IsoPix:  A High-Tech Spinout of Science Applications International Corporation (SAIC)

Victor George, Ph.D., Corporate Vice President at Science Applications International (SAIC) in charge of new business development, sat back in his chair as he considered his current predicament – the PrintableDisplaytm was a technology of significant commercial value, yet within the confines SAIC, its value might not ever be realized.  As a pure start-up, such a disruptive, proprietary technology would be an entrepreneur’s dream, but taking the technology and turning it into a fundable and operational business as a spinout of a legacy organization would be much more complicated. 

Dr. George’s challenge: to successfully lead the spinout of IsoPix as independent company from SAIC. More importantly, to build the appropriate business planning, strategies and infrastructure in such that the new company was both VC fundable and poised for profitable, sustainable operations.  As Dr. George reflected on his career at SAIC he was certain that he commanded the domain expertise and business acumen to successfully leverage the PrintableDisplaytm technology and build IsoPix into a leading company; but what specifically would transpire over the next few months and who, beyond his internal SAIC team would be instrumental in the spinout of IsoPix were uncertain to him – Dr. George realized that spinning out an independent company from SAIC would be different from starting a technology company from scratch; but he was determined to build IsoPix right from the beginning, as a solid new venture, regardless of its origins.

Science Applications International Corporation (SAIC)

Founded by Dr. J.R. Beyster and a small group of scientists in 1969, SAIC, a Fortune 500 company, now ranks as the largest employee-owned research and engineering firm in the nation. SAIC and its subsidiaries have more than 41,000 employees with offices in over 150 cities worldwide.  Returns to shareholders of SAIC have been impressive and to protect those returns, investments in the commercialization of technologies have become increasingly conservative over time.

Since its inception, SAIC has become a key source for leading-edge technologies.  The company has a stellar track record for helping its customers respond faster to opportunities, achieving more from operations, exceeding their mission requirements, and meeting the competition head-on. See SAIC industry rankings.

According to Steve Cosentino, SAIC’s Vice President and Corporate Controller, “Our information systems and technology solutions are helping speed and improve service delivery and giving decision makers better information to make decisions. Our next generation networks are helping clients create new markets in converged voice, video, and data services. Our e-business solutions are creating unprecedented collaboration and efficiency throughout complex value chains. Our wireless solutions are opening up new communications with remote areas faster and better than ever before!” SAIC is also a portal to advanced technologies. The company provides access to the latest technologies developed by a host of organizations worldwide, including its own world-class research organizations. SAIC brings more than three decades of experience making new technologies succeed in real-world, real-time business.

SAIC’s solid corporate identity, mission, structure and governance are the backbone of its successful operations.

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 IsoPix Corporation (IsoPix) 

IsoPix Corporation (IsoPix) is planned to be a provider of affordable large screen plasma displays to the consumer market using its proprietary Printed Plasma Display technology to print flexible, size-adaptable displays with existing roll-to-roll manufacturing infrastructure.  The newly formed IsoPix is a spin-off company from Science Applications International Corporation (SAIC), a Fortune 500 company and the largest employee-owned research and engineering company in the nation, with over 25 years of plasma display systems expertise (www.saic.com).  IsoPix’s technology development plan is based upon the insertion of SAIC plasma display technology, (PrintablePDisplay^tm), and proprietary manufacturing techniques into IsoPix’s future commercial Printed Plasma Display. 

SAIC with over 25 years experience in plasma display development has invested approximately $2M in IsoPix over the previous 18 months and has devoted substantial time and materials to the company’s technology development as an internal project.  IsoPix is in the process of spinning off as a Delaware ‘C’ Corporation and plans to raise a Series A Round of $15M by the 3rd Quarter of 2002. 

