Luminus Devices: Finding Its Way Toward the Light With High-Efficiency LEDs
Luminus Devices in Billerica, MA, may hold the record among Massachusetts technology companies for the shortest time between conception and launch. But the journey since then has been anything but straightforward.
One summer day in 2002, recent MIT PhD graduate Alexei Erchak and his former advisor, physicist John Joannopolous, were meeting to talk about whether Erchak should accept a lucrative job offer he’d just received, or start his own company—perhaps around the work he’d done in Joannopolous’s lab on ways to use photonic crystals to extract more light from LEDs. “John said, ‘Let’s give Ray Stata a call and see what he thinks,'” says Erchak.
Stata, of course, is the famous MIT alum who co-founded Analog Devices, and a frequent venture investor in local startups. He took the call, and said he had half an hour to talk—but only if Erchak and Joannopolous could come to his office right away.
“We flew out of John’s office, sped down the Mass Pike at 90 miles per hour—at this point I still had jeans and a T-shirt on—and we ended up at that meeting,” Erchak recalls. “We walked into a big board room totally unprepared, except for some slides I’d grabbed out of my PhD presentation. We said ‘We have no idea how to deploy this technology, but if you give us some seed funding, we’ll go figure it out.’ Ray, being a very entrepreneurial-minded person, said that was all he needed to hear.”
By the end of the day, Erchak was at an attorney’s office signing incorporation papers—and had a promise of $200,000 from Stata.
Seven years and at least three iterations of its business plan later, Luminus Devices makes the world’s brightest LEDs, using highly guarded methods based on Erchak’s research and other technologies to manufacture its own “PhlatLight” chipsets right here in Massachusetts. (The “Phlat” stands for photonic lattice.)
The company is poised to help reinvent not only portable devices such as pocket projectors, but the entire lighting industry. Retail, residential, outdoor, stadiums and TV studios, you name it—almost anywhere there’s a conventional incandescent or fluorescent bulb, Luminus’s technology offers a brighter, longer-lasting, less toxic, and in many cases more energy-efficient alternative.
“This company is a home run just waiting to happen,” says Keith Ward, a lighting industry veteran who joined Luminus five months ago as president and CEO, replacing founding CEO Udi Meirav. “LEDs are seven times more efficient than incandescent and starting to surpass halogen and metal halide, so if you can fit them into the existing infrastructure, it’s a win.”
Unfortunately, that’s a big if. The one shadow in Luminus’s outlook is that the company is entirely dependent on device makers, lighting-fixture manufacturers, and other partners to get its PhlatLight LEDs out into the world. It’s a fact that has sent the startup back to the drawing board twice—the first time shortly after Stata’s seed investment, when it became clear that the company’s initial target market, cell-phone manufacturers, weren’t ready to incorporate a new light source into their displays, and the second time just in the last two years, as an unexpectedly rapid drop in the price of big-screen LCD televisions killed off demand for rear-projection DLP televisions, an application for which Luminus’s large, bright LEDs were thought to be ideal.
But Luminus’s investors have signaled their confidence by continuing to pour cash into the company—most recently, in a $72 million Series E round led by Boston’s Braemar Energy Ventures in March 2008, bringing the company’s total venture funding to nearly $140 million. If Luminus can earn enough revenue on near-term, smaller-scale applications of its chipsets, such as flashlights, projectors, spotlights, medical devices, and architectural lighting, it may be able to hang on long enough take a swing for Ward’s home run: the general illumination market, which accounts for about $40 billion in annual spending worldwide.
That’s a market where Luminus couldn’t play at all until recently, because it didn’t have a technology for making white LEDs until 2008. (For complicated reasons, it’s easier to build red, green, and blue LEDs than white ones.) How the company got from a few PowerPoint slides in Stata’s boardroom to the cusp of a revolution in lighting is a fascinating story—one where flexibility, learning, and the faith of investors is as important as technical ingenuity.
An LED is a semiconductor that releases light energy when a voltage is applied. Joannopolous and students in his lab proved back in the 1990s that it was possible to use a photonic lattice, a Lincoln-Log-like structure made from tiny slivers of silicon, to help more light escape from an LED, rather than being reflected back from the boundary between the semiconductor’s surface and the air.
