I ran into Bridgelux Inc. Chief Executive William Watkins last night at an event in San Jose, Calif., and he offered this warning. LEDs, or light emitting diodes, hold big promise for saving energy and pricing is falling rapidly, which will make them more competitive.
But big technology giants, such as Samsung and LG Group, are pouring billions of dollars into production. Keeping up will be a gargantuan task for an early stage startup.
Entrepreneurs with big ambitions may be wiser to turn to private equity firms for enough cash to begin rolling up, or consolidating, small production facilities and components shops, said Watkins (pictured). The market may be past the VC stage.
“It’s not about $50 million investments,” he said. “This is about hundreds of millions. You’re going to have to start deploying big capital.”
Watkins clearly has a point. LED lighting will be big as high quality bulbs regularly drop below $20 and then $10 over the next couple years or before. But the winners will be the low cost producers, and manufacturing scale is going to be the weapon of choice.
Many VCs view components expertise and creative management software as a startup’s differentiation. But Watkins didn’t seem entirely convinced.
He also said he is not interested in being the consolidator and instead has begun raising new money for Bridgelux. He declined to say how much. To date, Bridgelux has raised more than $154 million, following an additional $60 million infusion in March, according to data from Thomson Reuters, publisher of this blog.
He also spent a good bit of time discussing a second challenge facing LED companies: government supported manufacturing expansion in China. To respond, he suggests states such as California float bonds that cities can borrow against to install LED lighting. Every dollar of energy savings goes to repay the bonds until they are paid off in roughly seven years, he suggests.
Then the savings go straight into city budgets. The catch: a requirement that 60% of the components and content of the lights be made in the United States.
“The problem is people won’t enforce ‘Made in America,’” he says.
The alternative, of course, is to have the industry grow up in China.