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Optical components

Startups Call 911

Quite a few photonics startups have the money to last another year or so, but what do they do while they wait for the market to come back? Naturally, they go looking for something else to do, and -- according to some -- the medical-device market could be a ready target.

Novalux Inc., according to one report, hopes to emerge from Chapter 11 bankruptcy as a medical laser vendor (see Headcount: Lights, Camera, Action!). And Kevin Kalkhoven, former CEO of JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU), suggested medical as a fall-back strategy during his OFC keynote in March (see OFC's Plenary Indulgence).

Granted, this could be the latest desperate theory from startups and VCs. But the logic seems to work out -- namely, that some medical applications have been waiting for certain optical technologies to become available and/or affordable. Thanks to massive VC funding, both criteria can be met.

One factor has been the innovation in packaging, which has improved manufacturability and lowered costs, says William Quigley, a venture partner with Clearstone Venture Partners.

"Companies that could have used optical but couldn't afford the price points are starting to use them," Quigley says.

That's true, says Fred Rappaport, co-founder of components firm Qusion Technologies Inc. Back in 1996, before Qusion, Rappaport had been researching the use of optics in diagnostic tools such as glucose testers. But the technology to do what he wanted wasn't available -- hence, he sidetracked into telecom. The situation has changed enough that early this year, he founded Medeikon Corp. to restart his work on the medical side. (Investors closed Qusion in November.)

The difference is in the availability of new light sources, superluminescent light emitting diodes (SLEDs) in particular. In starting Medeikon, Rappaport figured he could contact his Qusion telecom buddies for supply, and because of the capacity that built up during the bubble, he knew Medeikon wouldn't have to do its own manufacturing.

"With the telecom stuff coming out, a lot of the components we needed were available," Rappaport says. "The wavelengths and price points are much better than in '96."

On the flipside, optical components firms are starting to look into medical areas for possible business, just as they're doing with military contracts -- as Quigley pointed out recently (see And Now: The Optical Arms Race).

"It's a fairly common practice for these companies to have their VPs of marketing looking at medical and defense," Quigley says. Investors are interested, too -- Morgenthaler, a venture firm with heavy optical-component involvement, has been working with several portfolio startups on finding new markets, says Morgenthaler partner Greg Blonder.

Medical firms could use the help, too, Rappaport says. "I don't know of many companies that have the in-house optics experience."

Alas, a switch of industries isn't the right diagnosis for every photonics startup. It works best for those with a general technology that just happened to be applied to telecom first, Blonder says.

NanoOpto Corp., for instance, is applying nanotechnology manufacturing to optical components and is now trying to find work in other industries. Others won't have it so easy. "We have other cases where the companies have built something very specialized, and it's hard to find other customers for it," Blonder says.

— Craig Matsumoto, Senior Editor, Light Reading

Vetiver 12/4/2012 | 11:33:14 PM
re: Startups Call 911 Medical is a non-market for opto companies to dabble in. It takes at least a year to get qualified; last buys often must cover several years; multi-million, or even multi-billion, dollar lawsuits are common. A dying opto startup is not going to have the time to get qualified, the credentials to be a trusted vendor in this market, nor the predeliction to maintain obsolete equipment to make obsolete product for years on end. Add to that the headache of just one substantial lawsuit, and it is very easy to see any potential profit (or even overhead coverage) fritter away.

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