Materials investors target consumer market with ‘printed electronics’

In a plot typical of scientific breakthroughs, the discovery of conductive properties in organic polymers began with an accident. During the early 1970s, a researcher in the lab of Tokyo chemist Hideki Shirakawa mistakenly added 1,000 times the specified amount of catalyst to a reaction vessel. The reaction left a metallic-looking film that, upon further modification, was found to be capable of conducting an electrical current.

The finding hardly spurred a flurry of entrepreneurial activity. More than two decades passed before Shirakawa and his two American collaborators, Alan Heeger and Alan MacDiarmid, shared the 2000 Nobel Prize in Chemistry for their finding that plastics can be made to behave much like a metal under some circumstances. In the interim, Moore’s Law continued its relentless march and semiconductor innovation remained synonymous with silicon.

But while silicon still reigns supreme in computer processing, cheaper materials hold promise for less sophisticated devices and components. Lab refinements following on the Nobel laureates’ findings have spurred development of an emerging industry based around the semiconductor properties of organic materials. Researchers say printed, specialized inks made from conductive materials are poised to replace traditional electronics in devices and components such as light bulbs, radio frequency ID (RFID) tags, consumer electronics displays and even wallpaper.

“A lot of times people look at printed electronics as just a printed bar code or RFID,” says Ned Renzi, a partner at Birchmere Ventures. “Today, we’re looking at things we think are enabling platform technologies that will allow the market to take a leap.”

Cost is the driver. While silicon chips are made in multibillion dollar fabrication facilities, plastic circuits can be manufactured by comparatively simple techniques such as inkjet printing. Under optimal conditions, industry analysts say, printing plastic electronics may not be significantly more expensive than putting ink on paper.

Ground floor

In the last several months, venture firms have backed an assortment of startups focused on printed electronic and photovoltaic technologies. Funding recipients include developers of specialized inks and printing methods for distributing conductive materials on flat surfaces. Companies honing technologies for high-volume printing of solar cells have also attracted heightened interest from VCs eager to invest in the promise of lower-cost renewable power. To date, however, funding levels are meager in comparison to the industry’s projected growth.

“This industry is probably where the silicon industry was back in the late ‘60s and early ‘70s,” says Craig Cruickshank, founder and director of Cintelliq, a Cambridge consulting firm that tracks organic semiconductors. (Cambridge University is a hotbed for research in conductive plastics and light-emitting polymers, and the surrounding region is home to a high concentration of related startups.)

This industry is probably where the silicon industry was back in the late ‘60s and early ‘70s.”

Pittsburgh-based Plextronics, a maker of conductive inks, is a case in point. The main patented product it ships to prospective customers is a conductive powder that looks like ground coffee and mixes with liquid to make ink. In August, the 4-year-old company raised $13.1 million from Birchmere Ventures, Draper Triangle Ventures and Firelake Capital, as well as some angel and employee investors.(It had previously raised $3.3 million in two rounds from Innovation Works and undisclosed investors.) Plextronics also attracted unexpected interest from corporate investors, says CFO Sean Rollman. He says the company is considering a follow-on round in the $15 million range from these investors next summer.

Renzi of Birchmere, which led Plextronics’ new funding round, says his firm followed the company since inception but initially considered its technology “a solution in search of a problem.” Birchmere became more interested this year, Renzi says, as it became convinced that OLED developers were close to resolving “lifetime and efficiency problems” that prevented manufacturers from adopting the technology.

Back in Cambridge, Plastic Logic, a developer of printed plastic electronic circuits, raised $28 million from a dozen investors in November 2005. Its backers include Bank America Capital, Dow Chemical, Intel Capital, Oak Investment Partners and Siemens Venture Capital. Plastic Logic had previously raised about $25 million in multiple rounds between 2000 and 2005. The company envisions its technology being used in smart packaging, sensors and disposable electronics.

