Editor’s note: Translume has developed technologies to fabricate novel optical devices, microfluidics and other microstructures. Translume is a neighbor of Small Times Media, with both headquartered in Ann Arbor, Mich. Both companies were launched in 2001 by Ardesta LLC.
June 1, 2005 — Translume was launched in 2001 with the goal of making optical components for the telecommunications market. It had only venture capital funding, unlike any of the other companies that I co-started. It was relatively easy money at the time, but that was not the main reason for that type of funding. It just was a time when the common way to start a company was to go with VC funding.
Certainly we could not have started with a bank loan; bankers are just not in the business of financing startups. I learned this firsthand when I started my first company in Rochester, N.Y. I went to see the banker at the corner of the street, and tried to borrow $20,000. He looked at me with an air of puzzlement (and most likely tried not to laugh and wonder how somebody could be that naïve). I did not get any money, of course, but he gave me some valuable advice.
In 2003, when we lost our VC funding, we had to become more creative. We sold some capital equipment and did various odd jobs (accounting for other companies, etc.). Unfortunately we also had to cut some good people, and reduce salaries and benefits for most of the employees we were able to keep.
The initial VC funding allowed us to develop our core technology, purchase some capital equipment, and pay salaries for about two years. But it had its drawbacks.
You assume that you will have to give some (significant?) equity in exchange for the VC funding — and we did — but that is understood from day one. What I did not appreciate was that there were secondary obligations (legal, financial, timing and otherwise) that go along with these types of deals. These obligations, as we found later, can be really onerous.
For example, VCs will generally push you to develop milestones and to go at them as aggressively as possible. Having a plan (milestones) obviously is a good idea, but going at them as fast as possible is not always the best strategy, at least in my view. I believe there are times when slowing down, playing it safe, etc., is a more appropriate tactic.
Why did we go along with the original deal? Mainly because we did not know any better: None of the founders had experience starting a company that was VC-funded.
Our business and legal advisers did not have the necessary experience. (The VCs did, but they do not have the exact same objectives.)
In retrospect, this is probably one of the key problems being in the Midwest. No matter what the ranking in Small Times, the Midwest is not a great place to get a VC-funded startup going. You will have a very hard time finding a lawyer and an accountant who have firsthand experiences with VC-funded startups. I did not fully appreciate that then, and I resisted moving the company to another location.
Funding was only a very small part of the problems we encountered. The disappearance of our market (telecom), the lack of maturity of our technology and our inability to bring a product to market were much larger factors in derailing our plans. Funding, or lack of, only reflected on these factors. We now use our expertise to micromachine glass to make microdevices for customers in the aerospace, defense and biomedical industries.
What I’ve learned from this is that some businesses are just not made to be VC funded. The VC model applies only to very few business opportunities. I guess that is why there are so very few VC-funded companies that are successful.
I also learned to listen to my gut instinct. I remember going with some co-workers in 2001 to the Optical Fiber Communication Conference, a big conference in telecom. That year OFC was a zoo — about 30,000 participants — all talking about the glorious future of telecom. Yet, my colleagues and I thought there were numerous severe inconsistencies in this grand telecom vision. These were mainly technical inconsistencies — we probably did not have enough savvy to see the business inconsistencies — but they were significant.
We felt that numerous companies’ stories just did not add up, and would never add up, irrelevant of the amount of money they would raise. This should have triggered warning bells, and forced us to look at our own company plans with a much more critical eye. Yet, despite this, we happily jumped into the telecom market, which crashed within six months.
This said, we got a second chance. We managed to survive, and to grow again. We are still a long way from being successful, but we believe that we will be in the next several years. We have spread our exposure by going after more than one market. These are significantly smaller markets than telecom, but they provide opportunities that match our technological capability. We have several products at various stages of development.