Quantum Leap

23 January 2006

Quantum Dot survived product problems and the dot com crash, becoming one of the first nanotech start-ups to exit through acquisition. Co-founder Joel Martin explains what worked - and what didn't.

Joel Martin was co-founder and CEO of Quantum Dot Corporation, an early pioneer of nanotechnology and one of the first companies in the field to secure an exit. It was established in 1988 with academic experts from some of the leading worldwide institutions, including the University of California, Berkeley; the Massachusetts Institute of Technology; and the University of Melbourne. The company focuses on solutions for biomolecular detection, using quantum dot particles - or semiconductor crystals - that emit light brightly in different colours. The nanocrystals have a range of applications in life science research, diagnostic testing and imaging.

Having braved the collapse of the Internet bubble and an early product development hitch, Quantum Dot Corporation was acquired by life science company Invitrogen last October. Martin is currently a partner at Forward Ventures, a venture fund based in Southern California focusing on biotech and medical devices.

Quantum Dot Corporation was one of the earliest companies to attempt to commercialise nanotechnology. What took you into that field?

It was started not because of any particular interest in nanotech. We looked at the base value proposition, and it happened that the technology was nanotech.

I was looking at a variety of different types of technology, and happened to find a different one and was vetting it, calling around. I called a professor at the University of California at Berkeley who said 'You should see what I have!' We met, found out who else was working on the stuff - you have to have a lock on the IP to make a success - and brought it on board.

You ran into some problems with the first version of the product. What happened?

It turns out the material was unstable. It looked good in our hands, but didn't have a shelf-life. So we made changes. The technical people put in an extraordinary effort, they were very thoughtful and creative about making the technology work. Sometimes it turns out to be a lot harder than anticipated.

I think I had a wonderful team. Great scientific folk, business development folk, real talent on the marketing side. A strong IP team. The manufacturing team in the end pulled it off and made it all work.

You went through the Internet boom years and the bust. We all know how tough it's been since the bubble burst - but did the boom years bring their own kinds of problems?

We were both beneficiaries and casualties of the [Internet] bubble. The pharmaceutical companies were very interested in adopting new technologies. It was a party mood in general. But we had a devilish time finding facilities in the Bay Area - they were taking labs and putting in cubicles for computer companies. It caused a tremendous amount of anxiety and it was difficult to find operational labs spare - for a while we were doing it out of the equivalent of a broom cupboard.

Then the bubble did burst, and with it came a number of things. Valuations and capital availability became tighter and made it difficult in some ways for us to carry on. The investors were extremely supportive, but it changed the tone and the way we did the financing and made it difficult to bring in new investors. And there was a change in the marketplace - there was a complete retrenchment in R&D spending in pharmaceutical companies, and a very [negative] perception of newer technologies in general. It was almost a mentality where people played it safe - people were not really interested in changing the practices they had internally. That made adoption more difficult. It still happened, but the rate of adoption slowed substantially.

Looking back, what would you have done differently?

Early on I believed - and still believe - that in a business where you're supporting customers who buy a wide variety of products and require significant technical support, then you need a critical mass. It helps you build a brand and establish a catalogue of products - people want to order everything [from one place]. We would have been far better served by being more aggressive in building a critical mass of products early on.

In hindsight, I would have been more forceful. We moved from an era where a single breakthrough product made a company because it captured the imagination of the public - we went from that to a regime where it was more revenue-based, and people wanted to see a business built before they put money in. There are obvious economies of scale for a tools company to have multiple products - it's highly inefficient for salespeople to have just one product.

I proposed, but not vigorously enough, that we go out and get other complementary products and start selling them before the introduction of ours. It took us longer than we expected to get the product out - we would have been better served having already established a presence in the space and gone through the growing pains. So I would have acquired additional products - or licensed them - and I would have been more of a consolidator, rather than ending up being consolidated.

There's another take home: I was concerned about the adoption rate, and probably didn't make the case strongly enough. These products are very valuable - they're cash cows when you get them, but it takes many years to get adoption.

At one point I proposed giving the money back or completely changing the direction of the business, but various constituencies wanted to stay the course. Probably we would have been better served by rethinking the business in the context of a business with critical mass - people in pharmaceutical companies want solutions from a credible, sustainable company. So the more visible the brand, the more credible it is, the more traction you'll get.

It was hard for you to remain an independent company - looking back, what's your verdict on last October's sale?

It was one of the best we've seen in the tools business - many tools companies suffered tremendously, the few that managed to stay independent received an immense amount of capital to get there. We still did pretty well. We were able to keep going as part of someone else who did have critical mass.

Joel Martin was speaking to Keith Rodgers, Content Director of Webster Buchanan Research