This article presents reasons behind growth of Princeton Power. Princeton Power derives from a patent for a proprietary technology and a class that inspired students to form their own companies. Its development so far reflects a growing interest in finding better ways to harness alternative energy sources, but at its core, the company represents the desire of four young men to try something new. Originally, Princeton Power planned to build large inverters for the power grid, but the company discovered a fast-growing market for smaller inverters that can convert the output of solar cells and wind generators into usable capacity. Princeton Power focuses on the nuts and bolts of its systems. It is exactly the type of work engineers are trained to do-focus on real problems and solve them. The company has also teamed with Gaia Power Technologies Inc. of New York, to develop controllers for battery backup systems that must interface with the electrical grid. Not only will the systems provide backup power in the event of an outage, but customers can use them to capture electricity at night, when rates are cheaper, and then use the electricity during peak hours when rates are high.
The day after bit hung over, four freshly minted engineers from Princeton University received a term sheet from Greg Olsen, a local businessman.
Term sheets are formal agreements that define the details of an investment in a company. They typically run page after page of dense legalese. According to Mark Holveck, who had graduated as a mechanical engineer the day before, the offer they received in June 2001 was a lot shorter.
"It was a yellow Post-it Note," he said.
Small paper, big bucks. On it, Olsen offered the four graduates just over half a million dollars to fund their new startup
Earlier that year, the students had won a business plan contest sponsored by Princeton's Entrepreneurship Club. The plan described how they would commercialize a newly patented technology for conditioning electrical power to smooth voltage spikes and valleys.
"We all had job offers, but we had put them on hold," recalled Darren Hammell, who had received his degree in electrical engineering. "We figured we would work on the business during the summer and see how it worked out. We could always accept those job offers at the end of the summer if it didn't look good. But after Greg's commitment, we realized we could not do this halfheartedly."
Instead, the four partners—Holveck, Hammell, Erik Limpaecher, and John Lerch—turned down offers from companies like Microsoft, Ford, and McKinsey. The day before graduation, they had opened a business account at a local bank. The day after, they walked the check over to deposit it. "It was the most money we had ever seen," Holveck said.
They rented a fourth-floor room from the university. It became their home and the offices of Princeton Power Systems Inc. for the next three months.
Today, CEO Hammell expects Princeton Power's revenues to range from $2 million to $5 million a year. Olsen, still the company's primary investor, says that sales could eventually grow into the tens of millions of dollars.
How the Company Evolved
The business itself has evolved. Originally, the graduates had planned to sell power conditioning equipment to utilities. Today, only a small percentage of the company's technology is based on its original patents. Its target customers are wind and solar power developers.
Prince ton Power derives from a patent for a proprietary technology and a class that inspired students to form their own companies. Its development so far reflects a growing interest in finding better ways to harness alternative energy sources, but at its core, the company represents the desire of four young men to try something new. It started with a friendship.
Darren Hammell and Mark Holveck look like unlikely buddies. Hammell is tall, trim, and articulate. He smiles easily and moves with pent-up energy. In another decade or two, he will resemble the burnished CEOs portrayed in Hollywood movies. Holveck, the company's chief technology officer, looks like someone who spends a lot of time in fluorescent-lit rooms and sounds laconic until he starts recalling a story or describing a problem.
Hammell's father was a human factors engineer who designed submarine cockpits that kept sailors stimulated even after 16 hours on post. Although Hammell excelled in English in high school, he elected to study computer science engineering at Princeton. "My father always said that you can do anything if you have an engineering background," Hammell said.
Holveck claims he was born a mechanical engineer. "I was always playing with mechanical toys, like Legos and Erector sets," he said. "Stuff would break around the house, I would take it apart, and it would work when I put it back together."
Holveck said he chose Princeton because of its breadth. "Princeton has a good engineering program, but it's not very big so there is a lot of one-on-one attention from professors," he explained.
