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Wanted: New members for $1 billion club

Wednesday, 22 August 2007

Article Index Wanted: New members for $1 billion club Page 2 Page 1 of 2 Ben Fountain – aided by local investors and entrepreneurs – probes the factors that differentiate start-ups and their progress in Silicon Fen compared to Silicon Valley. In 2004, the second and third best Universities in the world watched with interest as two companies commercialising technology developed within their labs debuted on US stock markets. Both spin-outs enjoyed a world-class intellectual property position, both were tilting at multi-billion dollar opportunities in fast-growing emerging markets, both were competing against already well-established companies. Both, at one time or another, had been tipped as potential billion dollar companies. It was probably never fair to directly compare Cambridge Display Technology and Google – perhaps even verging on the cruel – but for the fact that they emanated from the academic institutions ranked second and third in the world league table – Cambridge University and Stanford respectively – and the fact that they floated within a few months of each other. The two companies operate in drastically different industries each with their own unique pressures and challenges. It is unquestionably an easier sell for Google to convince a company to buy a few dollars worth of keyword advertising on its search engine than it is for CDT to make the case for the hundreds of millions of dollars of capital investment a licensee must make to mass produce the company’s next generation display technology. If the comparative success of the two IPOs brought sharply into focus the disparity between the Bay Area and Silicon Fen’s ability to build truly global scale businesses from academic innovation almost three years ago, then events last month indicate that very little has improved on this side of the Atlantic in the intervening period. If anything, the much-vaunted Cambridge Phenomenon is going backwards. CDT’s IPO was disappointing, debuting below the anticipated range of between $13 and $15 a share while Google’s was positively inter-galactic, opening for trading at $100, before surging to $200 within four months. But if the dotcom bubble taught us anything it was that blockbuster IPOs account for very little in the long run. Building value in a technnology company is very often a long-term proposition, especially when dealing with disruptive technologies like CDT’s organic light-emitting diodes. However, a comparison of the two companies’ fortunes just under three years after their shares started trading on Wall Street reveals that the only one of the pair achieving forward momentum is Google. Its shares are now worth over $510, giving it a market cap of around $160bn, around five times its value at IPO. Meanwhile, in July, CDT agreed to be bought by Japanese powerhouse, Sumitomo Chemical for £140m. The cash offer represented a significant premium to CDT’s share price at the time and has rightly been lauded as a solid exit for the company’s investors. The fact remains, though, that the sum is at a significant discount to the valuation private equity funds Kelso and Hillman would have hoped for back in 1999, when they acquired a majority interest in the company for $133m, or even before the 2004 IPO, when its shares were valued at $12 – coincidentally, the same as the sale price agreed with Sumitomo. And as the standard bearer for Cambridge University technology on the international stage, CDT’s own comments made in an interview with Business Weekly shortly after the Sumitomo deal was announced, are somewhat depressing. CFO Michael Black told us:”Building a billion pound company is really tough, as we found. We were looking to break into a very large industry, with huge barriers to entry. “The capital investment required for production lines for our technology, for example, is measured in the billions. We firmly believe that we are making the right exit.” So while Stanford University can add to Google to a hall of fame created by faculty and alumni that also includes Cisco Systems, eBay, Electronic Arts, Hewlett Packard, Logitech and Sun Microsystems Cambridge University’s budding entrepreneurs continue to wait for a billion pound spin-out to illuminate the way into the big time. Perhaps Plastic Logic, another venture borne of the University’s Cavendish Laboratory and recipient of one of the largest financing rounds in European venture capital history ($100m) can lead the way, although even it has shown that it is not possible to realise its aspirations to become the next Intel from an exclusively Cambridge-based operation. Prev - Next >>

 

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