by Howard Lovy
Contributing Editor, MEMS Investor Journal
If only politics worked like Ardesta, says co-founder Chris Rizik, maybe Michigan's economic development system would not be so broken. You see, he says, the venture capital firm he and Rick Snyder, the state's current governor, launched in 1999 was all about collaboration. The MEMS and other "small tech" companies under Ardesta's roof were all part of the same community of companies even if their proprietary interests might have been very different from one another.
"One of the big things about Ardesta was the value of collaboration," Rizik says. "And so part of the reason that we tried to house all of our companies near each other, or as many as we could, was that interesting things can happen when they collaborate. One group that's working on one thing can help find a solution for another group."
Snyder, needless to say, is learning that this kind of cooperation between communities is not so easy at the political level, Rizik says.
But Ardesta alumni, most of them part of other companies now after having left the Ardesta nest over the past 12 years, say that it was not only the financial investment that made Ardesta crucial to their launch and growth, but it was the know-how, the resources, the business, legal and technical help, for which they are thankful for Snyder's and Rizik's Ardesta experiment.
Just ask Bruce Diamond, CEO of Discera, a San Jose, Calif.-based developer of MEMS-based oscillators, resonators and timing devices. Diamond joined the company about three years ago to help bring the company to the next level -- from a startup to a company focused on getting more of its product out to customers. Ardesta has been an investor since 2001 and shepherded Discera through its early stages from a university lab to the point where it is now ready for a seasoned CEO like Diamond. Ardesta has been "just a tremendous help" in helping Diamond learn and understand the MEMS business, he said.
Discera is one of many case studies in how Ardesta fulfilled its mission over the last decade. The goal was always to take companies -- either already-existing ones or ones created entirely by Ardesta -- and develop technology that would make existing products smaller, less expensive and more energy-efficient using a MEMS, microfluidics or nanotechnology -- or what Snyder called "small tech."
Diamond says that Discera fulfills this goal perfectly. The best way to describe the advantage of "MEMS inside," he says, is that when the competition's products get smaller, they charge more money. As Discera's products get smaller, they become less expensive. The trend toward higher performance and smaller product size "plays very much into our strengths," Diamond says.
Products that used to require expensive ceramic packaging now can be placed in cheaper plastic or even no package at all. "It's about performance, it's about the shrinking size and it is also very competitive in terms of price," Diamond said.
Ardesta co-founder Steve Johns, who is taking care of Ardesta's remaining investments along with Rizik, says that of all the companies in the portfolio, Discera is the one that he "holds dearest" because it was a pure application of the Ardesta model. The investors took one of the world's best MEMS researchers, Clark Nguyen of the University of California at Berkeley, and built a company around his work.
"That was really the core model of Ardesta," Johns said. "That was establishing a company at the very early stage, building around this emerging technology and providing the infrastructure for that technology through the facility that we had in Ann Arbor."
That's all fine, but it has been a decade since Ardesta snatched the technology from the lab. And now, it is one of only a few still in the Ardesta fold. Hasn't this taken a little more time than anticipated?
"I'd say, from the Ardesta perspective, what we envisioned and what we had hoped for, I think it certainly has taken a lot longer and I think it's partly due to a normal development cycle," Johns says. The other factor, he says, has been the turmoil in the general economy over the past decade.
Diamond will not reveal who Discera's current customers are, but he did say that they involve "seven out of the top 10" manufacturers of servers and the boards associated with them. The ultimate goal, like all of Ardesta's investments, is either IPO or acquisition, but Diamond says he's not thinking about either one right now.
"At this stage, we're just going to continue to keep growing the business and when the time is right we'll certainly look at it," he says. "But we're just going through some tremendous growth right now and we're enjoying that."
Micronics, on the other hand, recently graduated from Ardesta to become part of a multinational corporation. Just a few months ago, in September 2011, Micronics, became a wholly owned subsidiary of Sony Corp. of America. Ardesta invested in the developer of near-patient, point-of-care diagnostic tests in 2000.
Karen Hedine, president of Micronics, said that Ardesta not only brought them about $5 million to kick-start things, but it was the entire Ardesta package of support that helped.
"We could not have done a lot of this without their support in those early years," Hedine said. "They helped us think things through."