"At the same time, the school is fantastic at· everything else. I saw people from more narrowly focused engineering programs and they became pigeonholed. I didn't want to be the guy in cubicle 26 calculating thermal engine blocks; I just wanted to learn and become great."
Hammell and Holveck met during their freshman year. What drew them to one another? "Mark fascinated me," said Hammell. "He was the smartest person I ever met."
In the second semester of their junior year, Hammell took a course called High-Tech Entrepreneurship. "At the time, I figured I would wind up at Microsoft, Intel, or one of the other usual suspects," he recalled. "It's hard to explain why I took the course. Part of it was that subconsciously, I already knew I wanted to start my own company. My dad had started his own consulting group, and doing things differently always appealed to me."
The professor, Edward Van Wyck Zschau, was an early Silicon Valley pioneer. He had started a hard drive business in 1968 and later managed IBM's storage systems division for two years. He had also been a Congressman, had run for U.S. Senate in 1986, and had taught graduate business school at Harvard and Stanford Universities.
The course teaches students to assess technologies for commercial feasibility. It then covers how to convert those possibilities into commercial products, from forming companies, putting together business plans, and finding financial backers to identifying a first product and potential customers.
To make it as realistic as possible, Zschau relies on Harvard Business School case studies of real business situations. The class also has two major projects, a midterm paper in which students assess technologies developed at Princeton, and a final project where students describe how local startups built their businesses and overcame mistakes. About 40 percent of Zschau's students are engineers.
"Ed's class was very inspirational," Hammell recalled. "Hearing Ed talk about it made starting your own business seem more real and possible."
Zschau also helped to jump start Princeton's Entrepreneurship Club, which sponsored an annual business plan contest. Hammell and Holveck, who had collaborated on several projects, decided to enter. Their technology: a wireless ring that could replace laptop interfaces that were not as good as a mouse.
"We spent all our nights brainstorming to make it just as easy to use as a mouse," Hammell recalled. "You could touch it with a thumb, and that would act like a click." The first prototype used mouse internal parts with fishing line running through pulleys. The students quantified how long volunteers needed to learn how to use it, and compared the time needed to complete tasks with a mouse.
They even developed a business plan that showed how they would commercialize the ring. Yet over the summer, the idea ran out of steam. When they came back to school, they were immersed in senior year classes and projects.
They also began hearing about an even more interesting technology from an electrical engineering student, Erik Limpaecher, who lived across the hall.
Limpaecher took Zschau's class, too. He and lab partner John Lerch were working on a circuit invented by Limpaecher's father, Rudy, who had worked in the pulsed power field for decades. Limpaecher and his father thought it had commercial potential.
The circuit improved power quality. It worked by storing excess power in an inductor-capacitor circuit when electrical currents peaked, then reinjecting the power back into the circuit when currents cratered. It did this thousands of times each second, smoothing out current fluctuations that could wreak havoc with industrial and consumer electronics.
The concept sounds simple, but it takes complex software and high-speed switching mechanisms to achieve the millisecond timing needed to reduce rather than add to fluctuations. Not only was the switch smaller, cheaper, and more efficient than those used by utilities, but it produced highquality power without expensive filtering.
Hammell and Holveck liked the technology enough to team with Limpaecher and Lerch for the 2001 business plan contest. The plan won.
"The thing that was important about the business plan was that there was real substance in the technology," Zschau said. "It was a patented unique approach to a particular application of power electronics. It was not like, 'We're going to make a Web site where there's really no proprietary technology.' This was a platform technology with a variety of applications."
Zschau liked the business plan so much, he showed it to another entrepreneur, Greg Olsen. A former research scientist at ReA Labs (now Sarnoff Center), Olsen sold his second startup, Sensors Unlimited, at the peak of the fiber optic boom in 2000 for $600 million.
He repurchased it one year later for $6 million, then resold it to Goodrich Corp. in 2005 for $60 million. That year, he spent about $20 million to get 10 days running experiments aboard the Soyuz TMA-6 space station.