Erchak, during his five years in Joannopolous’s lab, figured out how to reduce that concept to practice, and built a few prototypes. “By the end of that period, we knew how to deploy photonic lattices to improve the efficiency of LEDs better than anyone in the world,” Erchak told me in an interview last month. “What we didn’t know was, what is the application?”
With Stata’s investment in hand, Erchak moved into the Cambridge Innovation Center—the now-massive technology incubator that, at the time, occupied only one floor at One Broadway in Cambridge—and started pitching cell-phone manufacturers on the idea of using the company’s concept designs for high-efficiency LEDs in place of power-draining fluorescent bulbs to illuminate the backlit displays of cell phones. “They all said, ‘Great, but it’s going to take you two to three years to develop them, and if you’re talking about building millions of these things for a couple of cents apiece, you’re talking about a licensing play,'” Erchak recalls. “It was not a good play for a startup that wanted to grow into a large company.”
Erchak hired a consultant, Udi Meirav, to help him make sure he wasn’t missing anything. “He said, ‘Yes there is no business here.’…So at that point we came as close as you could possibly come to shutting down the company.”
But Meirav, like Erchak, was now hooked on the promise of photonic lattice technology. Erchak asked him to be CEO, keeping the CTO title for himself. And then, Erchak explains, came the company’s first critical turning point. “This guy from Stata Venture Partners, Greg Baletsa, called me and said, ‘Hey, I just talked to these guys from InFocus, the projector company, and they said they want to use large LEDs in projectors.”
The arrays of small LEDs that Oregon-based InFocus and other companies had been using in their LCD projectors—which, by then, were already standard equipment in corporate conference rooms—weren’t intense enough. What the manufacturers needed in their machines was a single, large, extremely bright LED. “We came to the conclusion that the type of LED they would need for this application would be 10 to 15 millimeters square—10 times as large as the largest LED at that time—and with 10 times as much light,” says Erchak. And by the way, it would have to put out visible light—not the ultraviolet that Erchak’s lab prototypes produced. “That would require a totally different chip design and manufacturing technology and package design. So we were going to have to take a clean slate and redesign everything from the ground up.”
But fortunately, Luminus was still so young that it didn’t have anything to lose. Says Erchak, “I would argue that that is the only real advantage that startups have—the ability to start from scratch.”
And if the company could solve the projector problem, there was an even bigger market right behind it: TVs built around Texas Instruments’ Digital Light Projection (DLP) technology. “The big kahuna that got investors really excited was the rear-projector TV market,” says Erchak. “They’ve got the same guts as a conference table projector, but the image projects from behind. It used to be the only way the average Joe could buy a 60-inch HDTV for under two grand.” That “used to be” is the operative phrase—but more on that in a second.
To fund the development of its large LEDs, Luminus raised three more rounds of venture financing. The photonic lattice technology was still fundamental—and to make it work economically on a large scale, the company had to invent an entirely new nanolithographic technique for patterning the lattices on a silicon wafer. But there was also a “laundry list of 20 or 30 or 40 other technologies that had to be implemented to solve this problem,” Erchak says.
The company invented some of these technologies and licensed others. By 2003 it had produced its first LEDs, and by 2006—a miraculously short time later, in the world of semiconductor development—it was producing red, green, and blue LEDS for a chipset used in projectors and in the world’s first LED-powered, rear-projection TV, a Samsung model. “So in three years, we went from nothing, not having made a single LED in visible wavelengths, to being on the shelves at Best Buy,” Erchak beams.
Luminus sold hundreds of thousands of its LED chipsets to Samsung. Then came 2007. That was the year, in Erchak’s words, that “LCD prices dropped through the floor and completely decimated the DLP market.”
Simply put, Taiwanese semiconductor makers had built vast factories for churning out large LCD screens at low cost, and were now selling them at razor-thin margins. In 2004, when Luminus was out raising $50 million to build its LEDs for projectors and TVs, the most conservative estimates were that consumers would buy 11 million DLP TVs in 2008. Less than half a million were actually sold. Consumers flocked overwhelmingly to the cheap LCD TVs—which also had the advantage of being only a few inches thick, as opposed to DLP models’ two-foot-thick profile.
