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Figure 1: Grades for the “Creation of Wealth” have tracked the economy and stock exchanges levels rather closely with high grades in the 1999 to 2001 period and low grades in the 2008 to 2010 period. Its Standard Deviation at 2.07 over the 1998 to 2014 report period is quite high versus all 14 topics. The good news is that the grade improved from C+ in 2013 to B- in 2014. Courtesy: Roger Grace Associates
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Figure 2: Venture Capital attraction has remained dismally low at its D/D+ level since 2009 and had not recovered from the damages of the financial crisis of 2008. Its standard deviation over the 1998 to 2014 period is a very high 2.36. The variation in grades also closely follows the economy and stock exchanges levels. Courtesy: Roger Grace Associates
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Figure 3: Profitability remained at a C+ level from 2013 to 2014 with a very low standard deviation of 1.06. The majority of MEMS companies have struggled historically with achieving high profitability and even more so today with the recent commoditisation of MEMS for high volume consumer applications. Courtesy: Roger Grace Associates
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Figure 4: The preferred approach to create wealth in the MEMS industry has been to be acquired by a strategic partner. Starting with the sale of IC Sensors to the Foxboro Company in 1978, there have been more than 35 such deals, with only three US companies going public during that period. Shown is a partial list of companies sold. Courtesy: Roger Grace Associates
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Figure 5: The successful MEMS Commercialization Process includes a significant and frequent amount of market research to be done in the process front-end. Anticipating and understanding unfulfilled market needs and sociological trends and translating them into products/services is key. In the back end, adequate promotion and supply chain development is a necessity. Courtesy: Roger Grace Associates
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Roger Grace
Please note that article’s content is not exclusive and limited to future ‘MEMS Millionaires’. Many of its observations and strategies are applicable to any entrepreneurial/new business activities in all technology business commercialisation sectors.
I have addressed the Creation of Wealth by individuals from their participation in the MEMS industry as one of the 14 critical success factors in my MEMS Commercialization Report Card which was previously published by Commercial Micro Manufacturing International (CMM) for 2014 [1], 2013 [2] and 2012 [3]. Figure 1 tracks the performance of this topic from 1998 (the inception of the Report Card) through 2014.
Two additional Report Card topics, Venture Capital Attraction (figure 2) and Profitability (figure 3) both have a significant effect on wealth creation. For without the early stage funding and with the following expected sales and profits, “acorns cannot turn into oak trees”.
For the first time, interested CMM readers will be able to participate in the 2015 Report Card Market Study, more on this later.
In my previously referenced Repot Card published in CMM, I provided overviews on each of the 14 topics. Here, I will take a deep dive into the issues, which have in the past and currently can serve to help create MEMS Millionaires. This updated report is partially based on recent interviews of four of the MEMS industry’s most recognised successful and serial entrepreneurs (listed in order of approximate companies founded):
- Janusz Bryzek Ph.D. Founder/Co-Founder of 11 companies including NovaSensor, LV Sensors, NovaSensor, IC Sensors, Transparent Optical ,
Networks, LV Sensors, Jyve, EXO and Trillion Sensors Initiative
- Kurt Petersen Ph.D. Founder/Co-Founder of NovaSensor, Cepheid, Verreon and SiTime
- Steve Nasiri Founder/Co-Founder of Transparent Optical Networks and Invensense, Maxim
- Sandeep Akkaraju Early Executive Management at Intellisense, Co-Founder of Jyve, EXO
Background/Motivation
The motivation of creating a MEMS Commercialization Report Card was previously described in Reference 1 where the author was asked to participate in a panel at the prestigious 1998 Hilton Head MEMS Conference “Rump Session” and where the topic of discussion was ”Why Aren’t There More MEMS Millionaires”. As a postscript to the meeting topic, and to better understand the rationale for this, I decided to develop a market research project, which resulted in the MEMS Commercialization Report Card. The “Creation of Wealth” is one of the most important of the 14 critical success factors/topics that I have determined to be the root cause of MEMS commercialisation success or lack thereof.
