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The Early Days of 3D Laser Scanning: Part 9

1999: Funding a 3D Laser Scanning Start-up’s Ambitious Plans

This series of articles (monthly, starting with the June 2020 issue) gives readers behind-the-scenes insights into a small but ambitious start-up, Cyra Technologies, that was an early pioneer of 3D laser scanning technology. As Cyra’s lead product marketing person, I had a front row seat.

Cyra was eventually acquired in 2001 by Leica Geosystems and became Leica’s 3D laser scanning products business, a huge milestone for the 3D scanning industry. However, Leica wasn’t the only potential partner interested in Cyra and, for tiny Cyra, securing a major partner was no small task. This article provides insights into Cyra’s industry shaping partner search.

In my previous article (February 2021) I described the practical ups and downs of the second year (1999) of Cyra’s efforts to commercialize its 3D scanning products. “Ups” included significant sales growth of Cyrax 2400 laser scanners and CGP software over disappointing inaugural prior year’s sales. The technology also gained some terrific additional exposure and recognition that year, including front cover feature articles and prestigious conference recognition. The “downs” included a significant new challenge: too many early users were not financially successful with their investment in the technology, a big “Uh-oh!.”

But hey, it’s a start-up, you need to be prepared to deal with some tough challenges.

Three Possible Paths to a Big 3D Laser Scanning Future

Start-ups rarely generate enough profit in their early days to thrive or, sometimes, even survive. So, even though sales were up in 1999 over 1998, financing the company’s ambitious growth plan was still a major concern. These were nervous times. CEO and co-founder Ben Kacyra had a grand vision for the technology and its global future; securing a financial path to that future was a critical task.

Cyra had three potential paths. One was to self-fund and boot-strap itself into being a large, successful business. Given the company’s finances, that path would have required significant, additional private investment.

A second possible path was via an Initial Public (stock) Offering – an IPO. To help decide if this was a viable option, Kacyra retained an investment banking firm, Thomas Weisel Partners. Their advice? In 1999, the “Dot com” investment revolution was underway – investment money was going to IPOs that were anything Internet and software. They advised that Cyra’s technology would be viewed as a hardware offering and that an IPO was simply not a good idea for Cyra.

The third possible path was for Cyra to partner with a major company already established in a related business. Such a partner could nurture the new technology/business, while leveraging its various global strengths to aid the fledgling business. Partnering requires having faith in that partner and ultimately turning a lot of control – perhaps all control – over to that partner.

Of the three paths, Kacyra had a preference to find a great partner if he could. His primary reason for going this route instead of bootstrapping was the imposing task of developing a global sales and support organization on his own; each major potential partner that Kacyra had in mind was already well established globally.

Two Types of Candidate Partners

Since 3D laser scanning products include both hardware and software, CEO Kacyra focused his partner search on leading survey instrument manufacturers and major AEC software companies. Survey instrument companies of greatest potential interest for Cyra were Trimble, Leica Geosystems, Topcon, and Sokkia. AEC software companies of interest included Autodesk, Intergraph, and Bentley.

There were concerns about both types of candidate partners. Would a software company be willing to take on hardware? Likewise, how supportive and capable would a survey instrument company be for further developing and actively selling Cyra’s software, a core part of a total 3D laser scanning solution?

Candidate Survey Instrument & AEC Software Partners

As part of Kacyra’s efforts to address these questions, he asked my opinions based on my prior time at Trimble. Obviously, I knew Trimble well (Trimble was still a GPS-only company) and was able to point to what I thought were their strengths and shortcomings for Cyra. Regarding other instrument vendors, I spoke about their well-known roots and characteristics.

For example, I told Kacyra that Leica Geosystems was an old-line Swiss company known for high quality. A plus for Leica, Topcon, and Sokkia was that they already had optics/EDM-based survey instruments and should be able to quickly understand 3D laser scanning technology and its market potential. In the big picture, overall, I thought that among the major survey instrument suppliers, Trimble might be the best fit for Cyra based on its entrepreneurial culture and resounding success with GPS.

My views of those companies were snapshots of what I knew at the time. It turned out that what I didn’t know about them was more important than what I did know. What I didn’t know at the time was that there were major, behind-the-scenes changes in the works at both Trimble and Leica – changes that would ultimately play a key role in determining Cyra’s future and the future of the 3D laser scanning industry.

Regarding potential major AEC software partners, I had little input. Two of Cyra’s beta users – Flour Daniel and Chevron – kept steering Kacyra to Intergraph as the then-leader in 3D plant design software. Autodesk and Bentley were obvious candidates based on their respective AEC CAD leadership positions.

Preparing for Potential Partner Talks

Before joining Cyra in 1998, I had never worked for a start-up … and Cyra was not just any start-up. Kacyra had big, ambitious plans; attracting a major strategic partner and/or potential major investors required appropriate preparation.

Cyra already had a good story to tell. The technology had been developed to address a known industry problem. Cyra had premium strategic beta user partners: Chevron, Fluor Daniel, Raytheon Engineers & Constructors, and the U.S. Navy. Cyra had a good patent position and was in production with its first-generation scanner and software and its second-generation scanner was in development. Sales were well underway and initial market interest in the technology was strong. To complete his story, Kacyra added three more pieces that were key for an ambitious start-up like Cyra.

