The collapse of the Internet bubble took the photonics industry down with it. But it's starting to attract venture capital investment again.
Fifteen years ago, venture capitalists rushed to become part of the Internet revolution by investing in photonics companies.
'It all revolved around the dot com craze and supposed build-out of the public telecommunications infrastructure to support that,' says Bill Magill, founder of VentureScout and former partner at the Silicon Valley-based venture capital fund TeleSoft Partners.
Once it became clear there was no immediate need for unlimited amounts of network capacity, the value of companies applying optical science within the telecommunications industry - that had been eagerly snapped up by venture capitalists - plummeted. 'A lot of investors lost a tremendous amount of money and are only now starting to return to this market,' says Magill.
'You clearly had over-investing happening,' says Jörg Sperling, partner at the UK's first cleantech dedicated venture capital fund WHEB Ventures. Incredibly, some of the companies invested in during this 1990's boom had neither revenue nor patents, recalls Sperling. 'You just sold the labour pool. For every optical engineer you were getting about a million dollars.'
According to Sperling, even companies with products and patents posed a problem for investors, as they were often too alike. 'I sold one company at incredible profit to Intel, and we had to shut down another very similar company a year later,' he explains. 'Over a 12-month period, I had the biggest successes and the biggest write-offs in my investment career. They were crazy times.'
When investors with technical expertise in the photonics field were getting their fingers badly burnt, it was never going to be easy for the sector to recover.
'In the 1990s we talked about a photonics market as the end-all,' says Magill, who is also an adjunct professor of private equity at graduate business school. 'We didn't distinguish among the various end applications in that market. There was this passionate love affair with the photon, and it mostly had to do with communications. When the market collapsed and investors suffered the consequences, there became an instant stigma around the word 'optical'.'
That stigma seems to have dissipated. 'The emergence of interest in this group of sciences now is driven by actual market applications,' Magill claims. 'I think that global concern over climate change and the swelling of interest in energy efficiency and clean energy generation is probably the single largest driver of opportunity for the photonics space. That encompasses solar, solid state lighting, and sensor systems.'
Magill points to the 'biophotonics' area, which covers cell detection, cancer screening and cosmetic enhancement, as another target. 'I think there is a plethora of opportunities there. It's a different positioning of interest that you see now, E F which I think is very healthy.'
Sperling says: 'You almost had a generational change where new people in this market looked at it from a new perspective. They see that there are a lot of applications outside the telecoms area, in gas detection, leakage detection and monitoring. For example, using lasers for early detection of wind speeds and patterns.
'When I joined a clean-tech fund, the last thing I expected to find was a fibre-optic company in the portfolio. But there it was, and they are using fibre optic technology to take distributed temperature measurements along gas pipelines to detect any potential leakages and to monitor long-distance high-voltage transmission lines for potential overheating.'
This does not mean new telecommunications applications are being overlooked. 'Three areas in telecoms are picking up and they are all driven by the access portion of the network as people want more information,' explains Bernard Couillaud, chairman of US-based optical and laser components company Oclaro, who has worked in the photonics industry since the mid-1990s.
'The current challenge is to bring 'fibre to the home' at a cost people can afford. Simultaneously, you have to have enough capacity in the network to bring information into those homes, implying higher-speed interconnects and, thirdly, the network usage has to be optimised to respond to the time and geographical fluctuations of the demand.'
Green subsidies are influencing the pick up of investment interest, and not just in photonics says Magill. 'Government subsidies are driving investment in a lot of cleantech and green technologies. In fact many privately held companies, small venture-backed and their investors - the venture firms themselves - are hiring consultants to understand how best to get at those government subsidies and incentives.'
However, these subsidies do not appeal to everyone. 'We stay away from sectors or companies that depend on such tariffs because we know they change with the mood of the politicians. I don't want to be dependent on that,' says Sperling.
This new interest in photonics has been tempered by the global recession. 'In general in a good year - meaning up to 2008 - venture-capital investment in the US would be in the range of $28bn. It dropped to about $18bn in 2009. In Europe, the investments were about £5bn in 2008 and dropped to about £3bn in 2009,' says Couillaud, who feels it is vital to economic recovery for investment to be made in small entrepreneurial firms. 'Those are the seeds. It's like saying 'how important are our children for the future of our country?'.'
Despite the recession, there seems to be a feeling of optimism about the photonics sector. 'I think it's a healthy environment. Photonics is one of the areas investors are looking at and they are making investments, but they're not crazy about it,' says Sperling, adding that the lack of hype is better for the market.
'VCs had gone through a difficult period in 2008-2009,' says Couillaud. 'They are now questioning which areas they should invest in and are finding that there are many opportunities in the photonics business that are worth investment. I used to say the 20th century was the century of electronics and the 21st would be the century of photonics, and I think this is what's happening.'