The 2014 Report card continues to show lackluster grades for Wealth Creation weighing in at a 2014 grade of B-. However, the good news is that it increase one grade level from C+ in 2013. In my opinion, this increase was significantly based on the 2012 IPO of Invensense. On this topic, it is my opinion that there have been many more employee millionaires recently created by either Microsoft or Google than those created for employees in the entire MEMS industry since its creation over 50 years ago. It is interesting to note that the key to creating wealth in any business can take several routes: to grow the business, create profits and reinvest the profits to continue the process” and, to quote the investing firm ad: ”make money the old-fashioned way” — earn it. Alternatively, it is the hope and dream of every entrepreneur to go public/create an initial public offering (IPO) and create wealth. Another ‘exit strategy’ is to be acquired by another organisation. This latter approach has been the prevailing industry strategy for MEMS companies with many of the founders and key employees of these organisations reaping great rewards (figure 4). My analysis shows that there have been well over 35 acquisitions of MEMS companies since the first acquisition of Integrated Sensor Transducers (ICT) by the Foxboro Company in 1978 (which happened to be my first employer in the MEMS industry in 1982).
To the best of my knowledge, there have been a very small number of pure- play MEMS companies that have gone public e.g. MEMSIC (which decided to go private in 2013), Invensense, Cepheid and MEMSCAP (French Exchange). Of these, and in my opinion, Invensense is the success ‘poster child’ of the group, going public in 2012 and having made “over 100 millionaires of its current and past employees” as stated by Steve Nasiri, Invensense founder and former CEO during my recent interview. Unfortunately, this successful IPO situation is rare in the MEMS industry and as a result, it has created a great deal of trepidation for entrepreneurs and investors.
The first flock of MEMS millionaires came about from buyouts from optical telecom companies in the 1998-2001 time frame. Several MEMS companies were developing high-density cross-connect switches which were considered the “holy grail of holy grails” in an optical telecom system. As a result, Intellisense was purchased by Corning for $750 Million, Kronos was purchased by JDSU for $750 Million and Xros was purchased by Northern Telecom (Nortel) for $3.25 Billion. As a result of these acquisitions, many MEMS millionaires were created in a short period of time. However, we all sadly remember the boom and bust of the internet and the optical telecom infrastructure in the post 2003 timeframe and these companies never prospered to the level of anticipation of their acquirers.
Report Card Results/Verbatims
2014 Grade=B-, 2013 Grade=C+ Change=+1, Standard Deviation= 1.90 (based on 85 respondents), Standard Deviation=2.10 (based on grades from 1998 to 2013)
Source: Roger Grace Associates
The following ‘verbatims’ were taken from the recent responses to the Report Card Market Study on the topic of Creation of Wealth along with their submission of a grade for the topic.
- It will definitely be creating wealth in the future based on the growing numbers of devices and applications.
- Supplier side improvements e.g. Invensense. Customer side flat or down e.g. Apple. Nest, acquired by Google is a positive.
- It is difficult to start something new in the actual ‘MEMS industry’ space. I think there are still good opportunities to create wealth through the applications that MEMS technology opens up.
- I still remember stories of secretaries at Microsoft becoming millionaires. But look at even the most successful MEMS business and there are very few rich men behind them. There are a few and recently seem to be some more, but this is still very low. Creation of wealth for individuals still seems fairly low, however, as an industry, a great deal of wealth has been created, and that is my reason for the increase in grade.
- No MEMS IPO has gone 50x yet.
- At Invensense we created well over 100 multi-millionaires.
- Compared to other industries, wealth creation in MEMS remains rare.
- Some MEMS companies have been acquired and people are making money.
Interview Summaries
The following is the distillation of the interviews that I have recently conducted with four leading MEMS serial entrepreneurs who have created personal wealth, wealth for their employees and investors by either selling their companies (or in the case for Steve Nasiri with Invensense, www.invensense.com), having had a most successful IPO in 2012.
