Cash flow strategy helps tide company over in lean times

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Editor’s note: LioniX specializes in MEMS and microsystems, with core technologies in integrated optics and microfluidics. Based in Enschede, the Netherlands, the company also offers foundry services.

May 11, 2005 — The business plan we created to start LioniX BV included a financial strategy that called for a set sum of funding. We based our plan on getting funding for one year to cover 50 percent of the salaries, the necessary investment for equipment as well as for taking care of cash flow. We estimated that our first revenues would appear after six to nine months, and break-even would be reached after one year.

Cash flow is an important issue, since revenues tend to come in much later than you expect. Not every customer pays on time, and some will never pay.

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René Heideman and I co-founded the company under the name Lion Photonix Technologies BV with our own savings. We invested in equipment and people, which put us in a good negotiating position with a venture capitalist (as opposed to having to seek high-risk pre-seed funding). We announced in April 2001 that the Dutch venture capitalist Innofonds had become our major investor, with the University of Twente contributing as well.

The obtained funding allowed us to run for one and a half years without revenues. That meant we could stick to our strategy, since cash flow remained available even if revenues started to come in later than expected.

We gave up equity in return for the investment, but we kept control of the business. We have taken a large personal financial risk, but that has given us the chance to maintain our autonomy, even when giving out equity. More private money would have helped to get an even better deal.

We were “lucky” that in an economic downturn (we started in January 2001 and got funded in April 2001) a venture capitalist believed in us, and could react quickly; within three months after our first contact, the deal was done. Later investment rounds took much more time. The lesson I learned is that when looking for investors, be on sound financial footing. Never allow yourself to be put under pressure to sign a deal because you lack the funding to keep your company going.


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