Customer-focused small tech companies were rewarded in ’03

Feb. 5, 2004 — Greg Galvin has a presentation slide that says, “Yes, you can make money in MEMS.” He has another that says, “No we are not an optical MEMS company.”

6They are part of a series designed to debunk what he calls “MEMS myths” — slides he used frequently during an 18-month fund-raising effort that culminated in December when the company he heads, Kionix Inc. (News, Web) of Ithaca, N.Y., closed a $28.5 million second round.

“It was a learning process all along the way,” said the president and chief executive, who found that selling investors on MEMS meant talking about the markets — in the case of Kionix, automotive and consumer electronics — rather than the technology. “We got really focused on the customer,” he said. “If there was any single thing that drove it [the fund-raising success], it was that.”

Galvin’s experience was typical of 2003, when entrepreneurs reported that raising money was tough and investors were more interested in market opportunity than sexy technology.

Investors put $241 million into 29 small tech companies in the fourth quarter, according to Small Times’ analysis of the most recent MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association. Though the dollar amount was down slightly from the third quarter’s $261 million, the number of deals was up by two from the 27 financings reported in third quarter. Small tech accounted for 4.9 percent of the $4.9 billion in venture capital invested in the United States during the quarter.

The biotech sector continued to be responsible for the majority of small tech rounds, with 10 deals totaling $82.9 million, though semiconductor companies were not far behind with nine deals totaling $66.2 million. Both industry categories saw a mix of both micro- and nanotechnology firms.

The lion’s share of small tech deals continued to be expansion rounds, consistent with the year’s earlier quarters, as 15 deals accounted for $115.6 million. Seven late stage rounds were responsible for $75.4 million, while six early-stage deals accounted for $49.7 million.

Not surprisingly, California dominated the states list, with 10 deals worth $69.6 million, followed by Massachusetts, with 4 deals worth $52.7 million. Georgia was a surprise third in small tech dollars, with a pair of rounds (CardioMEMS Inc. of Atlanta and Movaz Networks Inc. of Norcross, Ga.) worth $31 million.

On the nanotech front, notable fourth-quarter rounds included the $17.5 million funding of ZettaCore Inc. (News, Web) and the $18 million funding of Molecular Imprints of Austin, Texas. ZettaCore, a molecular memory developer, brought top tier venture firm Kleiner Perkins on board. Molecular Imprints, a maker of nanoimprint lithography tools, brought on strategic backers such as Japan’s Hakuto Co. Ltd. along with distribution agreements.

On the MEMS side, a number of rounds even proved Galvin’s optical MEMS slide wrong. While it might have been easier to recruit a new syndicate to a MEMS company if it wasn’t in optical, the optical MEMS sector may be stumbling back onto its feet.

Calient Networks of San Jose, Calif. (which, so it happens, bought the Kionix optical MEMS business in 2000) raised $20 million and Movaz Networks drew a $17 million round. Both companies make equipment for all-optical networks that use MEMS technology and each brought on a single new investor alongside previous investors in their fourth quarter rounds.

If preliminary results for this year’s first quarter are any guide, optical may fare similarly well in 2004: On Monday, another MEMS-based optical component provider, Polychromix Inc. (Profile, News, Web) of Woburn, Mass., announced a new investor with a strategic tie, Siemens Venture Capital (News, Web), and $8 million in new financing.


Editor’s Note: Small Times magazine, in its March/April special report, will publish a complete analysis of funding in nanotechnology, MEMS and microsystems for the calendar year 2003, in addition to a historical analysis covering the years 1995 to 2003.


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