The Next Chapter for E Ink: Talking with CEO Russ Wilcox About Yesterday’s Acquisition News
Eight venture rounds—it’s got to be some kind of record. Yet that’s how many times 12-year-old E Ink went back to investors, raising some $150 million, before it finally arranged an exit scenario for its backers. The Cambridge, MA, company, which makes the e-paper displays used in the red-hot Amazon Kindle e-book reader, announced yesterday that it has agreed to be acquired by Prime View International (PVI), a public company in Hsinchu, Taiwan, that makes display electronics. The purchase price: $215 million.
“Everybody who has invested in E Ink in the last five years is going to do well” as a result of the acquisition, E Ink CEO Russ Wilcox told me in an interview Monday afternoon. I didn’t press him about the implication: that everybody who invested between 1997 and 2004 is going to do less well. But in the current economy, any kind of exit—especially for a company that has struggled so long and valiantly to bring its product to the mainstream consumer market as E Ink has—must feel like a triumph.
The length of E Ink’s odyssey was rooted partly in unexpected technical challenges, as Wilcox detailed to me in a long interview back in February. “We understood that it was probably going to take two years to make something that people wanted to buy,” he said then. “And in terms of making something that looked good, we did that. But what we didn’t see in the beginning, and learned over time, was that it would take another two years to go from something that looked good to something that would look good for many years under all operating conditions—in other words, to achieve stability and robustness. And then it would take another two years to get something that you could reproducibly manufacture, at an affordable cost point.”
But even that was just the beginning of the story. The market for e-paper devices also needed time to evolve. Sony brought out the first e-book reader based on E Ink’s electronic ink film, called Vizplex, in 2004. But it wasn’t really until this year—with Amazon’s extreme makeover of the Kindle, its subsequent success among critics and readers, and an increasing clamor within the floundering publishing industry for new distribution models—that e-paper advocates could convincingly argue that there’s a role for electronic paper in the future of the consumer electronics business.
With 127 employees on its way to 150, $18 million in revenues in the first quarter, and newfound resources in the form of its soon-to-be parent company, E Ink seems positioned to hold on to a major share of the market for text-driven device displays. It has competitors like Mountain View, CA-based Plastic Logic, which showed off its forthcoming tablet-sized e-reader at last week’s All Things D conference. But Wilcox is sanguine, saying the e-paper market is still in its early days and that there’s room for plenty of players. [Correction, 7:50 a.m. June 2, 2009: Wilcox wrote this morning to say that Plastic Logic is not a competitor: "Actually they are a customer and their CEO is a friend! All of the demos they have shown the world use E Ink Vizplex. The merger will not affect this and E Ink has a contractual supply agreement with Plastic Logic, and (as long as they still like us) we will supply them with film for years to come."]
In our interview yesterday, Wilcox sounded noticeably relieved to have located a purchaser for the company, which means some kind of payday not just for E Ink’s investors but for its employee options-holders. He was also upbeat about becoming part of a company based in Taiwan, where the regulatory and accounting hurdles for public companies are much lower than those created by the Sarbanes-Oxley, or SarbOx, legislation here in the United States. Here’s a writeup of our whole talk.
Xconomy: Congratulations on being acquired, and thanks for making time to talk.
Russ Wilcox: Thanks. Our main themes are [that the acquisition means] more resources for E Ink; everything is going to stay in Boston and continue to expand in Boston; we have 20 open jobs; and this will help expand capacity and speed up product development and get us closer to customers all over the world.
X: Explain how you’ve worked with PVI in the past. They are the company that attaches your Vizplex film to the backplane electronics that actually drive the e-ink material, correct?
RW: Exactly. We provide the film to them, and they make the display. We also provide it to other companies that make e-paper displays, but PVI is the largest. In that sense, we are being acquired by our number-one customer. But there are others and we will continue to supply others. The market can see many types of displays, and we’ll continue to focus on building an ecosystem of multiple e-paper sources and multiple e-paper devices.
X: So PVI apparently feels there’s no contradiction between making its own e-paper product and supplying parts so that others can make similar products?
RW: That’s not uncommon in the electronics industry. For example, you’ll see a big guy like a Samsung or a Sony with one division that makes chips for digital cameras, and another that makes digital cameras, but the chip might also be picked up by a few other brands. It takes the investment you’ve made in the core technology and allows you to spread it out over multiple different developers and paths to market.
X: You are one of the few people at E Ink who has been there throughout the entire ride, since 1997. What’s it like to finally reach this exit event?
RW: I’m really glad to be able to get some payoff for the people who put money into E Ink. I guess we went through eight rounds. That’s a lot of investor meetings, and all the way along you’re telling investors how you expect to make money for them. It’s very gratifying to be able to put reality into that. Everybody who has invested in E Ink in the last five years is going to do well.
