City of Light: The Story of Fiber Optics

THREE GENERATIONS IN FIVE YEARS 191
$3 million in cash and stock for divisions that made quartz crystals and
decorative fiber-optic lamps and resigned as chairman. 74
Firmly in control as the new chairman, Drendel focused Valtec on communications
and tried to sell the company’s other operations. Entranced by
the promise of fiber optics, the stock market ran Valtec shares up from $16
at the end of March to $26.25 in mid-June. However, the company looked
better from outside than in; it was again running out of cash. In mid-June,
Valtec announced plans to merge with M/A Com Inc., a communications
company with about twice its sales. That pushed both company’s stocks up
further, and when the deal was closed in September 1980, Valtec owners
received a staggering $224 million in M/A Com stock. 75
Despite its tremendous stock market valuation, the merged company remained
short of cash. Valtec had become a money pit; a massive investment
was needed to realize the bright promise of fiber, and M/A Com didn’t have
the resources to do it alone. In February 1981, M/A Com found a well-heeled
partner in the Dutch giant Philips N. V., which sent money and experts to
help the beleaguered Americans.
A Bet on Long-Wavelength Lasers
The entrepreneurial bug bit Jim Hsieh in the midst of the fiber boom. Lincoln
Lab’s role was to develop new technologies until they were ready for industry;
the time came to transfer long-wavelength lasers in 1978. Hsieh didn’t want
to abandon them. After seven years at the lab, he was growing restless. After
agonizing for months, he called Ken Nill, who had left Lincoln a few years
earlier to start a laser instrument company. The call was a pleasant surprise
for Nill, who had sold his interest in the instrument company and was getting
restless himself. Nill knew about Hsieh’s work on long-wavelength lasers and
thought it might be a good starting point for a new company. Other companies
would have to grow their own expertise in long-wavelength lasers;
Hsieh would have a running start at his own company,
Their first task was raising money to start manufacturing lasers at the
company they called Lasertron. Hsieh already had talked with one interested
but unusual party. The Ministry of Post and Telecommunications of the People’s
Republic of China wanted the new technology to modernize its antiquated
phone system. China had changed after the death of Chairman Mao,
but the communist government was an unlikely investor in an American
start-up.
Venture capitalists were more logical funding sources. Fiber-optic technology
was hot, Hsieh had a good technology, and Nill had an entrepreneurial
track record. But when the two sat down and weighed the offers, the Chinese
came out ahead. Nill had picked up a sharp business sense at his first company;
he didn’t want to give up too much equity. The venture capitalists
wanted a business plan with nice-looking numbers and a large chunk of the
company for themselves. The Chinese wanted good people.