despite the perception that the UK is not the best place to turn science into profit, for US-born Kevin Ford, founder of Optical Micro Devices, it was just his cup of tea.
He left a UK electronics firm to start OMD and had already decided that this country was a centre of excellence for the technology he had in mind – manufacturing silica wave guides. These guides are used to manage optical fibre light, enabling several signals to be sent down an optical fibre at once and separated again at the other end.’We now have 45 employees. The fabrication unit is running with prototypes and we’ve taken purchase orders from customers,’ says Ford.
But it hasn’t all been plain sailing. Ford admits that the firm has not hit all the targets on all the specifications. ‘We can meet all our published specifications except birefringence but hope to close in on that shortly. That is probably the most difficult spec. We expect to have it nailed soon and then we will send the prototype wafers to customers again.’
Finally getting those prototypes made came after substantial problems with putting the fabrication unit in place. The original business plan expected the production equipment to be leased to the company, providing significant savings. But OMD couldn’t get a leasing scheme.
So the firm had to bear the full burden of the equipment’s costs, and Ford found himself going back to the financial markets to raise more cash. ‘Because of that we had to have a small round of funding last summer and are currently going through another. We probably had about a six-month delay because of this.’
At least now Ford can look forward to making some revenue when he finishes delivering $300,000 (£212,000) worth of chips this month. In 2000 he told The Engineer that he expected to break even in 2002 and to bring in £27m in sales in 2004. Despite the problems his latest market forecasts are far more upbeat. ‘We now expect to be making $70m (£50m).’
Post Impressions: Had to sell out but the innovations live on
Ford can consider himself lucky he has reached market before the money ran out. Not all the firms we featured in Innovations quite made it that far. Post Impressions, the Newbury-based digital special effects technology company, was hoping to make £5.5m last year. Instead, it ran out of cash.
Its work on developing digital special-effects computers that can process 25 6Mb frames per second had taken its toll. Graham Sharp, founder and one-time managing director of the company, predicted in December 2000 that his Post Impressions would become the provider of choice in the growing market of high-definition television post-production. But it was not too be.
The firm had to put itself up for sale midway through last year. It sold readily – competing post-production company Snell & Wilcox snapped it up. And according to its new owner, Wilcox’s chief operating officer Harry Cross, they got it at a very reasonable price.
‘We took over in September 2001. It had come to our attention that they had put themselves up for sale, and they were just the right profile for us. They had a series of products which were ground-breaking and fitted well into the post-production market.’
With the sale, out went Sharp and other managers. ‘We did clear out the administration,’ says Cross. ‘Post Impressions just ran out of money before they could quite get to market. Now what was Post Impressions is just research and development.’
But not for long, because Cross has also bought another company based in Newbury, which had much-needed manufacturing engineering expertise. Merging the two is the next step to create a new Snell & Wilcox subsidiary.
In the meantime, Cross has been making the most of the Post Impressions technology. In December he sold workstations to George Lucas’s famous Industrial Light and Magic special-effects outfit and to Sony.
Sharp’s technology is now being used in the Jedi Master Digital Laboratory Suite for the post-production of the forthcoming Star Wars Episode II: Attack of the Clones, while at Sony it is helping bring the fantasy world of Middle-earth alive for the Lord of the Rings trilogy.
As for Sharp himself, he has now become vice-president of rival post-production company Avid Technology Europe.
Cyan Technology: Independent advice solved technical hitch
Considering the suffering the technology sector has been through in the past 18 months you’d be forgiven for thinking that a firm whose product was a mobile phone microchip would have an even harder time than Post Impression – but that is not necessarily true.
David Griffiths, chief executive of Cyan Technology, has no illusions about how tough it can get. ‘It has been the worst year in memory to raise money. Many technology companies have had to close up shop. We survived because we demonstrated we can deliver.’ The company’s 16-bit microcontroller has applications in mobile phones and interactive TV.
This is Griffiths’ theory about how to deal with investors: ‘It’s all about demonstrating that you can deliver. My advice is to focus on what you know you can achieve. Find out from investors what you should deliver for them.’
‘Delivering for them’ apparently involves bringing in independent consultants to check out the product. Griffiths felt it necessary after his company’s microchip took longer to finish than expected. ‘We think we ended up with a better product than expected. We had some feature creep. It’s not unusual in the semiconductor industry.’
Much to his joy his chip worked first time. Griffiths points out that at least half of all semiconductor prototypes go wrong and require further work. So a happy Griffiths is looking forward to some imminent revenue. The product will be launched in February and is scheduled to go into full production in the second quarter of this year.
Flying Null: Licensing agreements were the way forward
Raising cash is no longer a concern for Rob Karsten, sales and marketing director for Flying Null. It manufactures a low-cost radio frequency identification technology which takes the form of a thin film that can be read with a magnetic scanner. It has potential applications wherever items need to be tracked, from allowing the goods in a supermarket trolley to be scanned automatically at the checkout to keeping track of tools in a workshop.
In October 2000 Karsten said that moving from design to production would be a real challenge. At the time the company was funded by technology developer Scientific Generics and consisted of just two of them in an office in Cambridge.
Instead of going into production, the firm decided to license the technology. Flying Null now has two partners: Light Impressions, a holographic label company, and packaging firm David S Smith & Sons. Flying Null’s technology is being combined with Light Impressions’ holography to create a RFID tagging system for CD cases.
‘We have revenue coming in from these licenses and the firm has been able to expand to seven people. We now have a manufacturing manager, a sales manager and a head of technology, as well as my sales team and our managing director Dr David Arnold,’ says Karsten.
Flying Null is looking for more licensing agreements and is already negotiating with various companies. Offering such a small device with potential to be printed on to a wide range of products, the company is gearing up for major volume manufacture. ‘The manufacturing volumes will be in the hundreds of millions, if not billions.
Currently the production capacity [at Light Impressions] is half a billion. We’ve already made several million for trials,’ says Karsten.