Tech Boutique Faces the Prototypical Dilemma
Small, inventive technology companies are so much the heroes of Southern California industry that we sometimes forget that a time comes when a business has to grow. If it doesn’t get bigger and richer, it gets left behind, no matter how inventive it is.
Childhood’s end is a challenge that Aerovironment Inc., a Monrovia-based research company, is facing right now. It is involved in many aspects of experimental electric power, from cars and bicycles to small generators to solar-powered unmanned aircraft.
Indeed, Aerovironment--now at $30 million in revenue with 240 employees--helped develop key components of all those new products, which are about to have much wider use.
But if Aerovironment wants to reap the benefit of their emergence, it has to be capable of handling large orders. It has to go from research boutique to producer of electronic innovations.
And that’s going to take money. So Aerovironment President and Chief Executive Timothy Conver, 54, is contemplating “recapitalization” through a public stock offering or some other means.
No spring chicken at 27 years of age, Aerovironment spans the years from Southern California’s early concepts of nonpolluting vehicles and electric power to the present, when those concepts are reaching fulfillment. Its story holds lessons for all small companies as well as insights into new industries that are locally based and about to take off.
Under the guidance of Paul MacCready, a Caltech physicist who founded the company in 1971 and remains its chairman, Aerovironment developed solar-powered automobiles and other environmentally friendly energy devices. It has been financed mainly by grants from NASA, the Defense Department and private industry.
In 1987, after an Aerovironment solar-powered car won a race across the Australian outback, General Motors bought a 15% stake in the company, which then helped develop GM’s Impact electric car.
The company became known for sophisticated electronic controls and motors that turn sunlight and wind power into electricity. Three years ago it brought out electric bicycles, which it markets to police departments through a venture with GT Bicycles of Santa Ana.
But environmental research funding declined in the early ‘90s and Aerovironment decided that it had to change course, to make and sell more products rather than rely on grants. Conver, an MBA from UCLA who had run a division of Whittaker Corp., was named chief executive.
The company pushed development of a charger pump for electric automobiles that can recharge a car in nine minutes, a truck in 15. It developed controls for small turbines and a computer-controlled tester for vehicle battery packs and fuel cells.
And business began to take off. In the last three years, Aerovironment’s employee rolls have expanded from 150 to 240 and its revenue has doubled from roughly $15 million to $30 million.
Electric markets are opening up. Spurred by state mandates on emissions, electric cars are moving from concept to reality, with big money behind them. Fuel cell maker Ballard Power Systems is now backed by Ford Motor, Daimler-Benz and Mobil.
Big companies see opportunity in distributed energy. AlliedSignal last year formed a power systems division in Torrance to produce a 75-kilowatt turbine generator so that restaurants, stores and other facilities can produce their own electricity.
Ford formed a new division called Visteon to supply power controls for the AlliedSignal turbine, in a venture outside automobiles that Ford sees producing $400 million in revenue in the next four years.
So Aerovironment, with its expertise in electric controls and devices, would appear to be sitting pretty. But it isn’t. With most of its revenue still coming from research contracts, the company lacks the capital and size to take on major orders. It pursued the AlliedSignal contract but couldn’t measure up.
Even in electric bicycles, where Aerovironment has a pioneering product, competition looms from Honda and Yamaha.
Aerovironment needs to expand its production and distribution capabilities. That’s why Conver spends his time these days contemplating how best to raise $50 million to $100 million of capital.
The challenge is not merely to raise the money but to take a small and informal company into the big leagues without losing its innovative drive. Aerovironment has such products as a solar-powered, model-sized unmanned airplane--developed at its Simi Valley facility--that can soar to 65,000 feet and study the Earth through solar sensors.
The “creativity caldron” of Southern California formed the company, Conver says. “We couldn’t have done this anywhere else.”
And, of course, the smog spurred Aerovironment’s research efforts, he adds, just as the smog and state mandates to reduce it have spurred what is shaping up as an important emerging industry.
What’s ahead for Aerovironment? Conver is confident. “In the next 10 years we hope to grow to six to 10 times our present size,” he says.
A public offering is the likely course for raising capital, and that could have the side effect of creating stock options to attract talented people who will make further innovations. Childhood’s end normally marks a new beginning.
