I always like to think back to the fundamentals.
The primary purpose of a company is to operate solvently and while doing so in some way increase the wealth of participants in the company. Most companies seek to achieve those aims by becoming profitable, and returning capital to shareholders, debt holders and employees. (Let’s agree to leave aside charities and non-profit organisations where the benefit is differently focused).
For Photonics business’s at the start of its life, there is usually the need to; master a technology, form it into a product, identify and break into or maybe even create a market for that category of product, then scale and run the company so that it can become profitable.
To compound the complexity, even for superlative execution the outcome of each stage can’t be guaranteed (risk) and there can be considerable gaps in time between completing one stage and entering the next stage, gaops beyond the control of the business.
These activities consume cash, often very large amounts of cash compared to the average resources of the people starting and running the business. This brings us to the world of capital raising and M&A.
Currently, the stable world that has mostly existed in the time since the fall of the Berlin wall in 1989 is now changing rapidly. The action of Europe and the EU has played a significant part in fostering this stability and I suspect will be seen as a force towards restoring that stability.
Before there are too many groans that the EU is broken, and that politics and business shouldn’t be mixed, a sanity check. Societies need regulation otherwise anarchy ensues. These regulations are set by the legal environment in which a business operates and in turn politicians make and set these laws. It’s a whole other argument about which type of political system is best, how much regulation gives a good society, what even is a good society. Business, regulation, law, and politics are completely intertwined.
A significant chunk of the world population and markets for Photonics sits in the EU, USA, China and Japan. While the regulations, and laws between each area are different there has been relative stability in the trading regime between these blocks and also mostly free movement of capital. US Government is ripping through this stability, with unstable tariff regimes, the degrading of regulatory bodies and attacks on the rule of law. This has occurred just as the photonics world was getting back to an even keel following on from the impacts of COVID, and the decision of Russian government to further invade Ukraine, having already annexed Crimea.
Which is the bigger shock to Photonics business’s, COVID, the invasion of Ukraine or the new US Government? It’s not so easy to say at this moment.
Laying over all these factors is another reality that investment follows themes, since the 1980s: Telecoms, Datacoms, dot com, web2.0, Smart City, IoT, AR/VR, Metaverse, Autonomous driving, Fintech, AI, Quantum……
Against all these challenges there are always opportunities for success and Europe has had some spectacular winners in the photonics space.
The reality of fundraising is that the landscape is always changing. The sources of capital flux and flow, sometimes becoming conservative, sometimes being surprisingly loose. I can remember raising $40M of investment in the bay area in 2000, in literally 3 weeks from Sandhill Road VC’s, off the loosest of business plans. The trick was ticking the boxes that where the drivers for that time. It is a definite outlier for me but for a 12month period, normal. Even then, if the idea was not well presented and on trend, companies struggled to raise capital in that period.
So my message is capital raising requires unique insight insight (where are the pots of money and resources that are matched to your concept), skill, luck, a huge amount of energy, persistence, and the ability to confidently and clearly explain to controllers of the capital, what they get in return for participating in the business. A consistent thought when raising capital should be that the controllers of capital need to disposition that capital, and that your requirement for capital can match that need.
I am optimistic that Europe is developing a world leading entrepreneurial innovation culture, especially in the field of Photonics, while maintaining a balanced and equitable society and that this model can become internationally dominant over the next 20 years and more.
Good luck in your business operations and endeavours to raise capital, either alone or in combination with a financial adviser.
Mike Powell, Managing Partner at Renevo Capital Limited
