Photonics Investment Landscape
The photonics market is a silent behemoth. It doesn’t have an outspoken investor following, yet it enables the existence of 5G networks, cloud computing, renewable energy generation and additive manufacturing. Like with many advanced technology markets, there are no shortage of exits with photonics startups, each with overlapping qualities that helped it become successful. As these qualities apply elsewhere and have already been discussed in a previous article, Approaching Quantum Computing, each is briefly mentioned while being paired with a concrete example applicable to the photonics industry.
Achieve Product-Market Fit Early
Almost all photonics startups that go on to scale are built on a foundation of exploring a ‘big picture’ solution to a problem that has been validated by the market but also the target customer.
Ouster, an enterprise that specializes in lidar technology, provides an example of finding product-market fit. The company entered the markets at a time when lidar was in its infancy, but had been adopted heavily in the automotive industry. Existing solutions weren’t versatile and had issues with reliability, which limited widespread adoption. Ouster attempted to expand the market by communicating with potential customers present in other verticals, which included robotics, industrial automation, surface mapping and smart infrastructure, all while promising high performance at an accessible price point.
Iterative Product Development
To identify a problem is a start, but real progress is made when a startup is able to interface regularly with target customers to pinpoint a more exact and in-demand solution.
Quantum Circuits Inc, a startup focused on the development of quantum processors based on superconducting circuits, embarked on an iterative development process to overcome the challenges associated with scaling up quantum systems and improving their error rates. Quantum computing requires precise control over quantum bits or qubits, and photonics provides a promising approach for qubit manipulation. QCI adopted an iterative approach to refine the design, fabrication, and performance of their quantum processors.
The company leveraged iterative development cycles to optimize qubit coherence, reduce noise, and enhance the stability and reliability of their quantum processors. Through extensive testing, feedback loops, and collaborations with academic institutions and industry partners, QCI refined their designs and techniques, making significant progress in its own quantum photonics technology.
Iterative development allowed QCI to iteratively improve the performance of their quantum processors, enabling more complex and error-resistant quantum computations. As a result, QCI has made significant advancements in quantum computing and attracted attention from investors and industry leaders in the quantum computing space.
Intellectual Property Strategy
As the photonics market closes in on $1T, every new opportunity is likely to be met with competitors. To mitigate this risk, a carefully thought out intellectual property strategy is the answer, as it helps to preserve product differentiation.
Infinera, an optical networking company that leverages photonics technology to deliver fiber optic communication systems, recognized the importance of protecting its innovations and establishing a strong IP portfolio from the early stages of its development. The company focused on patents to its moat of networking solutions, which included advancements in photonic integrated circuits (PICs), wavelength division multiplexing (WDM), and optical transmission systems.
Ecosystem Partnerships
The ability to collaborate and actively engage with various stakeholders within a given ecosystem cannot be understated. If a startup can negotiate a few strategic partnerships, it gets immediate access to the expertise, resources and extensive networks of more established players, helping to accelerate its growth trajectory and potentially move towards a more vertically integrated final product.
Ayar Labs, a company that provides silicon photonics based interconnect solutions for high-performance computers and data centers, secured an investment from Intel in 2019, which came with a multi-year partnership aimed at furthering data communication applications.
It also partnered with Global Foundries, a leading semiconductor foundry, in 2020. The intent was to accelerate the development and manufacturing of optical input/output technology, the designs of which were previously patented by Ayar Labs. This collaboration aimed to combine Ayar Labs’ innovative photonics technology with Global Foundries’ advanced semiconductor manufacturing capabilities, paving the way for the large-scale production of Ayar Labs' optical I/O chips.
The long-term viability of a photonics startup hinges on each of these attributes – product-market fit, iterative product development, a strong intellectual property strategy and desirable ecosystem partnerships. It is the responsibility of the founders to properly adapt to the needs of the company at every stage of growth, and to determine a balance between the focus on creating differentiable technology with how it plans to appeal to its target market. As the photonics industry continues to expand and revolutionize a variety of industries, the demand for forward-thinking startups will undoubtedly grow, fueled by ‘risk-on’ early stage investors that are able to identify these attributes when in discussions with founders, who can then provide the necessary support and resources to foster their growth.