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Optical components

Nanovation in Crisis

Integrated optics startup Nanovation Technologies Inc. is in deep crisis today as it struggles to finalize an emergency infusion of cash to keep it going.

Yesterday the company was forced to lay off two thirds of its 169 employees following the collapse of a $75 million Series C round of funding. In a note to Light Reading today, Nanovation's CEO, Bob Chaney writes: "We are currently attempting to obtain funding to hold on to the remaining one third of our employees while focusing only on two silica photonic IC products and two indium phosphide photonic IC products."

Nanovation's crisis appears to have been triggered by Stamford International Inc., a shell company that provided a backdoor way of investing in Nanovation ahead of its planned IPO, which never actually materialized (see Nanovation Prepares the Ground for an IPO).

As Nanovation's largest common shareholder, Stamford derailed the latest funding round and is now offering Nanovation cash in exchange for control of its Board of Directors, according to Chaney's note.

In the note, Chaney says that Nanovation had secured a $10 million bridge loan with Motorola Inc. (NYSE: MOT) for its Series C round, in which Salomon Smith Barney was the placement agent. The money had been placed in an escrow account on June 29. Motorola is an existing Nanovation investor (see Nanovation Bounces Back).

Nanovation needed shareholder approval for the issuance of additional shares for this offering, according to Chaney. "The overwhelming majority of our preferred and common shareholders approved," he writes. "However, our largest common shareholder blocked this deal for nearly two weeks, causing Motorola enough concern to pull out on July 13, and the bridge round then collapsed.

"Nanovation still plans to deliver in August the industry's first true photonic IC, consisting of a switch, splitter, and monitoring taps all on a single substrate," Chaney concludes.

Nanovation has raised a total of $91 million in funding. The identities of many of its investors, apart from Motorola, have been kept quiet. A September 24, 1999, press release announcing a $16.5 million round of financing made no reference to where it came from. Similarly, a press release announcing a further $30 million round of funding, dated Dec 6, 1999, merely referred to an unidentified "crossover group of 13 mutual funds and mutual fund managers" as the source of the funds.

As it happens, it's almost exactly a year since Nanovation dumped its original CEO, G. Robert Tatum, and switched strategy -- bringing to an end an era of spending big bucks in order to pump up Nanovation for a whopper of an IPO (see Nanovation's CEO Gets The Heave-Ho).

At that time, Nanovation was already entangled in litigation with Stamford International, although John Ofenloch, Nanovation's VP of Finance, made light of it at the time. "It's just a monkey on our back," he said. Now the monkey has turned into an organ grinder.

— Peter Heywood, Founding Editor, Light Reading
http://www.lightreading.com
Peter Heywood 12/4/2012 | 8:03:43 PM
re: Nanovation in Crisis Great input, Petabit.

One reason why we started out being sceptical about LMG was the terminology it used, which -- as you say -- was strange. We eventually concluded that this was because they were coming from a different industry - giant screens - and hadn't really figured out the telecom lingo. Does make one wonder whether they've figured out more important stuff, like telecom requirements.

Another reason why we've approached LMGR crab-wise is that we get inundated with very offensive messages from complete whackos whenever we say the slightest un-positive thing about LMGR. it looks orchestrated.

The fact that LMGR seems to be taken seriously by folk like France Telecom and Boeing -- both of them have agreed to test its technology - has made me sit up and pay more attention.
realoptics 12/4/2012 | 8:03:44 PM
re: Nanovation in Crisis Anyboday remeber 5-6 years back, there was a Canadian gold mining company called Brew-X? Nanovation and a few others are similar to that company, just at a smaller scale.
Photonboat 12/4/2012 | 8:04:01 PM
re: Nanovation in Crisis Reading the comments about Nanovation reminded me of a truism.

Nanovation would have told you that they were making a bet that they could successfully develop an existing technology where others have failed; by spending a lot of money, they would be able to pull this off.
Really? Sometimes more horsepower thrown at a problem won't solve it in a more timely manner--for instance: "nine men can't make a baby in a month."

>>LMG are not a scam, but have moments of heading towards Silkroad.<<
I know very little about LMG, but I recall they do acousto-optics. This technology may actually finally have its day--witness Novera Optics, Brimrose, and a few others making dynamic gain flattening filters.

