During his senior year at Princeton University, Darren Hammell and several buddies worked on an idea for a company in their dorm rooms, and they tested the idea in Ed Zschau’s high tech entrepreneurship class. The day after their graduation serial entrepreneur Greg Olsen made an investment by writing a term sheet on a yellow post-it note at Starbucks on Nassau Street.

Nine years later Hammell has just turned 30, and the company, Princeton Power Systems, has raised more than $6 million. It is cash-flow positive, has 40 employees, and is hiring, aiming for 91 new jobs in two years. Having moved from 3,900 feet of incubation space on the Forrestal Campus, it now is ensconced in 6,000 square feet rented from Sarnoff.

Says Zschau: “After eight years of building a strong technical foundation, customer relationships, and a highly capable and dedicated team, Princeton Power Systems is now on a path to becoming a very significant company serving both the alternative energy market and the military power applications market.”

PPS has software-enabled heavy-duty systems for power generation and conversion. Its initial product was a refrigerator-sized voltage regulator to protect the power supply of high-tech manufacturing operations against uneven current.

Now it designs and manufactures hardware for solar arrays and wind turbines, and it has just released its grid-tied inverter, which converts solar or wind-generated power from DC to AC, for use on a utility’s electrical grid.

PPS systems can provide power for military and private clients in far-flung places, where it can cost $90 to bring in one gallon of gas to run generators. In West Windsor it wants to install a two-acre solar panel system on township property (U.S 1, November 18, 2009). And it just received $3.3 million from the Clean Energy Manufacturing Fund through the New Jersey Economic Development Authority, funded by the New Jersey Board of Public Utilities.

The 10-year, zero-interest loan will help pay for the company’s expansion, as well as for a 200-kilowatt demonstration array that could be ready as early as April.

With Princeton Power’s grid-tied inverter a utility can manipulate the power output like a dam operator regulates the flow of water. “When we install a full system — the solar array and the energy storage — the utility operator could request a certain amount of power. We are pushing power onto the utility lines in a very compatible and safe manner.

Having the ability to dispatch this system is very valuable,” says Hammell.

PPS designs and installs systems that use its hardware. A fourth of Princeton Power’s current business is selling hardware to other people, but ultimately it will be the customer for its own product.

Doing the basics has paid off. Hammell spent a lot of time writing grants and establishing a good track record with the Department of Energy, so when the wave of federal stimulus money came along, PPS was well positioned to get it.

“Looking back, it was a pretty gargantuan effort,” says Hammell of the 120-hour work weeks during the early years. “If we had known exactly how much it would take, I am not sure we would have been up for it. It’s easier when you are not jaded to take on monumental tasks and fight through them.”

Hammell is a native of East Lyme, Connecticut, where his mother taught school and his father has a human factors engineering consulting firm. After Hammell took Zschau’s class, along with Mark Holveck and Erik Limpaecher, Zschau became their mentor and early investor.

Zschau, a significant mentor for Princeton Power Systems, teaches a course in high tech entrepreneurship at Princeton University, and at least one-fourth of his students have started their own businesses. The son of an electrical engineer, he is a 1961 graduate of Princeton and has a Ph.D. from Stanford. He has represented California in the U.S. Congress, taught at Stanford and Harvard, founded several companies, and been an executive at IBM.

Zschau is chairman of the board and introduced them to their first investor, Olsen. Erik Limpaecher’s father, Rudy Limpaecher, provided the patent for the first product and is also on the board.

Choosing to do market research in their last semester rather than succumb to senioritis, they entered the university’s entrepreneurial contest and walked away with the top prize. In fact, they won over Tom Szaky, whose much-heralded Terracycle company leveraged worm poop for fertilizer.

Their elder advisors (Zschau, Olsen, Rudy Limpaecher) invited them to choose a president, saying, “You guys know better than we do who should do that.” Hammell got the top job. Erik Limpaecher is still with PPS as vice president of R&D. Holveck left PPS a couple of months ago to be director of electrical engineering at Pennington-based OceanPower Technologies.