Dr. E. Victor George, Founder, President & CEO

Dr. George was recently a Corporate Vice President at Science Applications International (SAIC) in charge of new business development.  He was responsible for the genesis of SAIC’s printed plasma display business opportunity, its staffing, technical direction, and program management.  Prior to joining SAIC, Dr. George was the Principal Deputy Director of the Laser Program at the Lawrence Livermore National Laboratory (LLNL). At LLNL he had primary responsibility for creating and managing major Government and Industrial joint programs in lasers and electro-optics.  Prior to LLNL Dr. George was a Professor at the Massachusetts Institute of Technology (MIT).  He and several of his graduate students specialized in the field of Gaseous Electronics, studying efficient plasma light sources for lasers and other luminous device applications.  Dr. George received his Ph.D. in Physics from MIT.  He has authored many technical articles and holds numerous patents in the fields of lasers, luminous devices, and pulsed power. 

Dr. George was hired by SAIC 3 years ago to develop new business opportunities related to his research and development efforts in the fields of lasers and luminous devices.  SAIC has over 25 years of experience in developing related technologies for military applications such as flat panel displays for weapons control. 

SAIC does not usually spin out its technologies as independent companies.  It usually chooses instead to take those technologies that it has developed for government applications and commercialize them for consumer application by licensing the technology.  This licensing strategy is something that SAIC understands and likes, largely because it is low risk and does not result in its technology leaders and entrepreneurs leaving the company to form new ventures.  

However, SAIC wanted to spin this technology out for a variety of reasons.  Dr. George recalled, 

“Bill Roper, SAIC’s CFO and Executive VP, recognized the potential for the IsoPix technology to be disruptive, address the needs of a huge consumer market and solve fundamental problems for manufacturers of flat panel displays for the consumer market—primarily lower cost and superior luminescence in a flexible format.  He believed that SAIC could leverage a small investment in the technology, spin it out as an independent company and reap huge financial rewards in very little time.” 

Additionally, Dr. George’s team realized that to succeed, IsoPix needed a strong manufacturing partner, which could not be achieved as easily while the technology was still under the control of SAIC as the parent company.  Dr. George comments, “This was a paradigm shift in SAIC strategy and philosophy.”  It was also a great career opportunity for Dr. George. 

The Genesis of IsoPix:  Technology to Strategic Navigation Out of SAIC 

The IsoPix project began within SAIC in January 2000 as an internally developed technology led by Dr. George and his co-founder, Dr. Roger Johnson.  They briefed their plan for technology development and commercialization to SAIC senior executives and obtained $2M in internal funds. 

In order to transition effectively from an internally funded technology research & development effort to a fully independent and operational company, IsoPix faced a multitude of challenges.  First, a solid strategic plan needed to be developed.  The IsoPix team was experienced at running large development and commercialization efforts, but none had ever started or run a stand-alone company.  Dr. George recalls, “SAIC has a number of solid entrepreneurs and a large number of experienced technologists, but, like most large companies, did not have many experienced CEO’s in waiting with experience founding venture-backed, stand alone companies.” 

Once this spin-off strategy was decided, the SAIC/IsoPix team knew it had to navigate an established, somewhat cumbersome and slow bureaucracy of SAIC.  Overall, top management at SAIC would be very reluctant to allow this spin off to occur.  Senior executives at SAIC had seen Network Solutions be sold some months earlier, resulting in a huge windfall for those SAIC employees who chose to leave the company.  Success stories like these, while creating incredible value for shareholders, also worked as a catalyst to encourage the departure of key employees.  Long-term employee retention is a significant issue for SAIC as many of its scientists have been employees for decades and are leaders in their respective fields.  Furthermore, they wanted to be sure that IsoPix would succeed and make money for the parent (initial plans were for SAIC to own approximately 40% of the company after Series A financing by a Venture Capital firm).  

Trial by Error 

Soon after the January 2000 decision to spinout IsoPix, the SAIC team hired a New York based consulting group well versed at catalyzing corporate initiatives of Investment bank magnitude, however, the 6-month engagement did not have a precise end point.  It was not clear how the 100 pages of documentation, nor the near half million invested would result in a fundable, operational spin out company.   Both SAIC and the New York-based consulting group operated with the highest level of professionalism, however, the engagement lacked the element of pure entrepreneurialism which would be necessary to successfully take the PrintableDisplay^tm from a simple technology into a venture-backed, stand-alone business.   