Zschau and Olsen had only a nodding acquaintance. Zschau, who was relatively new to the Prince ton area, did not know many people interested in investing in young companies. While getting coffee at Starbucks, he saw Olsen and approached him with the students' business plan.
"Ed Zschau is no slouch," Olsen said. "He's seen many, many business plans, and he said the guys in his class had a fabulous business plan. As soon as I saw it, I liked it."
Olsen also liked the students. "I invest in people, not technology," he said. "There is so much technology around, another guy can always do it another way. Success is easy, but the challenge is when things go wrong, and the only certain thing in a new business is that things go wrong. They seemed like they wanted to do it."
Olsen also liked that the technology involved the energy field. Flush from the resale of his business, Olsen offered to fund the company with just over half a million dollars.
Of course, some things did go wrong. Pro to typing the circuit took far more work than anyone had expected. The hardware needed an enormous amount of software. The initial business plan identified the wrong markets.
"It was not understood how much work there was to be done," Zschau said. "It is a real tribute to the team that they have taken the basic idea and extended it to new applications and technologies."
Princeton Power's four founders rented a dorm room for the summer while Zschau readied some industrial space he had rented. The dorm was a creative hothouse, and only partly because it lacked air conditioning. The graduates ripped into the company's two key issues: building a prototype and finding potential customers.
They started by reading scores of papers to learn where power converters were needed. Originally, they followed the lead of Limpaecher's father, who thought utilities would use the system. Then they stumbled onto two emerging markets, wind and solar energy.
Both relied on weather to produce power, and weather is nothing if not variable. A passing cloud will drop the output of a solar panel, while a gust will cause a wind turbine's output to peak. The team realized their inductor-capacitor circuitry could drive wind and solar-powered pumps, motors, and other equipment when they received less than optimal power. "Even if the sun is not shining brightly, you can still run your pump at one-third power," Hammell said.
He sees other applications that can benefit from power conditioners by operating at reduced power when they had lower loads. Factories, for example, could use the systems to lower electricity bills.
"One of the great things Ed [Zschau] taught us was that it is not so much about the technology as it is about the applications: where you use it, the products you develop, and methods of gathering the right resources and people to bring things to market," Hammell said. By the winter of 2002, their focus was on renewable energy.
According to Hammell, "When it came time to build the prototype, we discovered what we didn't learn in school, like where to buy big capacitors or how to mount them."
They also found that there was a big gap between the circuitry as it appeared on the schematics and what they were building.
"When we were working on the business plan, none of us really cared about its technical aspects. We worked only on the market research, and we all just assumed we could figure it out later. I assumed it was not going to be easy, but I also assumed it was further along than it was," Holveck explained.
The circuit itself was very simple and elegant. The problem was that it needed very elegant controls to turn its switches and components on and off at the right time. "It needed a big brain to do all these advanced things with so little to work with," Holveck continued. "We were learning as we went."
There was no one big stumbling block, but rather a pile of them. Conventional capacitors that looked good on paper overheated when they dealt with the high powers Holveck envisioned. The inductors had unusual requirements and the team could not find a commercial supplier capable of meeting them.
Slowly, the fledgling entrepreneurs made progress. They were also buoyed by a two-year, $860,000 grant from the U.S. Department of Energy's National Renewable Energy Laboratory to develop a power converter for small (l00-kilowatt and less) wind turbines.
The faster a wind turbine spins, the more voltage it generates. The rate of spin also determines the frequency of the electrical output. Princeton Power's technology drew small packets of power from the turbine, stored it in the internal inductor-capacitor circuit, and then output those packets as 50-60 hertz alternating current.
"The converter controlled the speed and power output of a permanent magnet generator in the turbine, and interfaced with the utility grid to export clean power according to strict utility specifications," Hammell said. "We designed the converter from scratch, and built and tested two prototypes, one of which is still at Sandia National Laboratories for testing."