Hammell’s parents were OK with the plan. “They thought I could get a job later,” he says. “This was the time to do it — I had no money in the bank, no kids, and no mortgage.” His future wife Mary, whom he met at Princeton, was headed for medical school in California. She is now a radiologist at the Hospital of the University of Pennsylvania. The couple lives in Philadelphia, but he keeps a room in Princeton.

The young entrepreneurs, five of them, shared a house on Wiggins Street. “We had such a low-key life style that we didn’t have to raise much money, even though the stuff we build is capital-intensive,” Hammell says. Initial funding, led by Olsen, lasted two years, and that included buying a lot of hardware.

The company moved into a building owned by the university on the Forrestal Campus. Zschau, foreseeing the need, had rented that lab space for his PPS proteges and other recently graduated entrepreneurs. “We were incubated by Princeton, but no one ever knew about it,” says Hammell. It was perfect for their purpose — a big open space with concrete floors and high ceilings that was well supplied with power.

Though the university’s sublease included services like voicemail, Internet access, and file backup, it didn’t make things easy. “We had to fight a couple of battles,” says Hammell. “We had to pay to have fiber laid. One hundred feet cost us $5,000 and Ed had to pull a lot of strings to get that to happen. I am hoping that it will be easier for new companies, especially out of Princeton, to use those services.”

A crucial advantage to their first 400-square-foot lab was its location. They were doing experiments with power, and the normal permitting process for such changes would take a couple of months. In this out-of-the-way location, as Hammell points out, “fire inspectors weren’t coming around often.”

Because these 21-year-olds were handling lots and lots of voltage, Zschau took precautions. “I didn’t want them electrocuting themselves,” he told a U.S. 1 interviewer then. Zschau brought a friend with experience in that area, Robert Stach, onto the board. Stach was CEO of RF Power in Voorhees. Chris Dries, formerly of Sensors Unlimited and now running New Brunswick-based United Silicon Carbide, has also joined the board.

Hammell says that with the company so far along in its development, it follows the normal permitting procedures. That’s one of the advantages of his new location at Sarnoff: “It was zoned as a lab space before we were here, and Sarnoff has fought those battles in the past.”

The current Princeton Power Systems building, located off the Harrison Street entrance, has been the traditional spot where Sarnoff spinoffs landed. Companies like Delsys and Princeton Video Image. “The location couldn’t be beat,” says Hammell. But because of rapid growth the space is already too small. Victor Murray of Cresa Partners found them the Sarnoff space and is now looking for satellite space.

The Sarnoff campus is where PPS will build the demonstration model of the 200 kilowatt solar array and a lithium ion energy storage system. “The latest and greatest technology would all be in one place for potential clients to do touch-and-feel,” says Hammell. Even big clients, like PSE&G, need to see it in action.

Just what could PPS sell to PSE&G? “Our system would make it easier and more cost-effective to integrate solar power with the grid,” says Hammell. “The most cost-effective way to get solar energy onto the grid is with large-scale systems, and there are hundreds of large systems already out there.

But if you were to plug too many more large solar systems into the grid, it would cause major fluctuations in power, and the system would fail. One way to solve that is to include small amounts of energy storage in each array. Yet nobody wants to pay for that storage.”

Another New Jersey firm, South Plainfield-based Petrosolar, recently sold a pole-mounted system to PSE&G, with one of its microconverter panels on each utility pole. Hammell isn’t worried about competition from that quarter, saying that PPS focuses on larger arrays, advanced systems with storage and communications. With PPS’s system, the utility controls the power flow.

PPS seems to sit by itself in a market with few or no competitors. Its strength comes from its patent position and its first-to-market lead. Boston-based U.S. Satcon used to compete with PPS in military contracts but is now focusing on wind turbines.