The lab-on-a-chip technology is still in development and testing, but now being a partner of Sony, it can leverage the multinational corporation's distribution and manufacturing capabilities. Making Micronics ripe for acquisition for Sony was not Ardesta's stated goal, but building a strong company was.
"I don't think that you ever have that as a goal per se," says Ardesta's Johns. "The goal is to build a strong company. So, I think it's a logical result of building an attractive company."
The goal is also to make some money for investors, and while Johns will not say how much Sony paid for Micronics, "what I'll tell you is that it was a good result for the investors and it was a really good result for the management team of the company."
What Ardesta "got" from the beginning, says Hedine, is that Micronics' technology is a platform that can be used for any kind of testing -- from companion diagnostics to oncology markers.
"Ardesta got that from day one," Hedine says. "It was brave investing because this was the late 1990s, early 2000s and 'platform' was a disgusting word. You had to be product-focused. But we were a platform looking for products." Ardesta, she says, was the "brightest group" investing in small tech at the time.
Not every company was a success, but Ardesta's Rizik says that even the failures were at least learning experiences. Take Therafuse, for example. The maker of MEMS-based IV pumps and controllers for medical drug delivery shut its doors it 2008, eight years after Ardesta's initial investment.
Rizik says the company's technology worked, met all their milestones, but it was a very crowded market. And after 2008, when the economic downturn began, partners began pulling back their support.
Rizik says that if he had to do it all over again, he probably would have invested as part of a large syndicate of investors. That way, if partners pulled back they could use equity capital to keep the company moving forward. But, he says, the world was different in 2000 and capital was still flowing freely.
Failure, he says, "definitely comes with the territory."
"The lessons you learn from the ones that go bad make the ones that go good that much better," Rizik says.
Case in point, Rizik says, is Handylab, a lab-on-a-chip medical device maker acquired for $275 million two years ago by New Jersey-based medical device manufacturer Becton, Dickinson and Co. While Handylab became one of Ardesta's biggest success stories, there were some missteps along the way.
It's not enough to have great technology. If you don't choose the right application in the right market, it will fail. Right after 9/11, it was thought that the defense and homeland security markets were going to be bigger than they actually turned out to be, so Handylab wasted a few years seeking out defense customers. "It was a bad move," Rizik says.
When CEO Jeff Williams was hired in 2005, he forced the company to go back to the drawing board and develop the product for instant diagnostics. "When Jeff made that decision, we doubled down our investment," Rizik says. This key decision by Ardesta, hiring the right CEO, paid off. "The wrong CEO could kill a good company and the right CEO can make even an OK company a success," he says.
That is the way it is with any new technology. Even the most-brilliant scientists with the greatest of inventions may not be able to sell it successfully without the right entrepreneur to shepherd it into the marketplace.
XCOM Wireless, which is developing RF MEMS switches for improved signal tuning and routing, was a 2001 investment by Ardesta yet is still living from grant to grant and sampling small quantities to commercial customers in automated testing equipment.
"It's definitely taking longer than we had thought or expected," Johns says, adding that the company is "taking on a pretty big challenge that hasn't been solved by anyone yet. … They're pursuing an application that to this point has been elusive, but I still believe they're going to achieve it."
A MEMS success story for Ardesta is Ion Optics, which developed technology that could be incorporated into infrared gas sensors on a MEMS device. The technology is now part of ICx, based in Massachusetts.
Today, with Snyder having moved on to the governor's office and other Ardesta alumni on to other things, Snyder, Rizik and Johns look back with pride at the good and the lessons learned from the bad.
"When we started Ardesta, our goals were to make money, help people and have fun," said Snyder in a statement exclusively released to MEMS Investor Journal. "And we did it in an innovative way, promoting small tech as a new way of improving products and peoples’ lives. … Through it all, we were helping to create new jobs and new companies in Michigan and other parts of the US – even in an overall difficult time for the economy."
This article is a part of MEMS Investor Journal's ongoing project to accelerate the development of MEMS technology startups. Please contact Dr. Mike Pinelis at [email protected] to get involved with our MEMS startup initiatives.
Copyright 2011 MEMS Investor Journal, Inc.