From government labs to market: A tough path to profitability

Elizabeth Howell
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As his business partner sold five of his own condominiums to finance the start-up of VLN Technologies, William Bloom came on board in 2001 to sell VLN’s technology idea – stripping coatings from metal – to potential investors.

(Stock image)

The men saw great potential in the work, which came out of the National Research Council. But investors felt differently. In his first two years of commission-based sales, Mr. Bloom didn’t earn a single dollar.

Ten years later and with little sales or financial support to show for the technology, VLN is considering its alternatives after a decade searching for financial success.

“It’s terrible,” Mr. Bloom said.

“(The investors) don’t have any money, and in my opinion, there’s not a lot they can do. It is really, really tough out there for companies in Ottawa. They feel that we’re a fat-cat city and there’s all kinds of money around.”

It’s a long, hard road to commercialization once a government technology comes out of the lab. It’s true that SiGe Semiconductor Corp., another NRC alumnus, was sold for US$210 million (plus US$65 million contingent on milestones) to Massachusetts-based chipmaker SkyWorks in May, but that sale only came after 15 years of steady growth and outside investment.

Due to the sale, SiGe officials said they could not provide comment on how the company’s circuit technology became so successful and appealed to marquee companies ranging from Microsoft to Cisco to Hewlett-Packard.

Sylvain Charbonneau, now a group leader in NRC’s Ottawa labs, was a junior researcher at the time SiGe was spun out of silicon-germanium research that began in 1986.

In 1994, he explained, “something happened.” IBM had discovered a more efficient way to develop the chips, making the path to commercialization a lot easier. Spurred by the discovery, NRC researchers began studying IBM’s work to make the chip yield higher.

“This is what NRC is known for; being able to recognize the potential of technologies, as there is some risk involved,” Mr. Charbonneau said. “Twelve to 13 years is usually what it takes to migrate research into commercial reality.”

But the lab is cognizant of budgetary pressures to commercialize sooner, and is sitting down with industry far earlier in a technology’s development to pick winners within two to three years, Mr. Charbonneau added.

Still, not all of those ideas work. A year after Derek Houghton resigned from his position at NRC in 1996 to take SiGe Microsystems independent, the company rehived into two separate firms: SiGe Semiconductor and SiGEM, with the latter focusing on satellite navigation applications.

SiGEM went on an acquisition tear, picking up companies such as Auriga Communications and Cygnus Satellite Systems, but as venture capital dried up during the early 2000s tech bust, the company found itself with deep losses.

In 2002, with creditors calling, the company reformed into Mobile Knowledge Corp., which today makes dispatch software for taxi and limousine operators. Officials at the firm declined comment on the formation of the reorganized company, saying the people involved in the transaction had left.

Meanwhile, SiGe expanded. It added partnerships in the United States and Mexico in 2001 and by 2003, had shipped its 10 millionth integrated circuit.

In 2006, it got a US$19.5-million financing from TD Capital, VenGrowth Equity Partners and others to boost it into profitability.

And the company continued growing in the recession – 42 per cent to US$98 million in sales alone in 2008 – on the strength of channel partnerships, although it did post a $4.4-million loss in fiscal 2009.

Bootstrapping is a rare lesson for commercializers to appreciate, says Raj Narula, who assisted with the formation of lab alums OneChip Photonics and Cyrium. Bucking the trend, he said, was what made his companies and SiGe so successful.

“Unfortunately, a lot of the Ottawa startups ... look at an idea because it was great in the lab, but they don’t want to take the time to sit with real live clients to understand the need of that product.”

It’s a theme also emerging in a study underway by the Canadian Advanced Technology Alliance, which is taking a closer look at profitable firms to determine the best performance boosters.

As an example of success, CATA president John Reid lauds the work of entrepreneurs like Ottawa’s Terry Matthews, whose most notable companies of the 80 or so he founded include Newbridge Networks and Mitel.

“When he develops his business model, he does it based on a customer relationship from the get-go,” Mr. Reid noted.

“Working in tandem with a customer that has a need – it will boost your rate of success. That’s the external part of commercialization.”

Organizations: National Research Council, IBM, SiGe Semiconductor Microsoft Cisco Auriga Communications Cygnus Satellite Systems Canadian Advanced Technology Alliance Mobile Knowledge TD Capital VenGrowth Equity Partners Newbridge Networks Mitel

Geographic location: Ottawa, United States, Mexico

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