A word of caution is needed here: regrettably the number of MEMS entrepreneurs is quite limited as compared to other industries including social media and software companies e.g. Google, Microsoft and this poses a serious problem to would-be entrepreneurs. The stories provided here represent several of the major success stories of serial MEMS entrepreneurs must add that all is not ‘a cup of tea’ since we are less likely to hear of MEMS failures, where investors have either lost all of their investments or a significant part thereof…e.g. SVTC (MEMS foundry), Sand 9(MEMS system timing products/inertial measurement modules).
Janusz Bryzek, Ph.D. In my opinion, Janusz is the ‘king of MEMS entrepreneurs’ founding /co-founding 11 MEMS companies (to the best of my knowledge the most in the industry) and most recently EXO over an approximately 30 year period. Janusz’s recommendations for creating wealth with MEMS include the following: “You need to create a product/service where there is no other choice for the customer but yours. You need to address a market segment that is growing at a compounded annual rate of at least 25% and has a market size of at least $100 Million based on equivalent product solutions. The application/technology also needs to be high on the Gartner (www.gartner.com) hype curve. When asked what was the ‘secret sauce’ for successfully selling a MEMS company he replied: “I have sold several companies based on the fact that we have enabled our acquirers to better attain their technology roadmap objectives.” His response to a successful IPO was: “device suppliers will find it quite difficult — you need to sell solutions, a higher level of value added functionality to augment the basic MEMS device. Take note of what happened at Nest (www.nest.com) — self-programmable thermostat using seven different off the shelf sensors — which was acquired by Google in late 2013 for $3.2 billion. Although they did not go IPO — you can see the incredible leverage of this type of consumer IoT company in the market IoT and wearables are my top application choices here for MEMS-based opportunities”.
Kurt Petersen, Ph.D. Kurt started his MEMS career in 1975 as an IBM Almaden California researcher and has been a successful serial entrepreneur with the founding/co-founding of four MEMS-based companies: NovaSensor (MEMS pressure sensors) ,where I was on the founding team, Cepheid (www.cepheid.com) — micro fluidic bio sensing-based systems, SiTime (www.sitime.com) — MEMS system timing products) and Verreon — glass-based sensors. When asked: “What made you a successful (read wealthy) MEMS entrepreneur he replied: “It depends on the company: at NovaSensor it was creating MEMS-based solutions that pushed the envelope of design and process technology. Here we created products that were head and shoulders above the competition for customers that had real and viable applications. At Cepheid, which had a very successful IPO, our approach was to create a total solution, not just the PCR micro fluidic chip but an entire instrument which it enabled and as such leveraged its technology. Here we eliminated the uncertainty of working with a middle-man and became a solution provider maximally leveraging the uniqueness of our MEMS device and maximising value added. For SiTime we had the perfect storm, a unique MEMS-based resonator technology licensed from Bosch (www.bosch.com), a huge market of $5 billion crystal oscillators which we expected to replace and finally we funded and implemented a well-planned and executed product positioning and launch programme created and managed by Roger Grace Associates, which took the market by storm. Although it took us longer than expected to achieve our goals due to unforeseen technical problems, we just sold the company to a Japanese company, MegaChips (www.megachips.co.jp/English/) for $200 Million. This is noteworthy since SiTime’s current annual sales is $20 Million, thus creating a 10:1 ratio when most companies are acquired in the 2:1 to 3:1 range. Finally, Verreon was sold to Qualcomm (www.qualcomm.com), based on the enabling nature of the glass-based sensing technology which they considered a highly leverage able strategic technology for their mobile phone business.”
