The ApJet Team

How We Got the Money--ApJet

August / September 2006 By: Gary Selwyn Volume 4 Number 4

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The idea first came to me during the heady boom days of the dotcom era when baby startups were blossoming all over and valuations were running wild. There was more investment money available than good business plans, and I was on a night flight to Tokyo for a consulting job there, unable to sleep. My mind kept wandering to this new idea, this new opportunity.

The combination of my work as a physicist at LANL, which gave me the opportunity to develop the revolutionary technology that ApJet now holds, together with my background in the semiconductor industry and my freelance work as a consultant gave me a unique insight into the world of technology and business. In any one alone, I was bored, but the combination of the three fired my imagination. I knew from my consulting work that treatment of materials by an ionized gas—€”a plasma—€”was ideal for my specialized knowledge, but just about everything that could be done with plasma, was being done. Applications, however, required vacuum to generate the plasma. The unique and key element of my invention was that this plasma could be done at atmospheric pressure: no vacuum was necessary.
Surely, this presented multiple, new opportunities. What if it was possible to make a big plasma source that didn't need welded, stainless steel walls, a truckload of vacuum pumps and a small power plant to operate it? We had just demonstrated a 4-inch wide, atmospheric pressure plasma jet that you could hold in one hand. Could that be scaled up? Could a plasma source be made that could treat an aircraft?

I gave many demos of the technology at LANL. Finally, a semiconductor equipment manufacturer, said they were interested in helping to finance my planned spinoff. The hitch: I needed to get the license for the technology from LANL and I also needed another investor. Lesson No. 1: Investors like to share their risk.

Getting the license was just the first of many hoops to come. I'd really like to forget this part, as there were so many complications; it ended up taking over two years and I'm still not sure it is really finished. The delay caused us to lose a VC who had given us a term sheet, dependent on the granting of the license within a specified time frame, and also help other competitors who saw the same opportunity, but didn't need to overcome the enormous bureaucracy.

Fortunately, the corporate investor was still interested and was still requiring me to find another co-investor. So, I courted an industrial gas supplier, as one of the key elements for our technology was the use of helium gas in our plasma. Unlike the equipment manufacturer, this was a big company.
With its size came a complicated review and decision-making process. The due diligence took about nine months, multiple meetings at their corporate headquarters and no less than 20 times it appeared that there was no hope of an investment. Lesson No. 2: Perseverance pays off.

Technology Ventures Corporation helped and did its part. I honed the business plan with my TVC advisor and took the entrepreneur classes it offered.
Eventually, I got a decision from our second investor, and it was a "go." In all, there was almost four years between that Tokyo flight and funding. But a new snag occurred: our first investor pulled out of the deal at the last minute, as money became tight for them when their main cash crop started drying up.
From that, comes Lesson No. 3: Negotiation is a skill every entrepreneur needs.
Negotiation means reaching a deal with the investors that works for everyone.
We got the equipment manufacturer back on board by selling them a license instead of equity. That meant developing a new business plan but we had $3 million in funding we could count on.
The delays we experienced and the need to develop a new business plan actually worked out great for us. Instead of selling capital equipment for the semiconductor industry, as we had originally planned, we could make best use of our technology for a high-volume industry: textiles, and develop an annuity revenue model. With 160 billion square yards of fabric manufactured each, a margin of only a few cents per yard makes for a very lucrative opportunity.

Studies have shown that companies that launch in slow economic times actually do better in the long term than those that start during an up-cycle. For us, the economic slowdown that the U.S. experienced from 2002 to 2005, combined with the ability to actually pay employees and have an exciting technology, enabled us to select a first-rate team of people.

The excitement of a startup is still very much with us, though I'm constantly reminded of the adage every VC knows so well: it always takes longer and costs more than you expect. Every start-up company experiences several near death situations and we did too when the equipment manufacturer didn't make an anticipated payment on its license. That has since been resolved. We've learned to deal with what we jokingly call our "December Death March". In all, the major lesson I've learned is Lesson No. 4: Innovation comes in many forms. And I've also learned to sleep better on long flights.

Gary Selwyn is founder of ApJet.