Canada-based Xantrex is busy selling to the traditional market and Hammell suggests it doesn’t have the engineering focus to produce very advanced systems.

Finding experienced workers, it turns out, is one of the major obstacles to growth. The company gets hundreds of resumes, but few have power generation experience. The good-news-flip-side of that predicament is that it will be difficult for a start-up to catch up. Though PPS is making money it has not even begun to tap the potential of its market.

At the beginning of 2009 the executives of this company were all under 30. In April, following the board’s suggestion, Hammell ceded the top job to an experienced CEO, the former CEO and co-founder of Sensors Unlimited, Marshall Cohen. Cohen is a 1971 graduate of the University of Michigan with a Ph. D. from Penn. Before Sensors he had a background in alternative energy. After Sensors was bought out he left in 2007 and, at Olsen’s urging, began doing consulting for PPS.

“The one thing PPS did not have was anybody who had run a business before,” says Cohen in a telephone interview. “Darren has always said the only other job he ever had was as a busboy in a restaurant. People here were struggling too hard on the easy things — the mechanics of running a business, like setting up a vacation schedule, policies, benefits, and interacting with other companies in ways that prevent future conflicts.”

By all accounts it was a smooth transition. In spite of joking how he never trusted anyone over 30, Hammell, now 30 and executive vice president of business development, says he is getting more sleep at night. Cohen piles praise on the co-founders.

“Erik is really on top of things technically, and Darren will be the first to tell you he is not a bench engineer. But put him in front of a crowd and he can explain the issues, the technology, and how it can help the potential customer. They recognize that the goal is to succeed, and if my gray hair can help them succeed, then I am very welcome.”

Cohen urged the young entrepreneurs to think higher up the food chain, beyond being just a hardware company. “We had a choice, to sell the electronics for 50 cents or less per watt, or to sell a full-solar energy system for $5 per watt,” says Cohen. “Now we take full-system responsibility for next-generation alternative energy systems. Taking credit for the $4.50 difference pays for the extra effort.”

“Our eyes have gotten bigger in the last nine months,” Hammell says. His current market share, he estimates, is “from immeasurable to point one percent. As you get bigger, you can take on bigger opportunities, which lead to even bigger opportunities.”

Cohen found the atmosphere comparable to Sensors Unlimited, located at Princeton Service Center. “Greg Olsen and I had thought it was important to keep an environment where everybody can’t wait to get to go to work. We didn’t tolerate anything that made it an unpleasant place.” PPS, he says, is similar. “It’s a friendly group of people who enjoy each other, work hard, and get a lot done.”

Money is no longer the obstacle for PPS that it was in the bootstrapping days. Already cash-flow positive, the firm is not beholden to venture capitalists looking for a quick return. PPS can expand without going public. “Going public seems like just a big pain,” Hammell says. “We are focused on growing the business over the next three years.”

But he and Cohen haven’t ruled out getting bought. Cohen had, after all, engineered the sale of Sensors Unlimited, a move that reaped enormous profits for everyone involved.

And indeed, in a couple of years the company will be looking for a buyer, Cohen believes. “Aside from the investors wanting to get a return, there is an advantage to being part of a big company. It helps you take that next step in the marketplace. We already have a tremendous reputation, but customers for major projects (say, a $100 million solar field for New Mexico) may be more comfortable with a GE than with a Princeton Power.”

Hammell and Cohen believe that after doubling revenue last year, they will double again this year, backed by new employees, ending the year with 60 workers. Says Cohen: “That’s where we believe the jobs will come from. The General Electrics of the world aren’t going to double. The jobs will come from lots of small companies, growing.”

Though the current emphasis on sustainable energy fuels Princeton Power’s growth, PPS products also cut expenses. The Army pays $90 a gallon to transport gas to Afghanistan, but it can reduce the gas bill by coordinating its generators with solar energy.