>>great deal of difficulty qualifying their components to Telecordia GR-1312 or GR-1221. It's not because their process is in any way flawed, it's just that you need a lot of packaging knowledge - which is in very short supply.<<
Oh wise one, you speaketh the truth here! What do you think is the percentage of startup firms that, because they will fail to both pass the Telcordia standards in a timely manner and acheive the necessary production rates/yields in manufacturing to be competitive? I don't even like to think about this myself, because the body count will be pretty high unless we see a return to the days when investors were more willing to fund money-losing companies at high valuations.
dickmilde 12/4/2012 | 8:04:14 PM
re: Nanovation in Crisis Chronus should be Cronos.

Dick Milde
dickmilde 12/4/2012 | 8:04:14 PM
re: Nanovation in Crisis Peter... You are correct. It was/is Chronus that Nanovation had an arrangement with for producing MEMS.

http://www.nanovation.com/pres...

Dick Milde
Petabit 12/4/2012 | 8:04:17 PM
re: Nanovation in Crisis Hi Peter,

Glad to hear you were fishing.

Silkroad were interesting because several of their quoted claims were technically incorrect (or just wrong).

LMG are not a scam, but have moments of heading towards Silkroad. For example the LMG invention of an 'information compressor', which everyone else refers to as a WDM. Or their 4x32 switch, which is actually (as observed at OFC) four 1x8 switches in the same box.

Us techie types get really annoyed when jargon is used incorrectly, and that causes people to let rip on message boards etc. Most of the jargon battles were won by the techies - the only notable loss was OXC (now one of the most confusing terms going).

Lumenon are interesting since they have a variant on the ormosil approach to planar devices. Sol-gels can be used to deposit glass on a whole variety of surfaces - the anti-reflection coating on your monitor being one. BUT it is really hard to lay down thick layers, they have a habit of cracking when the water evaporates. So, like many others, Lumenon have added some polymer to the mix. About 4% polymer does a really good job of preventing the cracking without trashing the optical properties. So far, the Lumenon ormosil process is much like everyone elses. They differ in adding photoresist to the polymer to speed up processing.

If I were a betting man, I would place money on the fact that Lumenon are having a great deal of difficulty qualifying their components to Telecordia GR-1312 or GR-1221. It's not because their process is in any way flawed, it's just that you need a lot of packaging knowledge - which is in very short supply.

Repeatability may be a problem too.

P.
thorny 12/4/2012 | 8:04:19 PM
re: Nanovation in Crisis Are you starting to believe that LMG may not be a scam after all, Peter?

Greg
numeruno 12/4/2012 | 8:04:28 PM
re: Nanovation in Crisis reg. polymer in telecom ... any comments on solus which is using them in there fabry perot interferometers ... as mentioned in the last article on solus !!
LRcarr 12/4/2012 | 8:04:30 PM
re: Nanovation in Crisis I believe they did run MUMPS wafers through Cronos, but they were planning on doing manufacturing in the Michigan plant that they purchased. I have no idea how far they got in bring that facility up.

I just remembered that I published a paper with a few people at Silkroad. Having worked with both companies, I can definitely say that Nanovation had superior engineering talent. They just had a problem that was too hard to solve.
Peter Heywood 12/4/2012 | 8:04:36 PM
re: Nanovation in Crisis Was Nanovation doing its own MEMS stuff? I sem to recall it showing something at OFC 2000 that was jointly developed with Cronos, the MEMS outfit bought be JDSU.

BTW, I'll see whether it's worth doing a follow up story today. I think Nanovation's board met yesterday.
Peter Heywood 12/4/2012 | 8:04:36 PM
re: Nanovation in Crisis Yes, Petabit, I was just just fishing on Lumenon. It is a little strange, but I wouldn't put it in the same category as Silkroad. Also, plenty of other companies in this space are strange - and continue to surprise me by coming up with good news.

I'm thinking Light Management Group when I say this.

More fishing: We wrote this story a while ago, saying some ex Silkroad staff has formed another startup, NOT using Silkroad technology:

http://www.lightreading.com/do...

Anybody know how Telena Communications is doing?
Petabit 12/4/2012 | 8:04:37 PM
re: Nanovation in Crisis Silkroad:

If you want to learn more, there is a message board dedicated to them on Silicon Investor, with a large number of posts at the time.

Silkroad came out of university physics labs. In common with many of the startups that come out of non-telecoms backgrounds, the language was hard to convert - the terms and descriptions used physics not telecoms terms.

An example is the laser that Silkroad had developed - the linewidth was quoted in Angstroms not Hertz. An easy enough conversion to do, but when every single unit has to be converted, it makes the descriptions very hard to read.

