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November 30, 2000
U.K. Could Lose Lead as Germany
Pours Cash Into Optical Components
By CECILE GUTSCHER
WSJ.COM
LONDON -- When Oxford University Professor Colin Webb led a team of British scientists to Germany last spring, he came back with some unnerving news for the United Kingdom's optical-components start-ups: They were being given short shrift by their own government.
The German government is pouring resources and money into the development of optical technology at both a federal and regional level, the scientists found. "The numbers are very impressive in Germany," Prof. Webb says. "It's a factor of several times what we have in the U.K."
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Britain grabbed the early lead in the burgeoning optical-components market by fostering the development of Bookham Technology PLC, the first listed optronics company in Europe. But London hasn't kept up with efforts to fund the sector and develop new start-ups, scientists say. Germany, meanwhile, is not only pouring funding into the sector, but also nurturing young optical-component companies -- as well as other technology firms -- by training engineers and providing facilities and other support.
"In the U.K., the assumption is that market forces are sufficient to determine how business should go," the British scientists noted in their report for the U.K. Consortium for Photonics and Optics, a photonics industry-academia umbrella group.
The British Department of Trade and Industry's Link Photonics Program, which encourages collaboration between academia and the photonics industry, has earmarked 11 million pounds ($15.6 million or 18.2 million euros) over the next five years for optics research, or an average of just $3.1 million a year. Germany has set aside 100 million marks ($43.8 million or 51.1 million euros) this year alone for research into optical technology, on top of other research-and-development funding.
"The money that we spend, while not in the same league as others, has resulted in a very healthy industry," says Ian Williams, DTI program manager. "What we try to foster is balance between the academic and industrial community."
But many in the industry say that isn't enough. Dave Rimmer, director at Pilkington Optronics, a British start-up that makes electro-optical systems, says London has a responsibility to help jump-start young enterprises that can help stimulate a region's economy. "We believe this is the role of government funding -- to provide an initial infrastructure which will then attract commercial investments," says Mr. Rimmer, who was a member of the UKCPO expedition to Germany.
The UKCPO team's spring trip, which was funded by the DTI, came as demand for opto-electronics research had started to surge. Optical-components companies make optical fibers, chips, switching technology and lasers that bolster communications-network capacity -- or bandwidth. Commercial interest in optical components had begun a boom that continues today as telecommunication companies across the globe upgrade their networks.
In its report, the team concluded: "The U.K. is strongly positioned within Europe to exploit its research and industrial base in photonics, and in some areas is ahead of Germany; a clear prioritization of photonics as a key enabling technology in national strategy is even more valid in the U.K. than in Germany."
If the gap persists, Prof. Webb warns, Britain's optics industry could suffer. "We're still a long way from where our German competition is in terms of producing results," he says.
The money earmarked for optics in Germany doesn't just take the form of grants. It also goes toward creating "clusters" where research institutes train engineers to staff start-ups and the new companies help the institutes carry out research.
Germany's regions of Thuringia and Bavaria are particular hot-spots for opto-electronics research. Thuringia, in former East Germany, hopes to become "Opto-Valley Europe" and one of the top 10 photonics centers world-wide. In the town of Jena in Thuringia, Jenoptik resides side-by-side with the University of Jena and venture-capital group DEWB. The partially government-funded DEWB helps fledgling start-ups by providing them with resources until they can stand on their own. "The German government has said this is important to German industry as a whole and [that it is] going to organize things to make that happen," says Antony Hurden, a senior consultant at Cambridge technology consulting firm the Generics Group, who was also on the UKCPO trip.
Germany is so eager to help its young engineers start companies it publishes a directory of grants. "German colleagues speak of a funding jungle -- there's virtually a telephone book they can look to for grants," says Prof. Webb. In Germany, "with a good technology business idea, the perception is that people will stuff your pockets with money."
"There are thousands of different [funding] programs," agrees Dirk Trommer, co-founder of u2t GmbH, the German optics company he founded in 1998 with fellow researchers from the Heinrich-Hertz Institute in Berlin. "We had no problems apart from a lot of bureaucracy."
There has been no shortage of offers for private funding either. Mr. Trommer says he has had no less than 20 approaches from venture capitalists this year. But for now he's sticking with the mix of public and private funds from angel investors and a bank loan. "We don't want to dilute the stakes in our company," he explains.
Mr. Trommer and his colleagues didn't realize how commercially viable their high-speed photodetectors were at first. "We had a lot of questions about whether our research was commercially available," he says. "In the beginning we were quite naïve." The Heinrich-Hertz Institute supported u2t by giving its staff access to the lab's technology and measurement equipment for a nominal fee.
