Customers Can Also Fund You

Customers financed development of new technology in exchange for short-term exclusive use of the product.

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It's easy to complain about myopic money people who can't see value in your business. But there are better ways to spend your time, as Yehoram Uziel can prove.

The cofounder and CEO of Soligen, an 18-month-old foundry-equipment business in Northridge, Calif., opted for an intriguing approach to seed financing. After nearly three months of discussions with venture capitalists, Uziel decided to turn instead to three potential customers and tap them for what he calls "membership fees to share in our technology."

In October 1991, when Uziel got the technology license from Massachusetts Institute of Technology to build machines that can quickly turn computer designs into ceramic molds for metal casting, he believed venture-capital firms would come running. They did. But after some initial flirting, the fi-nanciers got cold feet; those offering funding wanted up to 80% of the equity. Searching for a more reasonable way to bankroll development costs, Uziel invited three large sponsors of MIT research (United Technologies' Pratt & Whitney division, Johnson & Johnson, and Sandia National Laboratories) to become "alpha partners."

The three get basic versions of Soligen's machine and technical support on an exclusive basis for 6 to 12 months. In exchange, they supply up-front cash ($100,000-plus each) and regular input into the commercial product's design specifications.

When the commercial product is ready to sell, the original partners will have no ongoing rights to the technology, says Uziel. "But spiritually, we're going to remember them as the people who took a risk when nobody else would."

-- Bruce G. Posner

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