Steve Nasiri, who I have had the pleasure of working with for many years at NovaSensor, was a co-founder (along with Janusz Bryzek) of Transparent Optical Networks and the sensor division at Maxim (www.maxim.com). But more significantly, he was the founder and CEO in 2003 of what I consider to be the most impressive success in recent MEMS creation of wealth stories, Invensense (www.invensense.com), a producer of gyros for the consumer/mobile phone market, which he took public in November 2011 with a valuation of approximately $1 Billion (US). Steve is very proud of enabling many of his employees to also become ‘MEMS Millionaires’ since 37% of the company was employee owned at the time of the IPO. Steve told me the secret of creating so many MEMS Millionaires at Invensense was: “building a component that I understood, the product was not a me to, I had a hunger to build a product in very large volumes and that I could leverage my past 25 years of experience to create.” He continued: “At Invensense we considered packaging and testing to be a major product differentiator and cost item. We created a very unique packaging solution that leveraged IC packaging, MEMS on top of CMOS. Additionally, we did not attempt to replace the old quartz gyro solution from a form/fit and function perspective but rather created a solution that had significant advantages in cost, size and performance, all at the same time. We spent a great deal of time and resources creating a technology platform for our two-axis gyro and captured our first customer, Sanyo (www.panasonic.net/sanyo) with a $2.75 device for their digital camera.” Steve concluded: “I believe the huge success of the IPO was based on the credibility of the company, our ability to keep the company lean and maintain high yields of greater than 95% and produce very respectable gross margin numbers of greater than 55% before tax.” Invensense currently employs over 650 people and has recently acquired several MEMS organisations including the microphone group at Analog Devices.
Sandeep Arakaju has been quite successful in his creation of wealth activities over his 20-year career. His first success was as a member of the management team at Intellisense (www.intellisense.com), which was sold to Corning for $750 million during the height of the telecom boom in 2001 and most recently with the sale of Jyve to Fairchild (www.fairchildsemi.com) — for an undisclosed amount. As a partner of Janusz Bryzek at Jyve, they and their team created a monolithic three-axis accelerometer/three axis gyro/three axis magnetometer combination for mobile phone applications. Sandeep’s secret of success is “spotting trends early on, like surfing, where you see the wave that you want to ride far offshore. It takes a great deal of market research to best understand the customers’ needs and then to provide a solution to what is relevant, analogous to what surfboard to use and which wax to apply. This is an applications/market pull and not a technology push strategy. He continued: “you need to be intimately involved in the game and connect with lots of clever people. Good market research is critical, however, it is more than just talking with customers, you need to understand the underlying sociological and psychological trends and understand the market’s pain points in order to come up with the right product.”
Summary/Conclusions/Recommendations
The Creation of Wealth grade for 2014 was B-, which was a one-grade increase from C+ in 2013. It peaked in 2001 at “A” when the optical telecom boom drove many major telecom companies to acquire optically-based MEMS startups. In 2009, as a result of the international financial crisis, the grade fell to D+. As such the grade has followed over time the levels of the NASDAQ, Dow Jones, Standard and Poor’s and other broad industry financial market indices. With rare exception, it has been difficult to create wealth with MEMS with the exception of startups that are fortunate enough to be purchased by organisations that see a strategic fit as has happened over 30 times since the first acquisition of ICT by the Foxboro Company in 1978. The consensus is that making money selling MEMS devices will continue to be problematic, it will be necessary to increase value by integrating functionalities and proprietary software and creating product differentiation and escaping the commodity business. Traditional companies that create wealth by selling products at a good profit will continue to grow steadily and the ones that seek niche applications e.g. Internet of Things (IoT) will stand a good chance to create wealth for its owners/employees. The recent acquisition of Nest (www.nest.com), the thermostat company, by Google in 2013 for $3.2 Billion dollars validates the philosophy of selling a value added, sensor-based product company to a strategic partner for a high ratio of acquisition price to annual sales.
While this article dealt specifically with the creation of successful MEMS entrepreneurs, a.k.a. ‘MEMS Millionaires’, the majority of the recommendations provided herein have universal application to any high technology (and non-high technology)fields. In summary, these are just good rules from which one can optimise success.
