A Day in the Life of NanoOpto –

Howard Lee is a Silicon Valley guy through and through. A co-founder of Sun Microsystems, an executive at Apple Computer and an investor in numerous Bay Area startups, he finds the valley’s investment climate to be fertile and friendly.

But Lee is in New Jersey now, sitting in a conference room in a Somerset industrial park. He’s here because his wife accepted a position as a professor at Princeton University, and because he happens to love young technology enterprises. But in an industrial park that includes tenants like Mary Kay Cosmetics and high-end home store Villeroy & Boch, this does not appear to be a particularly burgeoning areas for tech companies.

But there is at least one with high hopes: NanoOpto Corp. in Somerset.

“Startups in New Jersey are a new phenomenon, and it is very difficult to get money because of our location,” says Lee, co-founder and acting chief operating officer.

When CEO Barry Weinbaum showed up at the NanoOpto offices for the first time, he was taken aback by a nearly empty parking lot. “I saw three cars and said to myself: Whoa,'” says the former Lucent Technologies executive.

It may not have looked like much at the time, but the company made a big impression on venture capitalists. Bessemer Venture Partners, Morgenthaler Ventures, New Enterprise Associates, and U.S. Trust’s Excelsior Venture Partners III pumped $16 million into NanoOpto last December. That was followed by an A round of $4 million in April, in which Draper Fisher Jurvetson Gotham Ventures, Draper Fisher Jurvetson New England, and the Harris & Harris Group joined the previous investors.

The day after the April funding announcement, NanoOpto was blitzed with 500 resumes. Prior to that, it was difficult to recruit people to Somerset, even those who were being let go by Lucent and other New Jersey companies, Lee says.

After the A round, “We had to lock the doors to keep people out,” says Greg Blonder, a managing director at Morgenthaler Ventures.

The early days of NanoOpto Corp. are similar to those of other start-ups: four people in a single room sharing one phone line. But while others may have never gotten off the ground, NanoOpto has flourished. Its facility now occupies 36,000 square feet, with another 25,000 square feet available for expansion, and two clean rooms. “This is one helluva setup for an A’ round start-up,” says Hubert Kostal, vice president of marketing and sales, during a plant tour.

In a market space that is filled with as much hype as hard science, NanoOpto hopes to be one of the first commercial beneficiaries of a market the National Science Foundation says will be as much as $1 trillion by 2015.

NanoOpto, which in the spring began production of nanoscale optical components for telecommunications gear, can produce tens of thousands of microscopic laser-light filters and similar components each week. Its components are designed to polarize, split and recombine the beams of lasers flowing through optical fibers. These rectangular shapes are 100 nanometers wide, less than the wavelengths of the lasers that they process. Because sub-wavelength optical elements don’t operate on the same principles as macro-size optics, they don’t have to be aligned as precisely as conventional devices, Chou says. In non-geek speak, that means NanoOpto can potentially save serious money for companies that build fiber-optic equipment.

NanoOpto uses its own imprinting techniques to populate silicon wafers with its nanoscale filters and light polarizing devices. The 4-inch silicon wafers it starts with have been standard throughout the semiconductor industry since the 1970s.NanoOpto’s factory features clean-room equipment and microchip processing stations that the company bought at bargain-basement prices from struggling companies such as Lucent and Nortel Networks. In some cases it paid as little as 15 cents on the dollar for equipment, Weinbaum crows.

Morgenthaler’s Blonder believes NanoOpto is in the right place at the right time. He is a frequent visitor to the company’s office and is the only VC who makes the trip, largely because his office is in Princeton, about an hour away. Blonder, who holds more than 60 patents in areas ranging from MEMs to PDA user interfaces to optical components, helps with strategy, patents, anything that will move the company along as its builds a “picket fence” of applications.

“The most important skill in venture investing is timing the market, matching product capabilities and markets to get the timing right,” Blonder says. “We want to avoid the kind of dead ends and wrong turns that could sink a small company because a new technology is a scary thing. We have the hammers, we’re just looking for the nails.”

It was Blonder who pushed the founders to go out and hire a multidisciplinary team of complementary players who could mesh their skills. They brought in executives from academia, marketing, operations and technology. “Put it all together and you have a very healthy skill set,” says Stephen Chou, co-founder and the scientist who did the principal research on which the company was founded.

Chou has been working in the field of nanotechnology for more than 20 years, back when it was known as sub micron technology He was fascinated with how groups of atoms could be manipulated. But it wasn’t until 10 years ago that he turned entrepreneurial. For that, he can thank his research sponsor at MIT, who urged him to commercialize his research. Thus was born NanoOpto Corp., a company Chou dreams will one day be “the Intel of the integrated optical chip device market.”

Chou, who is an Elgin Professor of Engineering at Princeton, has been recognized for his achievements with numerous awards, including designation as IEEE Fellow and Packard Fellow. To ground the Ph.D. in the real world, NanoOpto surrounded Chou with a veritable Dream Team of technology stalwarts.

Chou stepped aside as chairman of NanoOpto in June to let veteran tech CEO Ed Zschau run the board. Besides his operational background, Zschau brings political connections to the table, as a two-term U.S. Congressman representing Silicon Valley.

NanoOpto has attracted investors, in part, by presenting its production technology as a capability that can be licensed to others even as the firm tries to develop markets for its own optical products. “We may very well be the first bonafide nanotechnology manufacturer of commercial nano products in any industry sector,” Weinbaum says. “The best overall news is that the fabrication of nano-based components is now at a stage where the process of replication is understood and attainable. The foundation now exists for mass production and mass customization. We are on the threshold of orders of magnitude advances in miniaturization.”

Lee may be a hard sell on the merits of New Jersey as a haven for technology, but he has definitely bought into Weinbaum’s line of thinking-and he sees a very bright future. “The first step is always the hardest and the second is easier,” he says. “Once you build up critical mass, it’s all downhill from there. Let the fun begin.”