The Wall Street Journal announces news that Plastic Logic is to receive $700 million funding from a consortium of Russian investors. This is the lastest and welcome step towards the commercialisation of the plastic electronics* industry, but it also shows the perils and pitfalls of investing in big ideas. Plastic Logic was formed in 2000. It is extremely unlikely that any of the original investors still in the deal will get much of their money back, let alone make a return. If the WSJ report is correct, (and my sources suggest that the number is lower but still significant), the amount of funding invested in Plastic Logic over time is now in the order of $1 billion.
The Plastic Logic story started out as one in which a small group of ballsy entrepreneurs and investors set out to create a new industry. It rapidly became clear that creating a new industry is a lot harder than most people thought. One thing remained constant as the company developed – the amount of money being raised to grow the company kept rising. Seed investors were replaced by venture capital and corporate investors to be replaced by a large hedge fund playing in the venture space (Tudor) and one of the largest US venture funds (Oak).
The development of the business has been extremely capital intensive and the company has constantly been trying to raise more funding. Meanwhile, some have raised questions about the logic of running a multi-site operation (R&D in Cambridge, Commercial activity on the west coast and production in Munich). The strategy of delivering a consumer product to market in order to prove that the technology worked made this a complex business to build. (One insider at the business described what they were doing as launching four start ups at one time – a revolutionary hardware business, a consumer product, a consumer portal (like iTunes for business), and a content distribution business).
Two significant issues have got in the way of commercial execution however: the very low yields that the production printed plastic electronics have produced, and the iPad.
One investor in Plastic Logic, speaking in December 2009 said this.
“There are two things that can go wrong with the Que Reader [launched at CES in 2010 and slated for production in April of that year]. One, people don’t want to buy it as it means that there is no demand for the consumer product they have produced. (I was very struck by the word, ‘they’, not, ‘I’ in this conversation. Investors are usually quick to take credit for being involved in something that they think will be successful…)
“Two, everyone wants one. This could kill the business”
The investor explained that the yield that Plastic Logic was getting for its plastic electronics was so low (in the order of 7-9%), that even selling the Que Reader at $700 would incur significant losses for the business. The yield needed to be in the order of 15% to deliver a commercially viable product.
In the end, the iPad launched and sucked up the latent demand for a business reading device and then some. The manufacturing issues couldn’t be solved, the launch was delayed again and again until it was cancelled.
Over the course of last year (2010), a number of funds, often backed by governments have been lining up to invest in Plastic Logic with a view to getting hold of a potentially highly disruptive and market ready industry. Particularly keen to play have been the Chines and Russians. Conspicuous in their absence has been the UK government although the time for them to act has long past – if they had moved before production was moved to Germany, the technology could have stayed in Britain.
The plastic electronics industry could be huge and there is no doubt that without Plastic Logic’s pioneering work, it would be just a dream in 2011.
Georgy Kolpachev, managing director of the state-owned Russian Corporation of Nanotechnologies (Rusnano), said in a statement:
“We are making an unprecedented investment of close to a billion dollars in the future of plastic electronics to help create one of the largest commercial centers for it in Russia.
“This investment signifies the potential that we see in the future of plastic electronics across a variety of commercial and consumer products.
“Flexible plastic electronic displays will provide another major milestone in how people process information. Entering this new disruptive segment at the stage of its inception gives Russia a chance to win a leading position in global market of future electronics.”
The prospect of the industry being established in the near future remains tantalisingly close though if it is it is likely that it will be Russia that becomes a key player, not the UK.
The harsh reality is that making a return for early stage investors in such a play is a dream. This is a prime example of an opportunity that needs government backing in order to succeed and thus gain significant value for their economy.
Russian Venture Company entrepreneur networking, Cambridge, 24-28th January. https://thebln.com/event/15775/
* What is ‘Plastic Electronics?’
Essentially this is silicon chips without the silicon. Electronic circuits printed onto cheaper plastic substrates which offer promise of cheaper electronics with interesting properties such as flexibility. http://en.wikipedia.org/wiki/Organic_electronics