There was a great deal or consensus in the ‘MEMS Millionaires’ answers when asked: “What does it take to be a successful MEMS entrepreneur and to create wealth for you and your company’s employees”, a brief summary of their (and my) answers includes:
- Anticipate business trends —tie them into sociological and psychological drivers
- Do your homework — market research is critical in understanding the unfulfilled needs of the customer, and do it frequently by listening to the “voice of the customer”
- Have a superior product in areas that matter, i.e. price, performance, utility and demonstrate/communicate product differentiation to the target audiences
- Don’t rely on technology to create success — you need to have an applications/market pull versus a technology push strategy
- Add maximum value to what you provide — just having a MEMS chip will put you at a serious disadvantage; you need to provide a solution with the highest possible hardware and software value add, think outside the chip [4]. N.B. the most recent acquisition of several MEMS algorithm software companies by hardware companies, e.g. Movea by Invensense, Xsense by Fairchild
- Create a proof of concept model if you have a hardware product — this will validate the credibility of your offering and help overcome the risk avoidance of the investor(s)
- Aggressively seek funding from the government, e.g. NSF, DARPA. These grants not only provide needed funds but establish the credibility of the technology being developed since the award process is very rigorous. VCs and angel investors look at the winning of these awards as highly regarded credentials.
- Do not live it the past — what worked for financing a company in the 1980s to 2002 (optical telecom bubble) no longer works today. Consider pursuing investments from other alternative sources from VCs including angel investors. Kurt Petersen is a member of the Silicon Valley Band of Angels that has supported many startups.
I have presented the highlights of several of my recent interviews with some of the most successful serial entrepreneurs in the MEMS industry along with my own opinions on the topic of how to become a “MEMS Millionaire”. All of these interviewees shared the necessary qualities of smart, diligent, focused and high energy that all successful entrepreneurs embrace. Additionally, we have summarized their recommendations and provided you with the “secret sauce” of becoming a “MEMS Millionaire”.
Want to know more about participating in the 2015 MEMS Commercialization Report Card?
Please go to the Roger Grace Associates website www.rgrace.com to access a copy of the questionnaire. One-hundred dollar (US) American Express gift cards will be provided to the two people whose names will be drawn at random from Report Cards submitted and awarded during the Sensors Expo pre-con session mentioned below. You do not have to attend to win.
Roger Grace will organise and chair an all-day preconference on June 21, 2016 on the topic of Printed/Flexible/Stretchable Sensors at the Sensors Expo 2016, which will take place in San Jose, California from June 21-23, 2016 (www.sensorsexpo.com). His article on this topic appeared in the January/February 2016 issue of Commercial Micromanufacturing International Magazine [5].
Roger Grace is President of Roger Grace Associates of Naples Florida, a marketing consulting firm that he founded in 1982, specialising in the commercialisation of MEMS. His firm provides business development, custom market research, market strategy and integrated marketing communications services to high tech clients worldwide. He has published over 20 articles in industry publications, organised and chaired over 50 MEMS technical sessions and conferences and is frequently quoted in the technical and business press as a MEMS industry guru. He was a visiting lecturer in the School of Engineering at the University of California Berkeley from 1990 to 2003. He holds BSEE and MSEE (as a Raytheon Company Fellow) degrees from Northeastern University where he was awarded the “Engineering Alumni Engineer of the Year Award” in 2004.
References:
[1] R. Grace, Barriers to the Successful Commercialization of MEMS: The 2013 MEMS Industry Commercialization Report Card, Commercial Micro Manufacturing International,Vol.8, No. 5,pp. 41-45.
[2] R. Grace, Barriers to the Successful Commercialization of MEMS: The 2012 MEMS Industry Commercialization Report Card, Commercial Micro Manufacturing International,Vol.7, No. 4,pp. 43-46.
[3] R. Grace, Barriers to the Successful Commercialization of MEMS: The 2011 MEMS Industry Commercialization Report Card, Commercial Micro Manufacturing International, Vol.6, No.3, pp. 43-46.
[4] R. Grace, Think Outside the Chip, MEMS Technology Review/Commercial Micro Manufacturing International, Vol. 1, No. 7, pp. 11-14.
[5] R. Grace, Printed/Flexible/Stretchable Sensors: New Technologies Enable High Volume Applications, Commercial Micro Manufacturing International, Vol. 8, No. 7 , pp.34-39.