So it was time to clean the slate once again. Fortunately, says Erchak, “We had selectively chosen VCs that we knew were going to have the stomach for what was certainly a roller coaster ride.” By this time, the company had raised money from Stata’s group, from the New England wing of Draper Fisher Jurvetson (now New Atlantic Ventures), and from Battery Ventures and Argonaut Private Equity. Braemar Energy Ventures, CMEA Ventures, and Paladin Capital Group joined for the huge $72 million fifth round in early 2008.
Erchak says the investors could see beyond the TV market to the other applications that Luminus, which had quadrupled the brightness of its LEDs since 2006, could now address. The equipment doctors and surgeons use for fiber optic-illuminated endoscopic exams, for example, depends on small, high-intensity lamps. The company’s LEDs are also ideal as replacements for the hot, failure-prone incandescent lights used for rock concerts, theatrical stages, and other entertainment venues. Luminus even provided LEDs to help Harvard University add dramatic lighting to the underside of the Weeks Footbridge linking Cambridge to Allston across the Charles River.
But there’s a new big kahuna—general lighting, meaning the devices that illuminate homes, offices, warehouses, and streets—and Luminus is only starting to devise a strategy for catching it. Producing a white LED was an important first step. “To go into general lighting, you need white LEDs, and by 2007 we had not solved all the technical problems,” says Erchak. “To get white, you need the best materials, and you also need IP clearance, because there is a lot of intellectual property around LEDs.” (Philips, with its LumiLeds technology, has been one of the leaders in this area.) “That was a really tough problem, but tough problems are the kind that Luminus likes. It forced us to be the most innovative.”
Through some creative cross-licensing deals with Nichia, a Japanese manufacturer that is the world’s largest maker of LED s, Luminus got access to the technology it needed to enter the white LED market, Erchak says. That was in February of this year.
A couple of months after that, Luminus made one more big change. The perception in the general lighting industry, says Erchak, is that “One of the big problems with LED companies is that they don’t know lighting, and they don’t understand the real needs of the lighting market. So that’s when we brought in Keith [Ward] and Peter Weller.” Ward had done at stint at General Electric and had been a successful turnaround CEO at EYE Lighting, an Ohio-based subsidiary of a Japanese lighting company, and Weller brings experience from compact-fluorescent bulb maker TCP, as well as OSRAM Sylvania. (Former CEO Meirav became executive vice-chairman of Luminus’s board of directors.)
Wherever there’s a bulb with a filament or an arc, says Ward, a PhlatLight would be a cost-saving replacement. But obviously, you can’t just stick a PhlatLight chipset into the socket for a 100-watt bulb. “The dilemma there is that you have to find fixture guys who are willing to build inserts,” says Ward. He says he’s optimistic that pressure to increase building efficiency from the U.S. Department of Energy will drive investment in retrofitting technology. And Luminus is gaining recognition in the industry: at the LightFair International convention in May, its white LED product won a technical achievement award that’s almost always captured by giants like Philips, GE, and OSRAM Sylvania.
Erchak says Luminus has three ways into the general lighting market. The near term one is retrofitting. Next is new installations, a market that he says will take another 12 to 18 months to start producing revenue. The third and most exciting—but also the most hypothetical—market is for entirely new approaches to indoor lighting. “You could make the whole ceiling one big panel of light, and have it change just like the outdoors; you could dial in 3:00 p.m., or sunset, if you wanted,” Erchak envisions. “LEDs are the way to do that. But we can’t wait for a year. We need to sell for revenue in the present and work with lighting fixture customers and new installs over the two- to three-year time frame. So we’re doing all of those things.”
The silver lining of Luminus’s experience with the rear-projection TV market, says Erchak, is that “We had to grow up very quickly as a company and become a fully audited, qualified, world-class manufacturing organization supplying the largest electronics company in the world, Samsung. We came out of this very well prepared to walk into meetings with lighting companies and say ‘Hey, our products are reliable, and we have the track record to prove it.’ So we have a lot of credibility that we’ve built up over the past five years.” Now it’s time to transform that credibility into a brighter future for Luminus and its investors.