Developers of display technologies are also generating interest. Aveso, a Fridley, Minn.-based maker of printed plastic electronic displays that spun out of Dow Chemical, closed a $6.25 million round in August from four investors: Arch Venture Partners, Dow, Frazier Healthcare & Technology Ventures and the UPS Strategic Enterprise Fund. (Arch and Frazier previously funded Aveso’s Series A with $5 million in June 2004.)

Clint Bybee, a managing director with Arch, says the company’s unique approach to producing displays, which employs a color-changing process called electrochromism, was the draw. Bybee believes it has potential to compete against OLED technology. “Oxygen’s a big problem for most OLEDs—it degrades them very rapidly,” he explains. “We really saw this as an important breakthrough in a thin, printable display.”

Sunny disposition

Companies developing printed solar cell technology are also finding favor with venture capitalists.

Nanosolar, a startup that is building a factory to print thin-film solar cells, says its plan for low-cost rooftop power drew so much interest from venture capitalists that its latest round was oversubscribed. The Palo Alto company’s Series C round, which closed in June, drew close to $75 million from more than a dozen investors, including Benchmark Capital, Mohr Davidow Ventures and Swiss Re. Previous investors included Google founders Sergey Brin and Larry Page.

Someday, with a can of paint you could paint a conductive polymer so it could light up a room.”

Ned Renzi, Partner, Birchmere Ventures

Konarka Technologies, based in Lowell, Mass., reported similar success raising capital to develop a light-activated power plastic to be used in solar energy installations. In February, it closed a $20 million round led by 3i. Previously, Konarka raised more than $60 million from VCs including Draper Fisher Jurvetson, New Enterprise Associates, Good Energies, Vanguard Ventures, Partech International and Chevron Technology Ventures. The company makes materials from conducting polymers that can be coated or printed onto a surface.

In addition to solar cells, Birchmere’s Renzi sees market potential in the more distant future for conductive polymer-based brilliant coating engineered so that “someday with a can of paint you could paint a conductive polymer so it could light up a room.”

Exit considerations

Some printed electronics companies plan to generate profits without having to raise money on the public market or attempting to be acquired by a larger company. Nanosolar predicts it will be profitable one quarter after the start of normal production of solar cells. Likewise, Plextronics expects product revenue will be its primary source of funding starting next summer, after some prospective customers finish evaluating its technology, ’ Rollman says.

To date, a handful of printed electronics startups have also pursued the traditional exit strategies of acquisitions and IPOs with mixed results.

Cambridge Display Technology (AMEX: OLED) went public two years ago and has since seen its stock price fall about a third from its first-day closing price. The company, which earns revenue licensing its technology to display makers, posted losses in its most recent quarters as it continues to invest heavily in research and development.

MicroEmissive Displays Group (LON: MED), which licenses technology from Cambridge Display Technology, held a successful public offering on the LSE’s Alternative Investment Market in 2004, but it isn’t clear if its venture backers saw a return on their investment. Prior to its IPO, the company raised about $21 million from 3i Group, BASF Venture Capital, Sigma Technology Management and others. It raised 15.7 million GBP (about $30 million) in the IPO, pricing at 150 pence ($2.86) per share, but its stock price plummeted the following year after it reportedly ran into production problems, its co-founder resigned and a big customer ran into financial problems. It has since gone back to the public market to raise $5 million for a special manufacturing facility, and its stock is now trading around 31 pence (60 cents) per share.

Covion, a German developer of OLED materials, fared better when chemical company Merck KgaA aquired it from its parent company last year for approximately $60 million.

In a sluggish IPO climate, acquisition by a deep-pocketed suitor represents a compelling proposition for many printed electronics startups, which compete with R&D labs of giant chemical and electronics companies. Because few startups have the expertise to both develop and market new technologies, Das expects to see most of them pursue acquisitions and partnerships with large technology firms.

“You’re going to be creating new markets,” he says. “That’s an enormous opportunity for both startups and established companies.”