Milton Chang is the managing director of Incubic Management LLC and the author of Toward Entrepreneurship. He is a former president of Newport and New Focus, and he took both public. He is currently director of MBio Diagnostics and Aurrion as well as a member of the SEC Advisory Committee on Small and Emerging Companies; a trustee of the California Institute of Technology; a fellow of IEEE, The Optical Society and the Laser Institute of America; and a past president of IEEE Photonics Society and LIA. He also has served on the visiting committee of the National Institute of Standards and Technology and on the committee for the recent report Optics and Photonics: Essential Technologies for Our Nation. Q: How has tech entrepreneurship changed since you made your start? A: Starting business was a lot easier then. Everything our community needed had to be made available because the laser was novel in the early ’70s. Anyone who had expertise to make what is useful for research and development could start a company and make a go of it. Raising money was also easier because the laser was perceived by the investment community as a hot technology that would have a bright future. Starting a company and hiring engineers was, however, not easy, because starting a company was not a popular sport. Capable engineers preferred to keep what was perceived as a stable job. Today, with lasers at 50+ years, business opportunities are still abundant but in applications where market acceptance is uncertain. Raising money to start a hardware business is hard, especially for photonic products. Investors have had a bad taste in their mouth living through the telecom bubble. They now know gestation – taking a technology to product and market penetration – is a very long journey. Q: At what stage should engineers start thinking about starting up a company? A: That depends on how you start. If you want to start with a “bang” – that is, to raise a lot of investor money on a hot idea – then you had better have all your ducks in a row: technology, products, big investors and market pull. Investors want a high return on their investment – and quickly. That means you won’t get the capital you need unless your business can generate significant revenue in a short time. Recently, I titled a seminar “Every Startup Can Succeed.” I really believe this because every one of the dozen or so companies I worked with (using the method I describe in my book) succeeded. The idea is to start modestly in your area of expertise, serving customers in an industry you know. That’s how most big companies in our industry got started. Newport is now a sizable company, started with only $150,000 in investment capital and an eight-page flier. The company did not have to raise additional capital until it went public about 14 years later. Q: How should entrepreneurs think about growth? A: Capital efficiency is the watchword for business. Have a grandiose vision, by all means. When it comes to forming a business strategy, think in logical steps to extrapolate what gives you a competitive advantage for the next phase – and also to justify the return on the investment required to grow the business. Management has to be able to take calculated risks every step of the way. Q: How should would-be entrepreneurs approach VCs and other potential initial investors? A: You need a well-written business plan, of course. That means you have supporting data sufficient to verify all your assumptions and to adequately address all the concerns investors might have. Then you have to do homework to verify whether that particular VC invests in your space and whether it is the kind of firm you want to work with. Be upfront with them in presenting your case, because they know there is no perfect investment opportunity; you are not going to pull the wool over their eyes. Develop a good working relationship with them from the start so that they can help you succeed. Q: What about the so-called Valley of Death – how can entrepreneurs avoid this? A: This is a real problem for hardware startup companies. Government R&D grants more or less end when the technology is developed, and it is too early for investors to take an interest because of the long gestation to gain product acceptance and revenue scaling. That’s why I advocate the “start in a niche” and “first develop a prototype business” approaches, to face the reality that capital is hard to come by. Another way to put it is that you have to match resource availability to capital needs. The worst thing an entrepreneur can do is take a kamikaze attitude “to just get going” without getting an adequate funding commitment. Inability to raise money now will not improve when initial funding runs out and you are nowhere near a significant milestone. Always get adequate financing at each step of your build-out. Q: How else can engineers who want to be entrepreneurs ensure success? A: I wish there could be certainty. Take an interest in learning management and business – that’s the best thing you can do. It’s useful even if you never go into business, because that knowledge will provide a context to enable you to be more effective on the job. Toward Entrepreneurship is available at www.miltonchang.com.