Silkroad developed a technology that they called SRSC - Silkroad Refractive Sychnronous Communication (I think) - which everyone else would call SCM - sub-carrier multiplexing. In effect they were using analogue electronics to mux a group of signals, which were then transmitted on a single laser. It is exactly the same approach that cable TV uses.

Somewhere along the way, Silkroad's claims changed from the reasonable to the blatantly ridiculous. However they really believed their own hype. They started making silly claims, like their system would have a reach of 600 km with no repeaters or amplifiers. They also undertook a field trial (with USC ?) where they demonstrated that an entire lab full of kit using their technology could transmit data nearly as far and as fast as a $50 Agilent transceiver.

Sadly their website is no more, since they had the best white paper you have ever seen. The first page had a picture of a fish (to demonstrate refraction), then went on to include pictures of Einstein, before they got on to a picture of their Chief Scientist. It's a shame it's not there any more, you would have really enjoyed it.

In the end, Silkroad imploded under a mass of accusations and shareholder lawsuits. I'm not sure anyone got their money back.

It is a very different story to both Nanovation and Lumenon. Both of these companies are components vendors (not systems), who are trying to commercialise an exisiting lab technology. Unlike the Silkroad technology, these exisiting lab technologies have been duplicated by research groups around the world, and have appeared in peer-reviewed publications.

It looks like Nanovation couldn't get the process to work before the money ran out. Lumenon is still afloat, but they have limited time left. Don't get caught up in Peter Heywood's taunting, Silkroad was a hoax, but the others aren't.

P.
lightmaster 12/4/2012 | 8:04:38 PM
re: Nanovation in Crisis Milano,

Sometimes the only difference between a bad business plan and fraud is whether or not you believe your own lies.

I am always very carefull about giving anyone credit for being smart enough to commit fraud. Bad business plans and VCs who will fund them are statistically much more likely.

I will admit that I have seen a few really good ones, however.


Novice 12/4/2012 | 8:04:38 PM
re: Nanovation in Crisis I'm new to this area. What was the fraudulent issue with Silkroad? Promises that could not be kept, technology which did not work, or running out of funding? Thanks.
wiseguy 12/4/2012 | 8:04:44 PM
re: Nanovation in Crisis Would you believe that the FCC was considering a special rule making that would have given Media Fusion pioneers preference rights to power line carrier applications for broadband? Their Office of Science and Technology bought their line, completly.
Physical_Layer 12/4/2012 | 8:04:48 PM
re: Nanovation in Crisis Yes !!! It was Media Fusion. I knew I'd recognize the name if I heard of it. What a joke that was.
Milano 12/4/2012 | 8:04:50 PM
re: Nanovation in Crisis Peter, let's be fair, there is a difference between a poor business plan and a scam, my guess is that Lumenon falls in the first category. Their business is based on an alternative manufacturing technique (they call it Phasic) to build AWG filters. Could have worked if AWG had taken off like RHK kept predicting (the question of is Phasic works in the first place, I'll leave it to the engineers to tell).

They burn $1 million a month with about $13 mil. left, so they won't make LR death row before mid-2002. Instead look for pre-IPO companies to fill the obituary of the coming months!

M.
LRcarr 12/4/2012 | 8:04:50 PM
re: Nanovation in Crisis

I did work with them temporarily, and had an opportunity to work with them on a permanent basis. Some of the people were excellent, but from the beginning they had fundamental technical issues that I knew could not be overcome in the alotted time.

Regarding MIT, having a $90 million dollar deal with MIT and giving $90 million dollars to MIT are two entirely different things. I doubt that any serious amount of money ever exchanged hands, but I could be wrong.

One more thing, I was actually discouraged from working there by one of their managers who said "one of the people leading the MEMS effort is very difficult to work with". I know first hand that one bad person can completely destroy a technical team. By the time they started doing MEMS, it was probably too late to be successful anyway. That is not something that a startup can just decide to make and bring it to market before the money runs out.

LRCarr
redface 12/4/2012 | 8:04:53 PM
re: Nanovation in Crisis Retireonoptics wrote: "Nobody had a photonics background!"

Actually, some of the technical people are reasonably good. I met some of them when I interviewed there. I agree with others who posted here that Nanovation is not 100% scam, like Silkroad was. Nanovation did have an inkling of justification for their grandiose claims.

There is a post about Lumenon as being the title holder "runner up to Silkroad". Is that the company which does polymer on PLC platform? I have no knowledge about them. But to me, anyone playing with polymer for telecom applications is asking for trouble.

