Spinout Doctors: How New Venture Partners Saved Freescale’s Magnetic Memory and Other Stranded Technologies
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sell standalone memory parts, which improves your learning and gets everyone comfortable with you as a supplier, and they said they didn’t want to be in the memory business.
It truly was a strategic decision. If MRAM had already been a billion-dollar business, they might have made a different decision, but it was just getting started, and their sales force sold microprocessors, not memory. MRAM needed its own sales force. And there was a whole next-generation technology in the pipeline that needed to be pushed forward with more R&D and downstream resources. Lisa could see how this didn’t fit for Freescale currently but could be strategically important. A spinout was a way to get a lot more resources and attention focused on MRAM.
This deal came to us from the folks at Lux Capital. One of their folks had been a former Motorola research director, and knew the people. We did a lot of diligence and partnered up with them. And there were a couple of things we did. One was just financial engineering. If you look at the spinout, it’s a really complicated deal—it’s not just an IP deal. We bought the equipment from Freescale, but it still sits in their clean rooms. They perform some of the processing for us. There are Everspin people in a Freescale clean room that we rent back from them. Then there are products for which they are the customer. So I’d say having a track record and a playbook was important. Having negotiated 60 or more of these deals, our team knows that all sorts of barriers can get in the way. Most of us have worked in big companies in the past, and we remember what it’s like to be in a big company, so when a big company person comes and tells you about this problem, you don’t delegitimize it. It’s a real problem in the environment that person is working in, and you figure out how to work together to get it addressed.
The next big challenge was syndication. You’re talking about building not just a semiconductor company, but one that has equipment and a sales force. You want a lot of money on the table from day one. [NVP and its syndication partners Lux Capital, Sigma Partners, Draper Fisher Jurvetson, and Epic Ventures ultimately put a $20 million first tranche into Everspin, along with an unspecified second tranche.] We worked really hard to line up really strong investors. We and Lux were really proud of that, and it took a lot of time, and Freescale, to their credit, had the patience to wait until we did that. Then there was bringing in external board members to fill the gaps, recruiting a CEO, recruiting a sales and marketing director.
X: Do you have other examples that illustrate different models for spinning out stranded technologies?
DT: Sometimes there are opportunities to combine things from multiple places. We spun a piece out of Maxim Integrated Products [a maker of RFID technology]. We said, ‘These are good guys, we like the technology and we like the people, but to be honest it’s not a whole company.’ So we deliberately went out and found an existing company that was looking to raise funding, and we said, ‘Would you like to do this?’ So instead of spinning this out into an independent entity, we spun it out to an independent startup, and simultaneously invested in the startup, Intelleflex.
X: NVP is usually involved in these spinouts at the Series A stage, but do you make a point of staying around for the Series B round?
DT: Absolutely, we’re in it for the long haul. I give a lot of credit to the founding team here—they raised a big enough fund that we can stay in. We are, in many ways, like a big distributed incubator. The problem with incubators is that typically they can’t actually generate returns for their investors, because they get diluted out. So you really have to be in for the long term. Having said that, … Next Page »