“Cash is king,” ever heard that saying, before?
This is the third and final episode about how Meaglow Ltd. has survived the last 15 years to become a thriving small business in the semiconductor industry… in Canada, no less. In the first episode I introduced myself, K. Scott Butcher, a company founder and President of Meaglow Ltd., giving my business and science background. In the second episode I talked about the hunger to succeed and/or to have the independence of owning and running your own business. That hunger is a positive trait that drives many aspiring entrepreneurs. In this third episode I’ll talk about what keeps the company going, investment, and where it can come from.
Now, back to that old saying “cash is King.” It can actually have a number of meanings, but for a startup the one that is important here relates to the company balance sheet. In other words, where’s the money coming from? How do you keep a business venture afloat?… it all comes down to money and cash flow: cash is king. That’s why it’s important for aspiring entrepreneurs to have an understanding of finances. Remember, only about one in ten startups survive (see the article Startup Failure Rate Statistics), so you need an edge, and understanding cash flow is a good edge.
In science, particularly in my field of Physics, where so many people are so gifted in the use of mathematics you’d think that most people could come to grips with account keeping basics. However, that’s not always the case. I learnt some very basic account keeping from managing university grants, but I learned much more from having my own small consulting company, and eventually from being the Treasurer of a professional groups branch office. In my own view, having an understanding of the basic accounting necessary for a startup is an absolute necessity. It let’s you see where the money is going, how much is left, whether you need to chase up delinquent invoices, whether next month you’re going to have to lay off employees, and whether in six months time you’re going to have to sell furniture to get by (which I’ve had to do). It helps you predict when more money is going to be needed than what’s at hand, and let’s you plan to try and generate some more cash, by whatever means, and for a business there are several options available.
Money for a business can come from many pockets. The primary place to start is your own pocket, but for many of us that only goes so far. Loans from banks, relatives, community business centers, may be possible. There is also a growing trend for traditional “investors” such as Angel investors to “invest” by providing very high interest rate loans, hmmm, maybe not go there, that might not be the best option. Some government bodies now also provide loans, sometimes with low interest rates, sometimes with conditions that may result in loan forgiveness if there is default. Another source of money can be government grants, and these could be local, provincial (state based) or federal. Beyond that, there can be traditional investment from Venture capitalists, strategic investment from other companies in the industry or “actual” investment from Angel investors (traditional investment has been hard to get in recent years). And a final source of cash is sales and consultancy. None of these are guaranteed. Hard choices often have to be made when the cash starts to run low, but these other sources of capital may give you options if you start investigating early enough.
So how has Meaglow gotten by over the last 15 years? Well, money has come from almost all of those pockets at one time or another. In the early days the company survived on loans from myself and from money I brought in through consulting. I had sought direct industry investment at various stages, but the timing for that was poor. The semiconductor industry was once one of the most vibrant and innovative industries in the world, driven by a unique phenomenon of serial investment from successful entrepreneurs who had largely been situated in Silicon Valley. However, the heyday of Silicon Valley investment in the industry dried up after the 1990s. The Dot.com collapse of 2000-2002, and then the 2007-2008 Global Economic Collapse (GEC) burned industry investors quite badly, resulting in ultra-conservative investment practices that are evident to this day. Additionally, the industries footprint has declined outside of the foundries of Asia due to decades long globalization effects.
The decline of Silicon Valley (for the semiconductor industry) has resulted in a dearth of industry-based investment in the last decade and a half. However, government-based funding for technological startups in general has been exceptional since the GEC, and opportunities outside of California have grown. Our company has received numerous government grants from such Canadian government bodies as IRAP, FedNor, and NOHFC. The company has also been a long-term member of the local Northwestern Ontario Innovation Centre, who have helped with those and with smaller grants. It’s fair to say we wouldn’t have survived without them.
Meaglow began as a company in the wake of the GEC in 2009, and grants for small companies have been pretty good since then. Governments have stepped up to encourage startups during the long recovery that followed the GEC.
The other main income Meaglow had was sales income, which really began in 2013 with the sale of our first hollow cathode plasma source. However, we were selling into an incredibly conservative and cynical market (to scientists and engineers). Nothing we could say about our products made any difference at first. All the early sales were by word of mouth from customers who had witnessed considerable advantage. Additionally, those earlier sales often had lead times of a couple of years or more while our largely university or government lab-based customers gathered grant money, so for us, watching the company cash flow was extremely important.
In 2017 we had a big order from Asia for a full plasma deposition system, worth many times what a plasma source on its own is worth. We took out loans to be able to do the build. We had expected a reasonable profit, however for reasons outside of our control (grrr, ask me about that over a beer) we made very little indeed from that build. Additionally, it was the first year of the Trump presidency, and no one knew what would happen so everyone was holding onto their cash. Internationally, sales tanked. We had no sales of plasma sources for 5 months. We ended up further in debt than we expected, and the race was on, we had loans to pay and yet had a growing income stream from plasma source sales (when things picked up) that would eventually cover our outgoings, but didn’t quite do that at the time. Hence the selling of household furniture to get by – and to be honest that’s when the hunger kicks in, but it was an informed hunger, with the increase of plasma source sales I could see that if we could hold out past a certain point we would be okay. Sales were increasing… linearly, still by word of mouth, which was quite… frustrating, and the debt payments made it a difficult road. Eventually our sales revenue passed the outgoings. We made it to 50 plasma sources sold, and then, more quickly 100 plasma sources sold. All of a sudden we had development contracts with two big Silicon Valley entities, and we were supplying some eleven original equipment manufacturers, some of them quite big unto themselves. The technology was just that good, and now I don’t have to sell furniture any more.
Sadly, if we had been a startup in earlier times, with a technological advantage as far ahead of other technologies as we had, millions would probably have been thrown at us. However, these times were such that we had to find our own funding. Local grants helped, the hunger helped, good technology helped. But in a large part we bootstrapped ourselves to success, that is, we provided our own funding from sales income. During the earlier part of our development, we weren’t attractive to the bigger companies, very few of those companies had any interest at all in doing development, they were only interested in technology that already ticked a lot of boxes… in other words, established technology. I guess we’re an established technology now though, I guess we made it.
Some positives for today’s startups, because our story is not the story of how funding happens now. The Chips Act has encouraged more North American based semiconductor work, and honestly the two big companies who are funding us for research right now, may have been encouraged by that Act. There may be actual investor funding for startups now, or in the near future, that wasn’t available in our time – something to investigate. Good luck to new entrepreneurs in the area, because luck will always be a large factor to be dealt with, but also, there are things that should be learnt that will help you succeed, and I hope I have provided insight into that. In the end good technology is the beginning, but growing yourself and learning the skills to develop and expand the technology is very important.
If you have the hunger, make sure you have good technology, learn company finances, then never give up, and with some luck, you might just be successful.