In President Obama’s inaugural speech last week, he said, "it has been the risk-takers, the doers, the makers of things – some celebrated, but more often men and women obscure in their labor – who have carried us up the long, rugged path towards prosperity and freedom."
I could not think of a better passage with which to open this blog.
In fact, the most interesting part of this quote to me is the use of the phrase, "the risk-takers, the doers." These are words that we use at the company that I founded, Mobius Microsystems, to immediately assess a person's contribution to our business, both internally and externally, or to life in general. They are words that capture the essence of entrepreneurship. In my time in both Michigan and California, I have come to realize many differences between the two states, but none more so than the lack of "risk-takers" and "doers" in Michigan.
Now before I receive an inbox full of nasty messages, I realize that there are many reasons why that is the case and there are certainly many institutions that require improvement to support the "risk-takers" and "doers" in Michigan. In fact, those concepts capture the spirit and objective of this blog. I intend to share my thoughts based on the personal experience of "taking risk" and "doing" high-tech entrepreneurship, as I personally know the reality of where the rubber meets the road.
Ultimately, I hope to simulate conversation surrounding the real requirements for success in Michigan and help the state diversify its economy with a focus on emerging high-tech business, just like California. So in this entry, I'll begin with the story of my entrepreneurial career, which has left me with a life split between two great states.
In 1997 I was in the aerospace industry in Los Angeles and decided that I was interested in pursuing a doctorate degree in electrical engineering. I considered several institutions and, for a variety of reasons, I came to the University of Michigan in 1998. For six years I conducted research on silicon oscillators. This was a popular research topic at Michigan, and around the world, because the state-of-the-art frequency reference for oscillators is very low-tech and essentially a vibrating rock about the size of a small jellybean. Little did you know that when you purchase a computer with an incredibly complex multi-gigahertz microprocessor, that the gigahertz frequency is ultimately derived from a jellybean, not microscopic silicon technology. Consequently, my faculty advisor, Rich Brown, and I always felt that there was tremendous commercial potential for our work, particularly considering that the total available market was approximately $4B in 2002 and almost $5B currently.
Thus, I started working with Michigan's Office of Technology Transfer to develop a patent portfolio and with the Zell-Lurie Entrepreneurial Institute to develop a business plan with MBA students. I was terribly fortunate to have access to these excellent resources. In 2004, I defended my dissertation with prototypes of our technology in hand and left the University to launch Mobius Microsystems.
Mobius is a fabless semiconductor company, meaning that we outsource manufacturing (i.e. do not hold captive fabrication facilities), which is commonplace in the semiconductor industry today as manufacturing has consolidated in Taiwan, China and Singapore. Of course, raising capital for such a company in the Midwest is nearly impossible. Quickly it was clear that the semiconductor space was deemed to be too technical or out-of-scope for most Midwest institutional investors. Further, the risk and capital requirements were considered to be too high. In fact, I pitched the business to no avail to nearly every single venture capitalist (VC) in the entire Midwest region – that is, less one.
Waypoint Ventures (now RPM Ventures) had recently raised a fund to focus on spin-out companies from university research. We worked together to build an investment syndicate, led by Waypoint, including several regional angel investors and the University’s own Wolverine Venture Fund. After numerous pitches in cities ranging from Chicago, Columbus and Detroit to New York City, we raised a nearly unprecedented $2M seed round to launch the company and go to market.
With the capital in hand, we started in a small office in downtown Ann Arbor, but ultimately built out new space and a laboratory in downtown Detroit on Grand Circus Park and with an MEDC tax incentive. After several trips to Asia and the West Coast, we secured one design win for a Universal Serial Bus (USB) application and one prototype project with a large microprocessor company.
For the next year we built a word-class design team, mostly with my colleagues from the University of Michigan and Illinois. We executed on those projects, delivered and succeeded. Mobius was the first company to replace that jellybean in USB devices with a tiny spec of silicon the size of the period at the end of this sentence – and we did it in Detroit. For those efforts, Governor Granholm awarded Mobius for the Innovation of the Year and the Largest Potential High-Tech Job Creation in MI. We felt as if we were on top of the world, but just as the institutional investors in the Midwest knew a priori, we were quickly running out of capital due to the high expenses associated with operating a semiconductor company and the long development runway to realizing revenue.
After many desperate meetings with investors in the Midwest, I packed my bags and moved to Northern California. There I pitched Mobius to several investors on Sand Hill Road and ultimately secured several term sheets, which led to an $8M equity investment by the end of 2005. Naturally, and rightfully so, the new investors pushed for Mobius to relocate to California, particularly considering that we were a team of inexperienced and young scientists and engineers, including me. After much debate, we decided to maintain the office in Michigan, which ultimately moved back to Ann Arbor, and create the Headquarters in Silicon Valley where the appropriate talent and resources are consolidated.
The decision to maintain the office in Michigan was determined based on the quality of the design team and the resident knowledge it held on the core technology. It was believed that this would enable the company to execute more efficiently while leveraging the resources of the Valley. Little did we know how it would really play out.
Mobius is what is known as an "integration play." That is to say that we took the jellybean and "integrated" it into silicon. Consider the analogy of a digital wristwatch, which is the integration of digital functionality into a wristwatch. Interestingly, when two things become one, the skill sets required to develop the new product are not always clear. Does one need a Swiss watchmaker or a digital system designer? Or both? Or something entirely different?
Similarly, after the funding round led by the VCs in the Valley, we built an experienced management team who understood the silicon technology that connected to the jellybean and what we later determined was that we really needed competency more like the jellybean makers. After all, that was what we "integrated!"
Needless to say, Mobius took a terrible turn for the worse and the efficiency advantages that we believed we possessed vaporized as two teams with two different mindsets were separated by over two thousand miles. In fact, illustrating just how difficult it was, I needed some distance from the company to maintain my sanity so I began teaching part-time as an adjunct faculty member at the University of Michigan.
Fortunately, Mobius’ Board of Directors was able to recruit a very well-known and successful CEO, Ashok Dhawan. Under Ashok’s leadership, we rebuilt the management team with the correct skill sets for our technology. With that, we were able to complete development of our new products and we raised another $11M in 2007. Now Mobius is back on track and currently sampling its products to a myriad of customers around the world. Yet all the while, over $120M was invested in competing technologies for the same market. To make matters worse, in 2008 a public semiconductor company released a product based on a technology very similar to ours. Just this year, a Chinese company announced that it was developing products with technology similar to ours as well. Clearly, there is a race now being run at breakneck speed and the winner is likely to be declared within a few years. We plan to be that winner.
Presently I spend nearly all of my time in California and the rest of it in Michigan, when I’m not traveling on business. I live in San Francisco, despite the fact that my wife, Ruba, and I own a condo in downtown Ann Arbor and she is a management consultant in Detroit. What we lose in time together, we make up in airline miles, but I doubt that either of us had intended to make that trade-off. So it is against the backdrop of this personal and sometimes poignant story of entrepreneurship, split between two states, that I will discuss the ingredients for entrepreneurial success, the challenges in Michigan and recommendations for the future.
Ultimately, I hope that what you read here will lead you to answer President Obama’s call to be "risk-takers" and "doers." Michigan and America need you now more than ever.