For me, personally, my view is that it was time for us to become a public company. Given the size of the company and the amount of investment going on, it was just no longer appropriate to be venture-backed. The IPO market is closed, and these guys are very good friends that we’ve worked with for years, and together we make a pretty interesting public company that’s totally focused on e-paper and traded on global exchanges. And there is no SarbOx to contend with, because they are headquartered in Taiwan and are on the Taiwan stock exchange. So this is pretty interesting. I view it as the next chapter of what I hope will be a longer story of expansion.
X: For a lot of companies, an acquisition by a far-away foreign company might lead to some difficult cultural readjustments and communications issues. It sounds like you’ve already dealt with a lot of that with PVI.
RW: We’ve already been working with them for five years, and as I said, they’re our top customer. We have massive communications going back and forth with them already, and all of our management team knows all of their management team, and all of our engineers know all of their engineers. So there is this great interface between the companies already. We have compatible styles. This is a company that was the first business in Taiwan to build an active-matrix display factory. Their management team and ownership loves e-paper passionately, the way we do. It’s just a great fit. They are betting their company on e-paper. I think it’s going to work well, and it’s a known quantity on the cultural elements. That doesn’t mean it’s going to be easy. There is the time zone difference, and the language challenge. So it’s not easy, but I’m certain it can suceed.
X: After most acquisitions of venture funded startups, it’s not too long before the CEO and other senior leaders depart. Sri Peruvemban [E Ink's vice president of marketing] said today that E Ink’s top officers are staying in place for now and that the future shape of the management of the company is “to be determined.” What are your own plans?
RW: I’m utterly absorbed in what’s going on here and I’m going to stay totally focused on it. I’m going to try to build a global multinational of some importance in the e-paper space. I think we’re just starting to see the impact on society. As a business person—and fundamentally I’m a business guy—this is a really fascinating business, and it’s becoming even more fascinating. So I’m not going anywhere. I think there are a lot of interesting challenges ahead. The management team is the same team. We will be a wholly owned subsidiary, still called E Ink. This is just the next chapter in the story.
X: I was just going to ask whether the E Ink sign on the building is going to stay.
RW: The E Ink brand is well recognized around the world. It’s one of the assets here. I imagine that it would be pretty valuable for them.
X: While Sri was briefing media people about the announcement this morning, I understand you were briefing your employees. How have they been reacting to the news?
RW: I feel that it was a good reaction. There was positive buzz, at least at first blush. Why is that? I think it’s because there will be more resources coming in. This is kind of like our version of going public, so it’s fun. By the way, the fact that the stock options that [employees] have been watching for 10 years, and wondering if they would ever have any value, will have some value. So that’s good. And there are some career opportunities. PVI has 6,000 people, and is part of a bigger conglomerate, YFY, which has 30,000 people and operations around the world. Change is inherently scary, but this is a company that’s changing anyway. These are the types of people who see change as opportunity. It’s a chance to get their products out to market at higher volume, with better customer service.
X: I imagine you’ve also been briefing your big customers, such as Amazon and Sony, about the acquisition. If I were one of them, I’d feel some relief that the future of a major supplier was being cemented. How have they been reacting?
RW: I’ll let them speak for themselves. PVI is a publicly traded company, so we had to be very cautious about how many people were aware of the transaction. Also, they had to announce within 24 hours of their own board’s decision to agree to do it. So we’re still filling them in, and basically, I can’t comment as to their reactions.
X: I guess being part of a public company comes with these kinds of restrictions—you’ll have to be more careful now about what you can say to the press.
RW: I can’t resist letting a hint of political commentary into my response, which is that actually [financial and reporting regulations in Taiwan] are much less burdensome. The entire rest of the world is much less burdensome, when it comes to being a public company, than SarbOx is here. So it turns out that it’s more efficient and less frustrating to be a manager in those foreign companies than to work for an American company. That’s my take on it, anyway. Ask me again a year from now. But that’s one of the reasons the IPO market here is falling behind the rest of the world.
X: Do you anticipate any changes in your product lineup as a result of the acquisition? Is PVI interested in continuing to make the small e-paper displays that you guys are creating for phones and wrist-wearable displays, for example?
RW: They’re very well aligned with us. They make displays that are small and medium-sized to begin with, so e-books are right in their sweet spot, as well as ours. They will be supporting both bigger displays and smaller displays. And we’re going to be working together on flexible displays and full-color displays. So there is no change to the product roadmap, except that I anticipate that we’ll be able to do it all more quickly.
X: When we last talked, you predicted that 2010 would be the year we’d see a flexible display from E Ink, and 2011 would be the year we’d see color. Is that still holding?
RW: At this moment we’re projecting that both of them will be ready by the end of 2010. Maybe not both in the same display, but separate flexible displays and color displays, both by the end of 2010.