Neil Kane

How We Got the Money--Advanced Diamond: Persistence

June / July 2006 By: Neil Kane Volume 4 Number 3

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The Advanced Diamond Technologies (ADT) story is one of persistence. In the startup world nothing comes easy. Due to our pioneering work and some unfortunate luck, we faced what at times seemed like insurmountable hurdles just to get the company off the ground.

ADT was founded to commercialize a novel diamond film technology developed at Argonne National Laboratory. Argonne scientists John Carlisle and Orlando Auciello and I (the business guy) formed the company with the support of Argonne's Office of Technology Transfer to create a mechanism for managing the many commercial interactions that the founding scientists' research program had in their development of Ultrananocrystalline Diamond—„ (UNCD—„).

UNCD is a film of diamond characterized by individual grains that are five nanometers in diameter. It's a crude oversimplification, but essentially we can "spray paint" diamond onto surfaces. Like most nanotechnologies, the small grain size—€”a billion-fold smaller than traditional diamond films—€”is the origin of its exceptional properties. Leveraging its hardness, smoothness and low friction, UNCD is used to extend the life and save energy in rotating machinery such as pumps. It is used to make microscopic mechanical devices (MEMS) like switches and tuning forks out of diamond. Being elementally comprised of carbon, UNCD is bioinert and is being evaluated for biological platforms such as biosensors and implantable biomedical devices.

In May 2002 as a consultant I recommended to Argonne that it should form a startup company as the best vehicle to commercialize UNCD. But since the lab had never organically formed a startup, everything we did subsequently was a pioneering effort. We were the first licensee where Argonne took stock in the company. We (with the lab) had to find a way for the founders to hold stock while keeping their day jobs. Conflict of interest policies had to be created.
DOE approvals were required. It was a long grueling process but we persevered and got it done.

I wrote a business plan and started making presentations at venture conferences seeking seed capital. In September 2002 we were voted "Most Promising Company" at the Nanotechnology Venture Fair in La Jolla, Calif.. At the time, however, we didn't have a company nor did we have a license from Argonne. In March 2003 I presented at a venture meeting in Chicago where a dealmaker for one of the largest companies in the U.S. was in attendance. He came and visited us a few weeks later and two weeks after that we had a term sheet. We were surprised and ecstatic that the fund raising happened as quickly as it did. It was then that our problems started.

For one, we still didn't have a license. And we didn't have any people. The investors wanted to fund the business, but they wanted me to run it and they wanted John Carlisle to be the chief technical officer. This request, sensible as it seems in hindsight, caused all kinds of problems for us since both John and I were being paid at the time by Argonne and our conflicts of interest, which hadn't yet been fully worked out, set off alarm bells. Despite that, we were able to manage through the conflicts and I was poised to become the CEO and John was going to become the CTO. It was at this time I learned one of the truths about venture investing—€”VCs don't invest in technologies, they invest in people.

As the prospective CEO suddenly I was on the outside trying to negotiate a license with the same people I had previously been working for. The process took longer than anyone expected and eventually the investors grew tired and withdrew their term sheet. After about 18 months worth of effort, we were back to the starting point.

But John, Orlando and I persevered. We formed a new company and got a license contingent on our ability to raise money. Over two years after the idea hatched, we did our first close of $500,000 on a $1 million seed round. Seven months later we finished the round. Along the way we have received SBIRs from the National Science Foundation and a notable project from DARPA, that also involves Argonne, which greatly extended our runway. We also received some debt financing from one of our vendors which allowed us to start manufacturing sooner than otherwise planned.

We're exceptionally proud of the fact that as a nanotechnology company we are shipping our first products, UNCD-coated silicon wafers, having raised only $1 million. With our commercial scale platform, we are in the process of raising our next round of financing to launch more products. The tech transfer model we catalyzed is now the model for spinning startups out of ANL. I'm told its being considered as a model for the DOE to implement at other national labs.

Neil Kane, is president and Co-founder, Advanced Diamond Technologies, Inc.