Turning Point

Dr. George soon realized that to successfully build a new company, he would have to quickly bring in experienced entrepreneurs.  In order to do this he sought out local experts in the high tech community.  First he sought the counsel of a prominent San Diego attorney, Fred Muto, at the law firm of Cooley Godward, who specialized in forming and growing high tech start-ups.  Muto, knowing the IsoPix team needed both entrepreneurial assistance and help in developing a coherent strategy for the spin off and venture financing of a stand alone company, introduced Dr. George to a boutique consulting company that focused on emerging companies.  The entrepreneurs at SEED Enterprise™ had just the experience starting, running and raising venture capital for companies that Dr. George needed. 

This team of consultants experiences in forming new high tech startups were brought in by SAIC executives to manage this process even though the parent corporation has an internal commercialization division with a multimillion dollar budget.  The spin off is currently in search of institutional venture capital in order to solidify its independence.

SEED Enterprise LLC™

SEED Enterprise LLC™ is a network of experienced entrepreneurs that take interim management roles working "hands-on" along side founders of emerging technology companies to help them manage strategic change and grow their ideas into stand alone, venture financeable companies.  The primary entrepreneurs with whom Dr. George would bring onto the IsoPix team are:

Mr. Tony Medrano.  As President/co-founder of a Silicon Valley-based software company, Mr. Medrano grew his company to over 120 people while managing company Operations and Business Development. He has raised over $25M from over a dozen VC’s such as Softbank, Merrill Lynch & Chase H&Q.  He has a B.A. from Harvard, M.A. from Columbia, and studied for his MBA and JD at Stanford.   

Ms. Lina Ramos-Holm. Seasoned Executive and Entrepreneur, with over 12 years experience having funded, launched and operated 3 start-up divisions for Fortune 500 companies including: Booz Allen Sales Estimating System, Procter & Gamble, and Monsanto; and co-founded 2 technology companies.  She has a B.S. from the Haas School of Business at UC Berkeley and an MBA from Stanford.

The SEED Model allows for experienced entrepreneurs to specialize in what they do best – take disruptive technologies and turn them into venture financed businesses with lucrative exits for its shareholders.  “We join the team and link our success to the success of the company like any other member of a start-ups executive team”, explains Ramos-Holm, “That’s why our ventures consistently get traction with customers and capital providers – we don’t just strategize and advise, we take responsibility for making it happen.”

Reflecting on his own software start-up, Medrano admits, “Then you’re an entrepreneur, it’s about more than just money – building businesses from scratch is a passion.  At SEED, we’re career entrepreneurs and bring that expertise to otherwise incomplete management teams who have developed promising technologies but need additional operational expertise in that unique ‘no-man’ land’ between concept and operational business with customers and capital.”

One of the primary reasons SEED was brought in to catalyze the strategy, planning and infrastructure behind the IsoPix spinout was because SAIC did not have a standard operating procedure for internal start-ups or spin offs.  Dr. George states,

“There are some inherently limiting factors in spinning out a company from a legacy organization. We had to navigate through internal corporate politics, contradicting economic incentives, and management retention issues,” Dr. George recalls, “But within SAIC, there wasn’t enough spinout activity to have sufficient internal expertise or efficient processes, so we hired a team that could quickly grasp the essence of our technology and guide us through the process and develop that template for us.  It stepped on a few toes internally, but myself and upper management felt it necessary.  We had already wasted 6 months and a few hundred thousand dollars trying to do what the entrepreneurs at SEED helped us do in a few weeks at 10% of the cost.

SAIC’s corporate strategy was not designed to spin out companies and its policies reflected it.  All decisions of substantial magnitude were made by the CEO & Founder, Dr. Beyster.  As a result, early limitations were placed on IsoPix and Dr. George.  He could utilize no more than 6 SAIC employees on his team and no more than that were allowed to spin off with IsoPix, should it ever occur.