Back in Britain, the DTI's Mr. Williams says optics research is also high on his government's priority list. "The U.K. perceives optics research as being of prime importance to the economy and has sustained funding levels," he says. Even Prof. Webb concedes that "the British government is starting to wake up and see the need for funding."
Although Britain's funding for optics start-ups is small compared with Germany's, the United Kingdom harbors a "significantly larger" community of photonics researchers than Germany does, the UKCPO report notes, and Britain has produced European leaders in optical technology: Bookham, which went public in April. Since then, Germany's Linos AG was floated in September, and France's Alcatel SA issued tracking shares for its optronics unit in October.
Bookham is the offspring of British government-funded Rutherford Appleton Laboratory in Oxfordshire. The company was started by U.K. entrepreneur Andrew Rickman while he was a mechanical engineer at the laboratory back in 1988. Bookham literally started within Rutherford's labs -- the young company leased office space cheaply from Rutherford and used its equipment. Mr. Rickman says DTI funds were "crucial" to his company's early development and he continues to champion the need for government assistance for opto-electronics start-ups.
Mr. Hurden of the Generics Group describes the U.K. as a middle-ground between two extremes: that of the interventionist German state and the laissez-faire U.S. model. "In Germany they're investing a lot of political will and money to create these companies -- they're trying to reduce unemployment," he says. "The U.S. on the other hand relies on private venture-capital money to make these things happen. The U.K. takes elements from both strategies."
Enterprising young optics companies have stepped in to fill the gap in public funds, creating their own support system by building their own academic-industry clusters. Once established, some of these networks have actually attracted government funds, though they don't rely solely on them.
Ian Murgatroyd, the founder of Oxford Fiber Optics Ltd. in Birmingham, is spearheading an effort to start an industry driven incubator for optics start-ups called the Midlands Photonics Cluster.
Oxford Fiber Optics itself is funded by venture-capital group 3i, which provided it with one million pounds two years ago. The company recruits researchers from the local university, however, and wants to promote collaboration between academia and the industry.
To that end, Mr. Murgatroyd and researchers from the nearby Aston Photonics Group, at Aston University, started a photonics "cluster group" last May. The group wants to build a research lab at the university and a workshop to train aspiring optics engineers.
Government funding came after the group sprung up. The DTI is putting up the money for the Midlands Photonics Cluster under a new program launched this summer to help new small businesses to develop through business clusters. In June, they won a government grant of one million pounds from a program, the Innovative Cluster Fund, which encourages such cluster-building. Mr. Murgatroyd says the network benefitted from good timing. "The government fund appeared from almost nowhere," he says.
Mr. Murgatroyd doesn't think the U.K. government has been stingy with seed money and dismissed criticisms of funding shortfalls relative to Germany. "You make your own luck," he said.
But a similar effort in Wales has been stymied. "If you read the fine print, the Cluster Initiative is for English regions only," says Pilkington Optronics' Mr. Rimmer, a member of the Welsh Optro-Electronics Forum, which is seeking six million pounds to start up an incubator in the region. "Because Wales has undergone devolution, we don't qualify. So right now we're strongly lobbying Welsh assembly to mirror that initiative." Mr. Rimmer says he also is talking to venture capitalists about funding the Welsh optics incubator, which will be run by a management committee called "Optropreneurs." In the meantime, Mr. Rimmer will solicit seed money from member companies of the Welsh Opto-electronics Forum to lease office space next year.
Where the U.K. is perhaps most like Germany is in Scotland. There, the government has encouraged a photonics industry to grow up in the wake of the collapse of the ship-building and coal-mining industries. Twelve of Scotland's 13 universities are involved in opto-electronics research, according to Chris Gracie, who heads the Scottish Optoelectronics Assn. The universities encourage doctoral candidates to write a business plan for an optics start-up as their thesis, while the Optoelectronics Assn. brings promising young candidates to the attention of optics companies. One such student, Brendan Hyland, left South Hampton University for the more nurturing environment of Glasgow University, and went on to start the fast-growing optics group Kymata nearly three years ago.
All the activity has attracted the likes of 3i, which has taken stakes in start-ups including Kymata, Kamelian and Photonic Materials. Chris Hodges, investement manager at 3i in Glasgow, says the venture capitalist can't replace the role of an active government, though. "We're complementary to the government funding," he says.
Mr. Gracie of the Scottish Optoelectronics Association admits the support Scotland gives to its start-ups doesn't match what their German peers get. "The Germans invest so much -- we couldn't possibly rival that," he says.
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