As for private clients, PPS has installed systems in Virginia, Pennsylvania, and California. The most exotic is in the Bahamas on Star Island, where PPS built a system (solar plus wind plus batteries) as a substitute for running an undersea cable to the island for a cost of $5 million plus 60 cents per kilowatt hour.

One of the earliest installations can be seen on top of the engineering quad at Princeton. The New Jersey Commission on Science and Technology footed the $300,000 bill for two arrays totaling 8 kilowatts as part of a research project for four Princeton professors.

Hammell hopes that the next close-to-home installation will be in the two-acre cornfield across from the West Windsor Township municipal complex on Clarksville Road. It would have a 500 kilowatt solar array with lithium ion batteries. PSE&G would lease the land, pay for the installment, and own the energy. “We applied on behalf of the township, and PSE&G is deciding which solar project to fund,” says Hammell. It would cost the township nothing.

The most recent sale is a full-solar system, in partnership with ConEdison, at CUNY. PPS will buy whatever kind of solar panel is appropriate for the system and add the electronics. “The intelligence resides in the electronics,” says Cohen. “If someone buys the box, they end up coming back with endless questions. It is easier for us to do it from the start.”

New Jersey is the right place to be right now, Hammell believes. It doesn’t enjoy a lot of sun, but it has plenty of big box buildings that can hold solar units. And it has forward-looking funding programs. “You could make a case that New Jersey is the most aggressive state in the country promoting use of alternative energy,” he says.

Though people decry the cost of living here, Cohen compares it favorably with Silicon Valley. “With Sensors Unlimited, we found that everybody in the company could find a community — from Ewing to West Windsor — where they could afford to be a homeowner with a good school district. In California, if you are a technician, you have to live in a dump.”’

Cohen is not among those who must pinch pennies. He won’t say how much he got from the Sensors Unlimited buyout, but he doesn’t need to work. So why is he back in the trenches? “There are worse things to do in life than work for fun, surrounded by people who enjoy what they do,” he says. “I’m a technologist at heart and the tech makes a difference.”

After Hammell et al graduated, the space in the power building on the Forrestal Campus was shared by two other young firms, Princeton Server Group and Onclave. “Onclave ceased operations years ago, PSG was acquired and continues to operate in the area,” says Zschau. “PPS will clearly be the most significant company that was born in my original Forrestal site.”

What was the turning point for PPS? “A few years ago, the company had a close call because we developed a product that wasn’t right for the market, and we had a lot of cash tied up in several units of that product,” Zschau says.

“However, I never thought that the company would fail. I’d been in situations with young companies before, including the first company that I started in 1968 that became public in 1980, and I was confident, based on the talents and dedication of the team and the strength of the company’s technology and reputation with key customers, that the company would get through the knothole, survive, and succeed. They did, and they will.”

Zschau came to Princeton in 1997 and has taught his one-semester course 24 times to about 1,300 students. Each year he selects about 50 students to take it, though some years it’s as few as 35 and as many as 70. “Based on the students who have contacted me to describe their activities, I estimate that about 250-350 have pursued entrepreneurial paths,” he says.

The number is growing among former students, since many don’t do their first start-up until years after graduation. “For example, my former student, Dave Lieb, who graduated in 2003, started www.bumptechnologies.com last year after working for a large company and getting an MBA at the University of Chicago. Also, several former students are in their second or third start up after selling their earlier companies. Another former student, Tim Ferriss, Class of 2000, has had multiple entrepreneurial adventures. Check out www.fourhourworkweek.com.

Zschau is an investor and advisor for several other companies, but he remains as board chairman with Princeton Power Systems. “Particularly as I think back to the early days in the Forrestal power house,” he says, “it will be exciting to see the company grow rapidly and make a difference in the world.”

Princeton Power Systems Inc., 201 Washington Road, Building 2, Princeton Junction 08550; 609-258-5994; fax, 609-258-7329. Marshall Cohen, CEO. www. princetonpower.com.

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