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Kyma Technologies Is on the Prowl for More Funding

Posted April 27, 2006

— Kyma Technologies

has reorganized its management team and is re-energizing its efforts to tackle an emerging semiconductor market that is expected to be worth billions of dollars.

Kyma, which is one of the companies presenting at the

Council for Entrepreneurial Development's

annual venture conference in Pinehurst, has applied for patent coverage of its "unique crystal growth technology" for chip production of native gallium nitride (GaN) substrates.

Kyma (Greek for "wave") believes devices powered by GaN chips will be more powerful and reliable. GaN chips can be used in light emitting diodes, lasers, ultraviolet photodetectors, power rectifiers, and advanced radio frequency/wireless devices.

In an attempt to further its growth, Kyma has added two new top executives.

"We have reinvented the executive team significantly with a new chief executive officer and a new chief scientist and an internally promoted vice president of engineering," Kyma's management team told WRAL Local Tech Wire for a Q&A corporate profile.

Keith Evans, the CEO, had previously held executive posts at Veeco, Crystal IS, QED/IQE, and Semiconductor Laser International. Xueping Xu, the chief scientist, is a former lead scientist of ATMI's GaN division. Most of its GaN materials capabilities was sold to Cree in 2004. Ed Preble, VP of engineering, has experience in working with bulk crystal growth and also worked previously at General Electric.

Company co-founders Drew Hanser and Mark Williams have new roles: Hanser is chief technical officer and VP of business development. Williams is chief operating officer and vice president of finance.

Kyma has raised more than $9 million from investors since the company was launched in 1998. The company is looking to raise additional funds to scale up production and to continue product development.

The Q&A with WRAL Local Tech Wire:

The momentum has picked up over the past year in many segments of venture capital. Are you finding more interest among potential investors? Please explain why or why not.

The action in the semiconductor sector has picked up clearly and interest seems stronger than in recent years. It also seems clear that investors are more savy in our space than in the past. Increased availability of funds has been ascribed to too much money sitting on the sidelines after many were disappointed by the relatively recent high tech bubble.

Even in a better investment climate, VCs are more demanding than ever in terms of due diligence. Why should investors be interested in your firm?

Our value proposition is easy to understand and easy to put a high value against. The primary questions left are that of intellectual property and technical risk. Investors should be highly motivated to move to assess our IP and technical risk, and, if satisfied, should get pretty excited.

What's your "elevator pitch"?

The greater-than $250B combined market for silicon (Si), gallium arsenide (GaAs), and indium phosphide (InP) devices is totally based on and enabled by native Si, GaAs, and InP substrates. We are on the road to being the first supplier of native gallium nitride (GaN) substrates which are expected to enable greater than $30B in GaN device market opportunities. Since we expect to be the first to get there, we also plan to take advantage of our strategic materials resource to develop and supply select high performance GaN devices.

What is the "pain point" (or points) you address for your customers?

Our customers suffer from the excruciating pain of, while understanding the great market opportunities that GaN devices pose, not having access to a high quality cost effective native GaN substrate that will enable them to get the device performance and reliability required to stimulate the growth and penetration of their target markets.

What makes your company unique? Do you have a proprietary and/or a patented technology? Please explain why it is unique and what the status is of any patent filings.

Our company has a unique crystal growth technology that enables us to make real native substrates, which are those that are sliced out of native boules. Our patent filings are quite confidential right now but we believe that when all is said and done, our IP will be the only IP that actually teaches one skilled in the art to produce native GaN substrates with specific desirable physical properties.

What makes your product(s) and/or services unique vs. your competition?

We have three categories of competitors: suppliers of foreign substrates (i.e., something other than GaN, like sapphire and silicon carbide), suppliers of non-native GaN (i.e., GaN templates and liftoff GaN), and native GaN. Most agree that native will win in the long term, while many are chasing intermediate solutions now to take advantage of the difficulty in bringing native GaN to market. Native GaN is difficult to develop but we see the light at the end of the tunnel and expect to begin taking significant market share in 12 to 18 months. Native GaN has already been demonstrated to provide the highest quality device layers, which are required to make the highest performance and reliability devices, which the market always demands in due time, as long as the cost structure is attractive. Native GaN will indeed be cost effective due to high growth rates and high equipment utilization efficiencies, as well as high device yields grown thereupon.

Does your company already generate revenue? If so, how much? Are you cash flow positive?

Our revenues have grown steadily to $1.7M in 2005 yet they are dominated by development contracts due to the promise of native GaN to enable military critical electronic and optoelectronic device technologies. We also just won Department of Energy support for next generation solid state lighting development. Our commercial revenues are growing and are expected to surpass government contract revenues within two years. Our substrate supply effort should become cash flow positive in two years but we plan to invest heavily in vertical integration into devices, which greatly increases our long term value but which puts off breakeven cash flow for a couple more years.

What is your target market? What is the size of that market in terms of dollars? What share of that market do you believe you can win?

Our target markets are many, including solid state lighting, optical storage lasers, base station power amplifiers, and automotive high power switching electronics. Our 2008 serviceable market is estimated to be $500M for substrates and $7 billion for devices. If not for IP issues we would target greater than 50 percent market share, yet the reality of IP issues in the compound semiconductor field means our success will likely be met with the type of IP challenges that usually result in trading IP cards.

What will you do with the invested funds? What is the timeline for product delivery? If you have existing products and services, how will additional funding help you expand your company, if that is the intention, or will you develop new products?

We will transition our boule development process to production, scale up that production, begin adding epitaxial wafer capacity, begin developing our first device prototypes, and continue to grow our IP portfolio.

What do you want from an investor other than money?

We are a small group of mostly technologists and need to add medium size and eventually large business expertise across many fronts. We desire active investors who truly become part of the team, who can advise us on many fronts. We also desire investors with strong connections to big industry. Connections to local, state, and federal politicians is a big plus too. Also, we desire investors who prefer to take longer to make big $$, not those looking for a quick exit.

Why will investors be impressed with your management team?

We believe our management team is excellent; together we have fostered an excellent corporate culture. Our founders have stayed the course, have seen some significant ups and downs, and have learned a lot along the way. They have settled into the COO and CTO roles, with the CTO focused on the many existing business development opportunities. We have reinvented the executive team significantly with a new CEO and a new Chief Scientist and an internally promoted VP of Engineering.

What is the exit strategy for the investor from your company? Are there potential strategic alliances with larger companies? Do you wish to take the company public? Or do you wish to grow the company and either sell it or acquire other companies?

Our preference is to grow like wildfire organically while acquiring small companies with complimentary core competencies along the way and then to go public as a highly profitable vertically integrated semiconductor device company in a rapidly growing nitride semiconductor device market.

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