The Entrepreneurs Approach

The first strategy session between the SAIC IsoPix team and the entrepreneurs from SEED set the tone for a small, effective and high-performing team. Ramos-Holm and Medrano put as much importance on the vision and philosophical aspect of the founders’ goals for the business as they did on understanding the proprietary technology and the financial needs to meet value-creating milestones.   From the beginning, the Entrepreneurs at SEED focused on optimizing the founders goals while ensuring that the strategy, planning and infrastructure for the newly formed IsoPix company not only met the standards of A-tier venture capitalists, but would also be operational once funding was secured.  The following diagram highlights the various steps SEED helped define in building a start-up from scratch and compares that to the sub-optimal approaches of using internal processes for a parent company led spinout.

Following a meticulous ’pure start-up“ approach, the strategies and business plan created by the IsoPix and SEED teams did not call for any ongoing support from SAIC after IsoPix was spun off.  It allowed for appropriate, non-SAIC manufacturing strategic alliances, given that IsoPix“s manufacturing needs were not in SAIC core area of competence.  Furthermore, the IsoPix team agreed that complete independence was required in order to attract both the management and the venture capital necessary to make the company a success in engaging the large strategic partners necessary to commercialize the unique flat panel display technology which Dr. George had developed.

“The team members and their commitment to the venture’s success is critical” Lina Ramos-Holm from SEED recalls, “Dr. George is thoroughly committed to the financial success of IsoPix, even if that meant ceding control to a CEO or selling the company in order to return a profit to investors.  He recognized what was necessary in order to effectuate the change he envisioned and had no problem having the SEED Entrepreneurs join the IsoPix team to create and execute on an effective plan for spinning out the new company.”

Dr. George believes that his teams should be run like a family and firmly believes that it is the team that makes a company or efforts either success or fail.  He views his primary role as one of motivator and coach and has a demeanor to match.  His core values are trust, hard work and a belief in the importance of individualism and creativity.  He fosters this through effective communication and believes that many of the difficult situations that the IsoPix team has encountered were successfully worked through due to proficient communication. He also sees IsoPix as the opportunity to utilize both his technical leadership in this field and his management experience to make a successful company that can not only bring a fabulous technology to the market, but achieve personal satisfaction through the creation of a financially successful independent company.

The most likely ‘silent killers’ of this opportunity were believed to be the bureaucratic and legalistic processes of SAIC.  Dr. George and his team felt strongly that IsoPix must either quickly spin out of SAIC or perish.  He needed strategic direction and a comprehensive business plan quickly in order to get the traction he needed with the investor community.  Without this traction SAIC would soon cut funding for IsoPix.  These processes and dynamics are what led him to force SAIC to use outside consultants to lead this change effort instead of continuing to work with the internal division of SAIC responsible for commercialization of new technologies. 

Dr. George sees all of the challenges related to the transition from the large secure environment of SAIC to a volatile and independent start-up as positive.  He believes that the efficiencies gained from the removal of the bureaucracy and the safety-net are vital for the innovation and energy of IsoPix and its team.

In order to become more market oriented, he has found a strong president with business development skills in the flat panel display field.  He believes that the initial spin-out team will not be resistant to the change and the challenges ahead for IsoPix.  “The technology guys will stay in technology and we all know more management needs to be brought in on the business side.”  However, the team is very sensitive to their job and salary security.  Most, including Dr. George say that they cannot handle a pay cut of any significance.  Their biggest concern is that IsoPix will be funded on a milestone basis and will be chronically short of cash.  The seniority that this team has achieved in large companies make them somewhat more risk averse than traditional technology entrepreneurs. 

"The Team at SEED was incredible. They worked with our technology leaders and executives to create a superb business plan and investor presentation. More importantly, they developed a successful strategy for a powerful stand-alone business that is fundable by the highest caliber VC’s and they even helped us execute", expressed Dr. George, “ spinout is very different from a standalone venture and the processes and criteria for new venture success is best understood by an experienced entrepreneurial team focused on the new venture and divorced of the legacy organization – That’s a key reason that  Lina Ramos-Holm and Tony Medrano, the SEED entrepreneurs, were instrumental in creating a solid business strategy for the IsoPix spinout.”  In the three months since the start of this change effort, IsoPix has gained significant traction with top notch investors like Kleiner Perkins and Sequoia and has continued to receive the internal support and funding Dr. George felt was previously at risk.  At present, SAIC is comfortable with the strategic change in its organization that IsoPix has helped bring.