Some critics may say that investors are backing nanotech startups with too much money too soon. But there’s no denying that venture capitalists have an abiding faith in nanotech.
Case in point is NeoPhotonics Corp., a San Jose, Calif.-based nano-materials maker that last week received a $5 million commitment from Viventures Partners, giving the nanotech company the final piece of its three-month long $45 million recapitalization. Added to funding that its predecessor companies has raised, NeoPhotonics now has $250 million in venture financing behind it.
Oak Investment Partners, a new investor in the company, led the recap alongside Institutional Venture Partners (IVP), a longtime investor in the company. Commitments also came from ATA Ventures, Rockport Capital Partners, Harris & Harris Group, Ventana Global Capital, Linkmore Ltd., Alps Information Technology Fund and Draper Fisher Jurvetson (DFJ), which is leading the sector with more than a dozen nanotech investments.
DFJ Managing Director Steve Jurvetson and Oak General Partner Bandel Carano take seats the board of NeoPhotonics as part of the deal. They join an 18 month-old child of NanoGram Inc., a materials developer founded in 1996 with backing from IVP, Nth Power, SBV Venture Partners and Venrock Associates.
NanoGram had raised $64 million in four rounds of venture capital before it was dissolved into three smaller companies. One of those spinouts, NanoGram Devices, is a company that makes power supplies for medical devices. Wilson Greatbatch Technologies acquired it in March for $45 million in cash.
NanoGram Corp., on the other hand, still holds much of the original intellectual property, which covers the development of nano-materials for use in electronic, optical, and power supply devices. That company is set to close a round of venture capital later this year.
NeoPhotonics is another piece of the complex nano puzzle. The company licenses much of its technology from NanoGram Corp. It uses nano-scale materials and manufacturing procedures to build integrated circuits for optical networks. The rest of its expertise, and a chip-making facility, comes from Lightwave Microsystems, a DFJ portfolio company that NeoPhotonics snapped up last March, just six months after the developer of optical integrated circuits announced it was going out of business. Lightwave had raised $159 from venture capitalists before it was dissolved.
With this round of financing complete, NeoPhotonics’ backers will have spent $250 million developing its line of optical circuit chips. They’re being marketed for use in core, edge and storage-area networks, says Tim Jenks, CEO of NeoPhotonics.
This is a retooling of the company’s marketing strategy, Jenks says. The chips were originally designed for long-haul transport fiber optic networks, a sector that has already been overbuilt. When the company adjusted its market strategy, it found a welcome reception from investors.
“This is now a fully capitalized company with strong a intellectual property position, numerous products, and high barriers to entry,” Jenks says. “But customers want dependable, reliable suppliers that aren’t going to fail, so the investors got together and refinanced the company so it has years of cash to give customers confidence.”
The $45 million recapitalization will be used to boost sales and marketing, and to build an engineering staff. The funding is expected to finance four to five years of operations, eliminating the need for future rounds of funding, Jenks says.
Not that there’s any shortage of money for nanotech these days. President George W. Bush last year signed legislation providing $4 billion in federal funding over five years to promote basic nanotechnology research.