A Collaborative & Inspired Approach

David Michael is a former Senior Partner, OA of Greater China, and current Senior Adviser at BCG. In 2015, David joined fellow BCGers to form Anzu Partners, a venture capital and private equity firm that invests in private industrial technology companies. Among these is a Boston-based company, Axsun Technologies, which designs and builds the microelectromechanical (MEMS) optical systems used in medical and industrial applications. When Anzu acquired Axsun, the company was struggling to resolve the fate of its approximately 110 employees. But now, three years later, Axsun is healthy, profitable, and growing. In this interview, David describes how he and his partners teamed with Axsun’s management to turn the situation around.

What led to the formation of Anzu Partners and the acquisition of Azsun Technologies?

In 2015, after 23 years at BCG, including stints in San Francisco, Hong Kong, and Beijing, I was determined to transition from my role as a Senior Partner to Senior Advisor with the goal of investing in emerging companies and helping them succeed. At the same time, former BCG Principal Whitney Haring-Smith (San Francisco/Hong Kong/Seattle 2011-2015), with whom I had worked in San Francisco and China, was being recruited to establish an investment firm with his father-in-law, David Seldin—also a former BCG Manager (Chicago 1983–1987).

David, Whitney, and I collaborated on investment opportunities, including the founding of Nuburu, Inc., which has developed the world’s first high-powered blue wavelength laser for industrial applications. In the summer of 2015, we began looking at Axsun Technologies, a subsidiary of Phillips. Axsun was experiencing severe challenges and Phillips and its subsidiary Volcano had been trying to divest the business for some time.

We believed Axsun represented an exciting opportunity, so we got other former BCGers involved, including my good friend and former Senior Partner Ron Nicol, to join our investor group and Axsun’s board.

Tell us about Axsun. What was working? What wasn't?

Axsun Technologies is a Boston-area manufacturing company specializing in MEMS-based optical systems. Established during the telecom boom of the 1990s, the company originally created photonic sensors for use in fiber-optic communications. Despite initial success in this space, Axsun suffered when the telecom bubble burst, and pivoted to providing technology for medical imaging systems. Indeed, they pioneered the medical imaging modality known as Optical Coherence Tomography (OCT). OCT imaging is commonplace in ophthalmology today, and many OCT systems use Axsun’s solutions inside.

The company had roughly 110 employees, well over 100 patents, and substantial high-tech manufacturing capabilities, but was deemed no longer strategic by its owners and had not been financially successful for many years. Efforts to divest Axsun had not resulted in a transaction despite initial interest from potential acquirers.

Which is where you come in.

Over months of very detailed diligence (using the toolkit of experiences learned at BCG), we developed convictions about Axsun’s management team, technologies, and turnaround plan.

Whitney spearheaded our investment group’s commercial, technical, and financial due diligence, conducting dozens of interviews and extremely granular intellectual property and patent analysis. David Seldin took the lead on structuring the transaction and negotiating with Philips, while I focused on organizing a set of value-add investors to join Anzu and help grow the business. That included bringing Ron Nicol into the equation as a co-investor and board member. Several other BCG-related folks joined the investor group.

How did Axsun turn things around?

We benefited enormously from developing a deep partnership with Axsun’s management team, which had a turnaround and growth plan for when the company became independent. We recruited the entire team to remain in place and established significant management equity participation. Anzu provided capital to create a strong balance sheet and brought on a world-class board, which includes four BCG alums, to guide the company and enhance its credibility as a dependable global OEM (original equipment manufacturer) supplier. Anzu curated an outstanding shareholder base that has been a great asset to the company.

In many ways, the months immediately after the acquisition were like the first months at a startup. As a subsidiary of a large business, Axsun lacked independent systems—in everything from enterprise resource planning to human resources to bank accounts. Anzu streamlined the decision-making process with no bureaucracy and 24/7 availability, reinforcing the management team’s turnaround strategy and execution—essentially serving as senior counselors to the executive team.

At the same time, key Anzu team members (also BCG-trained) led a new technology market assessment in collaboration with Axsun’s executive team. This effort identified a potential major new application for the Axsun technology in additive manufacturing. So by asking the fundamental BCG question “What else is this technology good for?” we identified several major new business opportunities.

Fast forward three years and Axsun is a rapidly growing, highly profitable, independent company serving as a trusted OEM supplier to global leaders in ophthalmology and cardiology, with an exciting portfolio of industrial metrology applications.

Axsun core revenues have been growing at a better than 20% annual rate, and we were able to make large profit-sharing payments to the entire employee base in 2016 and 2017.

Plenty of additional opportunities to leverage Axsun’s powerful technologies remain. The same optical sensor is used now in cardiology and dermatology. This means enormous growth prospects in foreign markets such as China. We already serve global med-tech leaders in Germany and Japan.

Do you plan to leverage the BCG alumni network for future endeavors? Why do you continue to work with BCG alumni?

Anzu Partners has evolved into a significant venture capital firm, with over 20 employees, more than four offices, and nearly $180 million in assets under management. After completing the acquisition of Axsun, we established a $128 million investment fund, Anzu Industrial Capital Partners, focused on breakthrough industrial technologies. To date, we have invested in 13 companies pursuing advances in manufacturing, materials, measurement and monitoring, and modeling.

In addition to the firm’s BCG-heavy leadership, we have a significant number of retired BCG partners who joined us as investors in the Anzu Fund and who advise us around the world on how to help these technology companies succeed. Several of them serve as directors at our portfolio companies.

When it comes to leveraging what we learned at BCG, I think the combination of project management skills and strong business analysis is critical; we are all BCG-trained micro-economists at heart. In addition to being able to move fast while remaining highly organized, our community can navigate large companies, which is extraordinarily helpful because we only invest in B2B enterprises. It also helps to know how to work globally when dealing with industrially focused portfolio companies, since key customers or suppliers almost always include European and Asian top-tier companies.

Navigating these complexities and various ecosystems is challenging, but BCG alumni always rise to the occasion.