I remember Professor S. T. Ho of Northwestern was supposed to be the founder and the originator of the Nanovation technology. Nanovation was started after he wrote in Scientific American an article on the whispering gallery stuff and a Canadian banker who read the article approached Ho to start a company out of it. Seems like Ho has distanced himself from this stinking ship a long time ago. Now he is not even on the Board of Directors.

Nanovation did a bunch of weird things. They acquired a company Apollo Photonics and gave $90 million to MIT. What happened to these two matters?
retireonoptics 12/4/2012 | 8:04:54 PM
re: Nanovation in Crisis I agree with your earlier comment about the depth of technical prowess. I could have worked at Nanovation but turned it down for three reasons:
1. Upper leadership had left.
2. Upper leadership had given away the VC $ ($70MM to MIT).
3. Nobody had a photonics background!

I have been watching the company from a distance. Sorry to see it has difficulties, however, I am glad my assessment was correct.
Photonboat 12/4/2012 | 8:04:55 PM
re: Nanovation in Crisis >>I think you should make a distinction between the Tatum and Chaney eras. The former was pretty wild. The latter seemed much more down to earth.<<

When I referred to "that CEO", I was indeed referring to Tatum.

>>If it was such a sham, how do you explain Motorola being an investor? If you look at it from Motorola's point of view, it probably could have could have invested in a variety of startups with indium phosphide developments but it picked Nanovation.<<

Good point. Motorola is a class company. However, I wonder how much Motorola leveraged the synergies they have--internal semiconductor capability plus some great fiber-optics-market people at General Instrument. If you are one of these people at GI and you are reading this and were at all consulted, please post here. I have met several knowledgeable technical people at GI who could have kept Nanovation on track. Were you guys ever involved? There's one guy with a hoary-head of hair there who should have been given thumbs-up, thumbs-down say-so on an investment. Bet he wasn't.

Also, for Motorola, $4M isn't a lot of money, so if they gain some exposure to some of the technology (and keep in mind that some of the technical team was local, in Chicago), this isn't a bad investment for a large company. From Motorola's perspective, the technology was sound, there were enough technology people involved that knew what to do. Nanovation falls down on a "business execution" thing. We can debate the merits of their technology, but as I mentioned earlier, Nanovation's bet was plausible, the issue was one of how far in the future they might take to execute it--six months or six decades?

As I wrote, this wasn't a 100% sham, there were elements here that were for real, just a lot of basic, "blocking and tackling" items such as product management, product development, manufacturing, and sales missing.
ray bender 12/4/2012 | 8:04:57 PM
re: Nanovation in Crisis If I remember correctly, didn't Nanovation give a big grant to MIT to help their photonics research? If I do remember correctly, wha has hppened to that relationship?
lread 12/4/2012 | 8:04:57 PM
re: Nanovation in Crisis Oh man...I remember that company (Silkroad)....what a joke. There was an even better fraud (can't remember the name). Anyone recall the company that was going to transport data at exabit rates through you power line?

Was that Media Fusion? Their web site now just has a one page ad that has no links to anything, no phone numbers, no e-mail contact, nothing. It just says "Our web site will be updated in the near future". They said that in Febuary. Their founder and chief scientist who came up with the patent was fired a couple of months ago.
Physical_Layer 12/4/2012 | 8:05:00 PM
re: Nanovation in Crisis Oh man...I remember that company (Silkroad)....what a joke. There was an even better fraud (can't remember the name). Anyone recall the company that was going to transport data at exabit rates through you power line?



Peter Heywood 12/4/2012 | 8:05:01 PM
re: Nanovation in Crisis
What about Lumenon?
Peter Heywood 12/4/2012 | 8:05:01 PM
re: Nanovation in Crisis - I think you should make a distinction between the Tatum and Chaney eras. The former was pretty wild. The latter seemed much more down to earth.

- If it was such a sham, how do you explain Motorola being an investor? If you look at it from Motorola's point of view, it probably could have invested in a variety of startups with indium phosphide developments but it picked Nanovation. Also, I would have thought Motorola must have the expertise in house to do some serious due diligence on Nanovation's technology before plunking down $10 million or whatever it was (I received a note yesterday saying it was only $4 million).
Photonboat 12/4/2012 | 8:05:02 PM
re: Nanovation in Crisis >>They looked slick and acted slick but couldn't tell me a thing about their roadmap, technology or anything<<

Yeah, they seemed to place a priority on hiring "slick" people, who hadn't a sliver of history in the industry. Even a few months would have given them a clue about what an OEM wants--but then again if you think of a used car salesman, they never are overly concerned with what the customer needs. Relative to other startups, nobody at any level of this firm seemed to have come from a background that included a component player or an equipment maker. That CEO had come from GE, but wasn't from a relevant unit to this venture (something like MIS as I recall).

