How to build a startup without Venture Capital

Serge BidnykDirector of R&D

Global Optical Components Market

In the late 1990’s, optical components were experiencing incredible growthNo sign of any decrease in demand

What was expected:

(1999)

Global Optical Components Market

What we actually got…

(2003)

Telecom Boom & Bust

2001 to 2004 were rather bleak days in optical telecommunications…

Massive consolidation happened in the optical components sector Many companies disappeared Many companies merged

In retrospect, this may have been a healthy event for the industry…

Resulted in:More realistic projectionsSustainable, steady growth (versus explosive)But also erosion of optical component pricing requiring new technologies and shift to new markets

The telecom bubble has burst, now what?

Historically, startups were funded with Venture Capital money, but…

No more IPOs

No more acquisitions with unreasonable valuations

No more exits for VCs…

The number of VC deals plummeted

Funding for a telecom startup completely dried out

Innovative approach was needed

Now what?

In the last days of year 2003, Enablence was founded by a group of physics Ph.Ds : Matt Pearson, Ashok Balakrishnan, and Serge Bidnyk who also brought in a business person Arvind Chhatbar.

Focus: Planar Lightwave Circuits (“optical chips”) mainly for telecom networks

Ambition: become a full one-stop-shop for Access, Metro, and Long-Haul products – all PLC

Headquartered in Ottawa, Canada

Enablence Background

Tran

smis

sion

Wavelength (nm)1310 1490 1550

Upstream Downstream

Target: Passive Optical Network (PON)

Splitter

Central Office(OLT)

ONT

ONT

ONT

10-20 kmWDM 1x32

Optical Network Terminal (ONT)

Optical transceiver at every home:Receives two separate wavelengths downstream

Simultaneously transmits a third channel upstreamAll multiplexed onto single optical fiber

Thin-Film Filter technologyAutomated assembly very difficultMultiple active alignmentsMultiple levels of packagingNot scaleable

Incumbent Technology: Micro-Optics

Increased functionality, lower cost

High volume chip manufacturing –

As many as 1,000 chips per wafer

Completely automated assembly

No external lenses or filters

Scalable to any number of channels

Low cost, high reliability

Enablence Technology: PLC Components

Initial funding• Initial loan of around $100K was provided by an angel investor• Founders took no pay for several months but the money was sufficient to kick-

start the company• After photonics companies were liquidated en masse, Enablence used $70K to

purchase essentially all the assets and equipment to build a state-of-the-art laboratory, as well as re-negotiated the lease

• Talking to Ventures Capitalists was not a priority; however several encounters showed that their investments were suffering and they had no appetite for new deals

• Other angel investors, most of them from the Oil and Gas industry stepped forward and provided about 2.5 million in investment

• Enablence moved towards building prototypes of its products• The money was used to secure a flip-chip bonder from yet another failed startup –

the bonder was used to validate hybrid integration and became the corner stone of Enablence technology

• Enablence was now on the path to grow its operations and validate its business model

Reverse take-overReverse take-over• Shareholders of the private company purchase control of the public shell

company and then merge it with the private company• The publicly traded corporation is called a "shell" since all that exists of the

original company is its organizational structure• The private company shareholders receive a substantial majority of the shares of

the public company and control of its board of directors

Advantages• The transaction can be accomplished in under 3 months• No need to go through the Security regulator review because it has been done by

the original company• Lesser cost than going through an IPO• Less dilution than going through either IPO or VC funding• Shares become liquid

Reverse take-over – the Enablence wayEnablence• Identifies Pacific Northwest Partners of Vancouver as a shell company• Undertakes reverse take-over of Pacific Northwest Partners in July 2006• During the RTO process raises additional $11.3 million in an over-subscribed

round through a private placement deal

TSX.V: ENA Enablence becomes a publicly traded company

Rapid growthExpansion• March 2007: Enablence acquires Albis Optoelectronics AG (Switzerland), a

manufacturer of photodetectors and photodetector arrays for about $6 million• February 2008: Enablence acquires ANDevices (Fremont, California) for $35

million; silicon foundry becomes a part of Enablence• April 2008: Enablence acquires Wave7 optics for $12 million and enters the FTTH

systems market• July 2008: Enablence acquires DuPont’s division for $5 million and obtains

access to switching fabric technology• November 2008: Enablence acquires Pannaway Technologies and becomes one

of the dominant players in FTTH systems market; total number of customers rises to 500

Enablence revenue reaches 60 million a year

Enablence 5 years after inception

A recognized leader in PLC-based solutions for Access, Metro, and Long-Haul networks worldwide Enablence leads in PLC technology innovations, and delivers the infrastructure for next generation telecommunication systemsThe company’s business is organized in two major divisions: Optical Components & Subsystems Division which provides a

variety of products and services based on Planar Lightwave Circuit (PLC) technology

FTTx Networks Division which provides Central Office equipment (OLT) and Optical Network Terminals (ONTs) for customer premises