One was securing respected names for Cyra’s board of directors and experienced, senior staff on his management team. A second was being able to effectively communicate Cyra’s “Big Picture” vision of a technology that was poised to profoundly impact a major industry – in Cyra’s case, the target industry was the construction industry. A third preparation piece was an attractive sales and profit forecast that could be backed up with sound market data. Each additional preparation piece was important.

Cyra’s Board of Directors and Management Team

Over time, Kacyra added two highly respected industry names to his board of directors. One was Allen Born, then CEO of Alumax (Alcoa); Born also personally invested in Cyra. A second big name was Eric Herr, then president of Autodesk.

Kacyra’s senior staff included myself (I’d been director of product management for Trimble’s GPS survey products) and Dr. Dennis Row as head of sales. Row had co-founded a 3D plant design software company, Rebis, which was acquired by Bentley. Mark Gullans was Cyra’s CFO – Mark had been controller for ASK Computer Systems, an early leader in enterprise resource planning (ERP) software. Mike Slafter came from a major Silicon Valley electronics manufacturer and ran Cyra’s manufacturing. Cyra’s brilliant CTO and Cyra-cofounder, Dr. Jerry Dimsdale, had run the Earthquake Engineering Lab at the University of California Berkeley. Cyra’s head of software, Dr. Chris Thewalt, was also from the prestigious University of California Berkeley. Kacyra had checked the “management team” box.

The “Big Picture Acronym” Pitch

A second part of Cyra’s preparations for high-level strategic partner discussions was effectively communicating “The Big Picture” pitch. Although Cyra’s 3D laser scanning technology was developed as a better way to provide accurate as-builts for industrial plant retrofit design, Kacyra had a much grander vision for it. He envisioned the technology being used throughout the lifecycle of an industrial plant – not just at the retrofit design stage, but also during construction and for operations and maintenance. In addition to industrial plant applications, Kacyra also saw great potential in civil infrastructure projects, commercial building projects, heritage projects, and others.

Over time, all of these applications and segments – and more –materialized. Kacyra was a genuine visionary.

To communicate and promote this grand vision, Kacyra got some help from the investment community. Two early investors in Cyra – Ed Greene and Mitchell Wiseman, both from investment firms – actively participated in and monitored Cyra’s ongoing business. Greene strongly believed in creating a compelling video and promoting a good acronym for the Big Picture idea to tell the story. “PLD” was the chosen acronym for Project Lifecycle Deployment and, within the PLD story, “CAC” represented Computer Aided Construction.

A professionally animated, three-minute video and a glossy marketing “PLD brochure” were produced. The PLD and CAC concepts also became mainstays in Cyra’s PowerPoint presentations to potential partners and investors.

Show Me the Numbers

A final key piece for potential major partner discussions was presenting a sound basis for estimating the size of the potential market for Cyra’s technology and for Cyra’s multi-year sales and profit projections. Generating projections was easy; generating credible ones that potential investors and/or major strategic partners could comfortably accept was not easy. After all, what was the actual market size for doing as-builts manually? How do you estimate that?

When I joined Cyra, the company’s approach for estimating the size of the potential market for 3D scanning was based on the plant industry’s own estimates of what retrofit construction problems were costing the industry. The Construction Industry Institute had conducted a couple of detailed studies of specific, large industrial plant retrofit projects.

Based on those studies, it was estimated that poor as-built documentation could result in cost overruns that were anywhere from one percent to five percent of the total project cost. Some in the industry were using a 10 percent to 15 percent number. Applying those percentages to the size of global retrofit construction market gets you a huge number.

That’s all well and good, but potential investors and strategic partners prefer more broadly based, hard market data that they can sink their teeth into and dissect – not just a couple of projects and not a one-to-15-times range for the market size.

That task of getting more credible market size and projected sales numbers fell to me. Just as surveyors often use two independent measurement tools on a job site for overall quality checks, I took the same approach for estimating the market size for 3D laser scanning systems.

One market sizing approach I took was simply based on the total number of survey crews worldwide (and/or the total number of survey instruments in use). If every survey crew had a scanner, just as each crew has a total station, how many scanners could the market possibly contain?

This approach translated into estimating what percent of crews would have a scanner, over a period of 10 years. Based on my career at Trimble and the market’s GPS adoption rate, I had a good feel for those numbers, all of which could be derived from publicly available information. So, that was one approach.

The second, independent approach, was to tie the market size for scanning to the annual number of construction projects underway. My reasoning was that scanning would primarily be used on construction projects for retrofit design and also be used during construction on both retrofit and greenfield projects.

The key to this market sizing approach was getting solid data for the annual number and types of construction projects. I poked around for such data and struck market research gold with McGraw Hill’s FW Dodge subsidiary. It actively tracks construction permitting and construction project announcements and had excellent data for the U.S. It had less detail – but still reasonably solid numbers – for the rest of the world.

FW Dodge data not only included the annual number of construction projects, but the data was also broken down by new construction versus retrofit/modification projects; by industry segment (industrial, civil, and buildings); and by project size, for example, the number of projects above $1 million, above $5 million, and so on.

In the end, I was able to provide reasonable market size estimates and sales projections based on (a) the number of survey crews/survey instruments in use and (b) detailed construction industry data.

The stage was set. The preparation pieces were in place. The next step was engaging with potential partners.

In the next article, I dive into Cyra’s interesting, actual engagement with a half dozen potential partners mentioned above.

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