Slick people are prone to embarrass themselves by hyping a mediocrity. Remember their first "miracle" product at NFOEC99--a tunable filter based on "whisper modes", accessing the portions of the pulse in an optical resonator. Great idea, which has been around for 30 years, but their efforts at materials development may have succeeded at pulling this feat off at some point IN THE FUTURE. But to debut a 6-7 nm passband, 7 dB insertion loss filter told me they had a technology in search of a current application, but had no idea what that application was. At subsequent events, this product was taken off their data sheets and became merely a portion of a PowerPoint slide on future developments.

Bad companies still can pretend to have products the market wants--but at some point they will have to ship them to customers. Once Nanovation decided to have real products, they touted an AWG and other typical integrated optics products. Of course, the data sheets I had were all stamped "preliminary", which is sales-speak for "this is what we are aiming to do, and have done in a lab, but we are not ready to commit to it because we have no idea if we will be able to produce repeatably on a manufacturing line." [As an aside,"Target" specifications are even more full of Bull Sh$#] Their other strategy was to import some things from China, but these products, such as a traditional bulk-optics EDFA, was behind products on offer from the incumbents technologically, yet, despite being made in China, cost about the same.

A big mistake for a struggling firm is to engage in hype. The repeated comparisons to "we're where Intel was in 1975" and "Photonic IC" was hype. What integrated optics company doesn't have a splitter, etc. on a single chip? Nothing special here, except trying to associate one's firm with Intel in an investor's mind.

The sad fact is that there was of course some decent people here, but as someone pointed out, "pigs get fat but hogs get slaughtered". Giving them the benefit-of-the-doubt, this venture began with some decent research ideas and talent. It wasn't a bad idea to use InP based substrates and try to hit a home run, but there were a lot of scientific breakthroughs required here. And some of the hype brought them attention, and more important funding. A business plan must balance bleeding-edge engineering and science with market realities.

And most important of all, a business plan should call for good management that puts footsoldiers in place in sales, marketing, manufacturing, engineering to go with the few researchers that were there at the company founding.

In some cases, Nanovation is just an extreme example of sins that many a start-up has made over the last few years: technology in search of an application, too much hype, inability to move into production, etc.
CogswellCogs 12/4/2012 | 8:05:03 PM
re: Nanovation in Crisis Now that really is an insult - comparing anyone to that Silkroad scam! Somehow this one doesn't feel quite as dirty, but I agree, a close second.

Cogs
DKP 12/4/2012 | 8:05:08 PM
re: Nanovation in Crisis
Runner; I agree with you. My experiences with Nanovation are that they talked, and talked, and talked, and talked... but never delivered. It was hot air.

A company should under-promise and over-deliver. Nanovation did the opposite, to the extreme.
Peter Heywood 12/4/2012 | 8:05:11 PM
re: Nanovation in Crisis I've been faxed a copy of the letter that appears to have been sent by Nanovation's VP of HR, David Bundy, to staff that were laid off yesterday. The letter starts:

"This is to inform you that effective July 16, 2001 Nanonvation Technologies, inc. will be permanently closed. On that date, your employment will be terminated."

I've asked Nanovation to comment.

maryt 12/4/2012 | 8:05:11 PM
re: Nanovation in Crisis there is an old saying "pigs get fat and hogs get slaughtered."

looks like the greedy shareholders are headed to the slaughter house.

i knew they were not going to issue all of those shares they promised to everyone.

redface 12/4/2012 | 8:05:12 PM
re: Nanovation in Crisis probably Nanovation is second only to Silkroad (the San Diego company, remember?) in terms of the scale of the fraud.
runner 12/4/2012 | 8:05:15 PM
re: Nanovation in Crisis These guys came to the company I worked for in late 1999/early 2000. They looked slick and acted slick but couldn't tell me a thing about their roadmap, technology or anything. Just a hint - when you send salespeople out, train them just a little to they have a clue. These guys sure didn't.

It was obvious at the time they were selling a dream. Their 'plan' was to blow smoke, show Powerpoint slides and pop a monster IPO and got caught.

They got what they deserved.
jclasssailing 12/4/2012 | 8:05:16 PM
re: Nanovation in Crisis If they had just saved the money they spent on their ofc booth, they probably could have pushed out their fume day by a few months
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