14

Divisions & Locations

15

Enablence Technologies: Headquarters

Ottawa, Canada

Components & Subsystems Divisionð Transceivers Group

Ottawa, CanadaPLC Subsystems Group Fremont, CA, USAActive Components Group Zurich, Switzerland

ð Optical Switching and Routing GroupWilmington, MA, USA

FTTx Networks Division Systems Group

Atlanta, GA, USA Systems Group

Portsmouth, NH, USA

FTTx Networks Division

FTTH Systems from end-to-endRecognized leader in high-growth FTTH marketMarket / technology differentiators: Universal PON System GPON, GE-PON, Point-to-Point EMS Management Software Compact OLT solutions, MDU, etc.

Over 450 customers worldwideNow the PON solution for Cisco’s “Service Flex” design – Joint marketing for turn-key systems First win with STA Andorra

Outdoor ONTs

Trident7 Family

MDU-ONTs

OLT

Indoor ONTs

COLT

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Optical Components & Subsystems Division

Long-HaulLinking cities or even continents

MetroCommunication rings within large cities

AccessConnecting homes & businesses

Optical Networks

ð Enablence today has product offerings in all levels of the network

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PLC Transceiver Chip for FTTH

Highly-integrated component:

WDM filter (plus mode converters etc) DFB Laser Monitor photodiode One or more Receiver photodiodes Transimpedance amplifer (TIA) Capacitor

Must meet price targets of < $100 (not thousands of dollars) Must be manufactured in volumes of 10k to 200k per month (not per year)

Advanced Packaging Technology

Making optics more like electronics

Low-cost materials and processes (e.g. PCB package) Highly automated production Non-hermetic packaging that uses IC encapsulation technology Frame-level pigtailing and testing

PLC is The Future of Photonics

Integration, integration, integration…

Paths Forward:Advances in PLC technology New platforms for integration & low-cost manufacturing (e.g. SOI?) On-chip integration of optics & electronics?

Advanced sub-components designed specifically for use in PLCs Monolithic integration (e.g. InP?)

Optoelectronic integration on standard CMOS-SOI PLC-based ROADM

Goals

Much new R&D still required to reach new targets, new markets Same platforms applied to Biophotonics, Aerospace, Computing, etc.

The growth and opportunities in photonics today are more exciting and promising than what was seen during the boom

“Today, optics is a niche technology. Tomorrow, it's the mainstream of every chip that we build.”

– Patrick Gelsinger, Sr. VP, Intel Corporation

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Photodiodes and Photodiode Arrays

• High speed photodiodes and arrays• Applications in optical interconnects, FTTX, Metro and LH networks• Speeds from DC to over 12 Gb/s per channel• InP and InGaAs platforms (850 nm, 1310 / 1490 / 1550nm wavelengths)• Optimized for integration with PLC platforms and fiber ribbons

Active Components Group

Transceivers Group

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Highly automated assembly and testingHigh quality contract manufacturing through Sanmina-SCIFrame-level pigtailing, packaging, and testingAvailable as Optical Sub-Assemblies (OSAs), or full Transceivers complete with electronics

TransceiverOptical Sub-Assembly (OSA)Frame-level assembly & test

Automated Production

PLC Subsystems Group

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Sub-Systems based on PLC technology• Key staff are pioneers of PLC fabrication, several with over 20 years experience

• Increased functionality & lower costs compared to traditional optical assemblies

• Can integrate 100+ optical functions in a single module

Primary circuit functions include:

2. Wavelength filtering3. Optical switching4. Splitters & Couplers5. Optical attenuators6. Optical monitoring7. Tunable filters

PLC Subsystems

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Optical Channel Monitor

AWG

temperaturecontrol circuitry

PCB

Photodiode Arrays Electrical leadsgoing to Pin-outarray

Optical inputfiber

Tunable Optical Dispersion Compensation

transponders mux amplifiers demux transponders

central office central office

TODC compensates for pulse broadening; primarily at transponders nodes.

PLC Subsystems

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Hybrid integration: PD to PLC Chip

54.7+0/-10

Optical waveguide

Photodiode

Hybrid Integration: LD to PLC Chip

Glass WaveguideLaser core

Metal contact patternSolder bump

Optical Switching & Routing Group

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• iSelect : Array switch• iDOS: 1xN switch• iOXC: Cross connect switch• iVOA: Variable optical attenuator

Optical Switching & Routing

Low Cost Serial and/or parallel integration on a chip Telcordia qualified building blocks Short design cyclesHigh Reliability No moving parts No fiber handlingLow Power Consumption High thermo-optic coefficient (32 times

higher than silica)

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Extensive Library of Proven Building Blocks

Summary

There is an alternative to VC funding…… and a reverse take-over is a viable path to grow the company

Idea

team

Institutional money

CPC (shell)Acquisitions

and organic growth+