Re-entry after a $750 million exit: A Small Times Q&A with Jesko von Windheim

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April 25, 2005 — A MEMS startup gets swooped up for $750 million in stock. Two years later it’s sold again in a deal worth $10 million. Vast difference? Not according to Jesko von Windheim, who was along for Cronos Integrated Microsystems’ wild ride after it was bought by JDS Uniphase. He now leads Nextreme Thermal Solutions, which is developing nanoscale materials that pump heat from integrated circuits and other electronic devices. Von Windheim spoke with Small Times’ correspondent Jeff Karoub about surviving boom-and-bust cycles with solid business plans.

How does leading Nextreme compare with Cronos?

Well, it’s a different time. When we did Cronos, we had a real boom cycle going on. If I had to say one difference with Nextreme versus Cronos, it’s that we’re in a much more real business-building environment. That’s a very positive thing. I think as we get into applications now, our customers are putting in a lot more thought. As a result, you feel that the applications we’re going after with those customers really have long-term legs.

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Cronos made waves in 2000 when it was sold to JDS Uniphase for $750 million in stock. That unit was bought two years later by MEMSCAP for roughly $10 million in stock. What happened?

It’s interesting because on a stock basis it was the same price; it’s just that the stock went down in between. If you look at that ratio and the JDSU stock, it pretty well fell on that ratio. When people look at the hard numbers, they’re not thinking about the fact that the stock went from $140 or $150 (a share), to $2 in the same time.

It just reflects the fact that there was a bubble in the optical communications market. The first time we sold Cronos to JDSU was at the peak of that bubble. The second time when we sold it was pretty much at the bottom of the bubble. The other thing that’s really critical about Cronos, it’s still going today. And if you look at the hundreds of competitors who were out in the marketplace at the same time, they are no longer going.

What lessons learned from your Cronos experience inform your work with Nextreme today?

I don’t think it’s just Cronos. Nextreme is actually the fifth spinoff I’ve worked on. I’ve learned something in every one of those spinoffs, and I’ve been able to apply most of that learning I hope to Nextreme. First and foremost is to make sure you truly have a quality technology that you base the company on. I think that was the strength of Cronos and that’s why Cronos is alive today and many other companies are not. Second, compared to many other players out there, we had a very conservative burn rate. We focused on going after real business. We were one of the few MEMS companies that didn’t go after big switches. We really looked at, for example, attenuator products. Those are still products, I believe, for Cronos today. Build a real business: That’s the No. 1 message. I think that was lost by many companies during the boom.

Cronos was closely associated with MEMS. Why don’t you emphasize the scale of Nextreme’s technology?

We do emphasize the fact that these are smaller, lower-profile thermoelectrics. The reason we emphasize that is that there’s a value proposition there for being able to insert these directly into the semiconductor package. The fact that they are smaller and lower profile by a factor of 10, that’s a value to customers, because they can put thermoelectrics where they couldn’t put them before. In MEMS, it was worth emphasizing that we could make smaller optical switches in volume. The only reason I think you would want to talk about the size of something is if that feature has a benefit to the customer. So, we don’t really talk about the fact that we use nanoscale layers, because the customer doesn’t care. Sometimes, they ask, why does this stuff work? Then we can explain it to them. But they only care for the fact that with the profile of this thing, you can start to fit it into conventional packages.

To lower barriers to entry, others working on solutions for semiconductors have received financial or other support from the industry’s major players. Is Nextreme doing that?

It’s definitely in our plans to go after major players. We’re still in the very early days and we’ve just spun the company out of a research organization. We’re just starting that process right now.

How does your technology differ from the many labs also working in thermoelectronics?

First and foremost, it’s thin-film thermoelectronics. There aren’t that many groups out there doing that. And of those, nobody has yet demonstrated what we’ve been able to demonstrate: We have devices, and we have a business. We’ve integrated them into packages and onto silicon and shown that these devices work. We still have performance improvements we’re looking for, but I think that differentiates us from others who are doing this.

How long is the road to market for Nextreme?

Our target is to be in production in 2007 or 2008. Now, what the volume of that production is has yet to be determined and it will somewhat drive how much and how soon we put further investment into the company.

The greatest technology can’t always overcome business realities, such as the slower pace of working with a customer, or a market drop like that of the optical business.

I think diversification is important. One of the challenges we had with Cronos by the time we sold it the second time around, we had narrowed the business model purely to the optical space. That was just a reality of being locked and loaded into that industry at that point. When one industry goes away, that causes a lot of pain.

With the thermoelectric technology, our intent isn’t to go after any one single opportunity and do that blindly. We do want to talk to a very diversified customer base. We want to find out where the most value add is in the technology, and go after that with the highest priority. On top of that, we intend to continue work on government-funded research programs. We have a lot of work going on in the energy area, which is not really a product focus for the company at this point. There’s always risk, especially with an early-stage startup. But there’s no reason that you can’t try to diversify your efforts as much as possible in order to manage some of those market risks.

Do you think that Nextreme’s model is a good one for others in micro and nanotechnology to pursue?

I wouldn’t presume to tell people how to manage their businesses. There’s maybe an upside and downside to our approach. We take a slightly more conservative approach, with the goal of finding a real win before we start rapidly spending money. That may not fit with another management team or another approach of doing things. I will say to go out and advocate technology development for the sake of technology development doesn’t seem to necessarily be the best way to build a business. Also, how is the market moving? If you were in a really rapidly moving market, you may not want to take the conservative approach we’re taking with Nextreme today.

What do you see as the optimal exit strategy for Nextreme? Does a $750 million acquisition seem reasonable to you these days?

If you would have asked me that question with Cronos, I would have said no to the second one (laughs). These days, I don’t think anybody is targeting those kinds of exits. We’re back into reality. We’re not expecting a $750 million exit. I personally would love to do an IPO with a company. At the same time, we’re in a market where acquisitions happen relatively often. I think any one of those could happen.

We’re in this because we think it’s an exitable opportunity. We also definitely believe this could be a high-volume, standalone business if you look at the kinds of markets we’re going after.


The von Windheim file

Jesko von Windheim

Chief executive officer of Nextreme Thermal Solutions

Education: B.S. in chemistry and physics from McMaster University (1985); master’s degree (1987) and Ph.D. (1990) in physical chemistry, both from University of Guelph; and MBA from University of North Carolina at Chapel Hill (1996).

Experience: Helped spin North Carolina-based Nextreme out of RTI International, where he was entrepreneur in residence and vice president of commercialization. Led several spinoffs from MCNC Corp., including Cronos Integrated Microsystems. At Cronos, he was vice president of marketing and business development and later ran the business unit as general manager when the company was sold to JDS Uniphase.


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