The integrated optics startup hadn’t been able to organize a rescue plan by the deadline set by the court, so the company will now be wound up under Chapter 7 of the U.S. Bankruptcy Code.
Nanovation’s remaining 52 employees were laid off yesterday, with the exception of a small transition team to handle the liquidation of the company’s assets in the coming weeks. This will include selling Nanovation’s state-of-the-art 108,000-square-foot planar integrated circuit fabrication facility in Michigan, according to CEO Bob Chaney.
Chaney says that plenty of companies expressed an interest in recapitalizing or acquiring Nanovation -- the options the bankruptcy court had given him 100 days to investigate (see Nanovation Up For Sale). But none of them had come forward with a firm offer in time.
In some ways, Nanovation is an extreme example of what many optical component startups have gone through in the past couple of years.
The company began life as U.S. Integrated Optics and was renamed Nanovation in November 1998. This marked its "transition from a research-oriented enterprise into a leading edge technology driven company dedicated to the rapid development of commercial applications for its products,” according to the press release issued at the time.
The renaming also marked the beginning of a big campaign to hype Nanovation's achievements in making the optical equivalent of integrated circuits using indium phosphide technology. Robert Tatum, the company’s president and CEO at the time, spent large amounts of money preparing the company and potential investors for a blockbuster IPO (see Nanovation Prepares the Ground for an IPO). This included grandiose gestures such as giving Massachusetts Institute of Technology a $90 million grant for research in this area.
In the end, Nanovation wasn’t able to launch an IPO when it planned -- in the late Spring of 2000 (when there still was an IPO market) -- for a couple of reasons.
These problems came to a head in July 2000, when Tatum was kicked out and Chaney took over as Nanovation’s CEO (see Nanovation's CEO Gets The Heave-Ho). Chaney dumped the idea of going for an IPO and refocused the company on more achievable goals based on silica-on-silicon AWGs and MEMS (micro-electro-mechanical system) technology (see Nanovation Comes Down to Earth). He also brought in Motorola Inc. (NYSE: MOT) as a strategic investor. At the same time, he negotiated his way out of the $90 million research grant to MIT, limiting it to $3 million.
Chaney blames Stamford International for Nanovation’s ultimate downfall. He says the company, which is Nanovation’s largest common shareholder, blocked approval of a $10 million bridge round (led by Motorola) during Nanovation’s efforts to raise Series C funding. As a result, Nanovation ran out of money, had to lay off two thirds of its staff, and eventually filed for bankruptcy protection (see Nanovation in Crisis and Nanovation Files for Chapter 11).
It's possible that Stamford International hoped to grab control of Nanovation by blocking the Motorola-led funding round, but the ploy appears to have backfired badly. Stamford executives were traveling today, and couldn't be reached for comment.
In a message to Light Reading last night, Chaney makes the following points “to set the record straight”:
On the indium phosphide side, Chaney says Dr. Wei-Ping Huang’s work at Nanovation was “highly respected” by Motorola. Motorola recently claimed a breakthrough in chips by layering gallium arsenide on top of silicon (see Motorola Breakthrough Makes Waves ). Motorola was planning to “invest in us at a corporate R&D level to work with them to layer indium phospide on top of silicon."
(As it happens, Motorola today announced that it had set up a wholly owned subsidiary, called Thoughtbeam Inc., to commercialize its semiconductor-on-silicon developments -- see Motorola Spins Off Wafers.)
”By the time the professional management arrived, the fate of the company had been sealed by the non-traditional capital structure of the company and the (previously reported) antics of former board members and officers...
”There was just too much baggage and too many broken parts that needed to be fixed, all within the timeframe of the entire optical market collapse...
"However, I'm known for taking on tough assignments as I always enjoy a good challenge, and I have no regrets that we couldn't get this one fixed in time. I'm energized (and educated) to lead my next startup opportunity, but I'll be sure to personally perform more comprehensive due-diligence next time.” — Peter Heywood, Founding Editor, Light Reading