The company also hired its first employees. First came an administrative assistant who is still with the firm. They also took two summer interns from Princeton's engineering school. "They were a good value," said Holveck. "They were smart, worked hard, and couldn't really demand much money." One made an especially important contribution, developing a model that simulated circuit behavior so that the firm could develop its advanced control circuitry.
Learning on the Job
The company also made its first technical hire, a communications engineer a few years older than the firm's founders. "We found him through a friend of a friend after interviewing about 20 people," Hammell recalled. "We could tell he was going to be willing to work a lot and didn't need the amenities of big companies."
What amenities? "Big salaries, a predictable schedule, kitchen, job security," Hammell said.
Lerch eventually left Prince ton Power to form his own company. The other founders, Hammell, Holveck, and Lirnpaecher, had to study to become managers. Hammell read several textbooks on accounting and bought QuickBooks accounting software for small business. The company tried working with consultants to develop a marketing plan, but found that changes in technology, customers, and opportunities came too fast for outsiders to help much.
Most important, they say they learned to delegate. "We have only 10 people, but it's still a struggle to get it right in terms of managing other people working for us instead of doing everything ourselves," Hammell said.
Holveck agreed. "When the group was really small, it was easy for me to be involved in all the technical things going on," he said. "As we added more people, I had to learn to trust the team to get the job done. It was hard knowing which things to let go of, and which to try to hold on to.
"But we've gotten better. The key is hiring good people we can trust and making sure they keep the big picture in mind so they make the right decisions."
The team formalized how they approach new tasks. "We now have a detailed kickoff process, where we set timelines, specific goals, contacts if we need to ask questions, resources, and budgets. And we. hold people responsible for meeting budgets," Hammell said.
Ready to Break Out
They also take suggestions from their board of directors, which includes Zschau, Olsen, Rudy Limpaecher, and Joseph Stack, another local investor. "They are great students," said Zschau. "They want to learn. They're anxious to get guidance and advice. But on the other hand, they are responsible for creating the results. We want to provide advice, guidance, and learning, but they have to make it happen."
This year, Olsen said, the company seems poised to break out. The technology has come a long way over the past six years. The company's original circuitry now accounts for only a fraction of its intellectual property. It has earned the rest by pursuing government and then commercial contracts, taking on technical tasks that had no obvious solution.
The emphasis on government contracts was no accident. They were how Olsen initially funded his two startups. Today, Princeton Power designs power electronics for military applications as diverse as electric propulsion drives, submarines, non-lethal directed energy beams, and satellites.
They used those contracts to develop technologies they could transfer into the commercial marketplace. They include inverters for large, commercial-scale 100 kilowatt to 5 megawatt solar arrays.
The company has also teamed with another of Olsen's investments, Gaia Power Technologies Inc. of New York, to develop controllers for battery backup systems that must interface with the electrical grid. Not only will the systems provide backup power in the event of an outage, but customers can use them to capture electricity at night, when rates are cheaper, and then use the electricity during peak hours when rates are high.
In September, the partners will install a 300 kilowatt-hour system at a utility substation. The utility currently runs small, inefficient power plants when it needs peak power, as on hot summer days. It is hoping that storing energy generated when demand is lower at night will allow it to reduce the amount of time it runs its peaking plant.
Princeton Power, now six years old, focuses on the nuts and bolts of its systems. It is exactly the type of work engineers are trained to do-focus on real problems and solve them.
Olsen invested in Princeton Power because he saw something in its founders, and also because he thought energy was the right place to be. With rising oil prices and concerns over energy security, that is even truer today. The papers are filled with venture capitalists announcing energy deals.
Hammell admits that being green turned on all the founders at Princeton Power, but the company started as a business. "As we started looking at potential markets, we were excited by the combination of technology and the places where a company can make a difference," he said. "I guess you could say we're green by default."