After $150M Raised, What Went Wrong at Fuel Cell Startup Lilliputian
[Updated 8/15/14, 1 pm. See below] Lilliputian Systems had the makings of a successful MIT spinout: novel technology, seasoned entrepreneurs, and plenty of money. Today, the company no longer has a website and next month it will shut its doors after selling off its intellectual property and burning through some $150 million in funding.
If there is a lesson to be learned from the demise of the Wilmington, MA-based company, it’s that one startup can only take on so much. The company had one core innovation—a silicon-based fuel cell membrane with the potential to be manufactured at large scale and low cost—but developing a first-of-a-kind consumer hardware product required taking on myriad manufacturing, engineering, and distribution tasks.
Its story is also a reminder that even in energy, which typically moves more slowly than information technology, market dynamics can change quickly. In the 13 years during which Lilliputian worked on its product, the lithium ion battery industry advanced substantially. That made a more expensive fuel cell product a tougher sell, even with the promise of much better performance.
Lilliputian’s various problems piled up and stretched out its product development time, which scared off investors from putting more money into it. “In some ways, the writing was on the wall for a few years now, and new investors had stayed away for a while,” says Bilal Zuberi, a venture investor at Lux Capital who was not involved with the company. “I also believe the management made too many false ‘we have turned the corner’ promises, and investor patience doesn’t last too long with that.”
When Lilliputian started in 2001, it had what looked like a solid idea for a business: a lightweight, pocket-size charger for mobile gadgets via a USB port. The introduction of the iPhone and other smartphones, e-books, and other small consumer electronics, such as digital cameras, seemed to make its product idea even more compelling. It signed on as investors Kleiner Perkins Caufield & Byers, Intel Capital, Rockport Capital, and, two years ago, a Russian government investment fund for nanotechnologies.
A number of companies have tried to make miniature fuel cells, but Lilliputian’s radically different technology, conceived at labs in MIT, seemed to give it an edge. It used MEMS (micro-electro-mechanical systems) manufacturing techniques to etch a fuel cell membrane onto a silicon wafer, which would allow it to take advantage of chip production equipment. The finished device could convert butane, or lighter fluid, into an electrical current at high temperatures in a gadget small enough to fit in a hand—an impressive engineering feat.
The primary draw of the product stems from how much energy butane stores per volume compared to batteries. Lilliputian boasted that with a single fuel cylinder cartridge—about the same length as a smartphone, but more slender—could provide two weeks of charging for a smartphone.
The potential of this technology in laptops is obvious as well. The business traveler who takes lengthy transcontinental flights could stay powered without having to carry extra batteries, which are bigger and heavier than the fuel cartridges. (The FAA has approved butane cartridges for portable electronics as carry-ons.)
Lilliputian introduced its product, called Nectar, at the Consumer Electronics Show last year and began taking orders after a number of delays. It also signed on a distribution agreement with retailer Brookstone to sell both the devices and recyclable fuel cartridges. It had planned to manufacture its silicon wafers at a retrofitted Intel chip foundry in Hudson, MA.
At the end of the day, though, Lilliputian never delivered its product, and the estimated cost of about $100 for its charger in 2010 ballooned to about $300 last year. Ken Lazarus, an experienced tech executive who had been CEO for nearly 10 years, left last year to head another local startup. [A previous version said Lazarus was replaced by the board—Eds.]
Sohail Khan, who became CEO last May, said in an interview that Lilliputian has licensed and sold its technology and intellectual property and is actively winding down. Khan wouldn’t name the buyer but indicated that the Lilliputian know-how could well be used for applications other than consumer electronics. The Boston Globe first reported that Lilliputian was shutting down.
“The majority of the assets will go to a very large global player who basically can continue to invest and productize,” Khan said. “It could be consumer electronics or industrial applications or other areas.”
When I asked Khan what went wrong, he said Lilliputian was “multiple startups in a startup” because it had to invent … Next Page »