E224: Caroline Chapdelaine Discusses Carve-Out of North Star Photonics on How2Exit Podcast - Watch Here

About the Guest(s):

Caroline Chapdelaine is the CEO and Co-Founder of North Star Photonics, a company specialized in defense manufacturing technology, specifically focusing on photonics and fiber optic gyroscopes. With a rich background in military intelligence as an officer in the U.S. Army, Caroline has extensive experience in both operational and defense contract management roles. She has also worked for major defense contractors such as Northrop Grumman, L3 Harris, and Orbital ATK before obtaining her MBA from the Wharton School. Caroline successfully executed a carve-out to establish North Star Photonics and has since been leading the company through the complexities of the defense contracting industry.

Episode Summary:

In this enlightening episode of the How2Exit Podcast, Ronald Skelton converses with Caroline Chapdelaine, CEO and Co-Founder of North Star Photonics. Diving deep into her intriguing journey from a military intelligence officer to a successful entrepreneur in the defense sector, Caroline shares her insights and experiences on executing a unique carve-out. This episode offers a rich narrative detailing her path, the intricate world of photonics, and how she navigated the highly regulated space of defense contracting to build a profitable business.

Caroline's expertise spans across handling the complexities of due diligence, acquiring specialized equipment, and meeting stringent government regulations such as ITAR and ISO 9001. She also elaborates on the financial strategies employed, including the advantageous yet risky SBA 7a loan, to mitigate the cash-flow challenges during the initial phase post-acquisition. Highlighting the importance of resilience, networking, and the right partnerships, this episode is a treasure trove of information for anyone considering venturing into the niche market of defense contracting or contemplating a carve-out as a business acquisition strategy.

Key Takeaways:

• Bias for Action: Emphasizing the importance of taking actionable steps rather than getting lost in over-analysis.

• Resilience and Mental Health: Maintaining mental and physical health is crucial for sustaining long-term business success.

• Strategic Alliances: Building and utilizing networks within the industry can significantly aid in overcoming operational challenges.

• Navigating Financial Complexities: Understanding the intricacies of loans and financial instruments like the SBA 7a loan can provide essential lifelines during tough times.

• High Standards of Quality: Complying with stringent regulations such as ITAR and ISO 9001 is critical for maintaining product integrity in the defense sector.

Notable Quotes:

1. "We were fortunate to buy the team, the equipment, and the IP most importantly." – Caroline Chapdelaine

2. "If it happens to be nighttime, you can’t use the stars, or you can’t use terrain, and so you use an inertial measurement unit." – Caroline Chapdelaine

3. "Six months without revenue is brutal." – Caroline Chapdelaine

4. "Just go do it. I think the bias for action is the people that succeed in this space." – Caroline Chapdelaine

5. "Enjoy the hell out of what you're doing." – Caroline Chapdelaine

Article:

Navigating The Complex World Of Defense Contracting: A Carve-Out Success Story

Key Takeaways

• Bias for action is essential in business ownership—just jump in and start doing.

• Building resilience is crucial, including mental and physical health, to sustain entrepreneurship.

• Networking and leveraging industry connections can open unexpected doors and opportunities.

In a recent episode of the How2Exit Podcast, Ronald Skelton welcomed an intriguing guest, Caroline Chapdelaine. As the CEO and Co-Founder of North Star Photonics, Caroline's journey is a powerful testament to resilience, ingenuity, and the art of navigating complexity. This discussion dives deep into her experience with a unique business model—a carve-out in the highly specialized and regulated world of defense contracting.

What is a Carve-Out in Business Acquisitions?

A carve-out in the mergers and acquisitions arena involves buying a division or segment of a larger corporation. Ronald Skelton explains this niche strategy succinctly:

"When a billion-dollar company buys another company that's doing a hundred million, they might have a little product off to the side doing five or ten million. That little product is more of a distraction than an added value."

Caroline echoes the sentiment, emphasizing her unique position:

"In this case, what had happened, this little photonics team had existed for about 20 years under a few different large companies...it wasn't the core interest."

This niche space allowed Caroline's team to acquire specialized knowledge and technology in photonics—a segment captivating for its advanced applications in navigation within GPS-denied environments.

Overcoming the Complexities of Defense Contracting

Defense contracting is undoubtedly a lucrative field but fraught with complexities, regulations, and long procurement cycles. Caroline explains:

"For all the primes out there listening, call now. We'll acquire."

Navigating through these regulations requires significant expertise and resilience, which Caroline’s background facilitated. Her military intelligence officer experience, combined with her work at major defense primes and an MBA from Wharton, equipped her with the tools to maneuver through the intricate requirements.

Key aspects of her acquisition journey included meeting vital government regulations like ITAR and securing essential quality certifications like ISO 9001. Caroline faced initial financial hurdles, leading to an essential lesson in seeking specialized assistance sooner:

"We spent more than we planned, and things took longer... I almost wish I would have brought in more outside help quicker."

Unique Challenges in Managing a High-Tech Workforce

Running a company that fabricates sophisticated photonics devices presents unparalleled challenges, particularly in human resources. Caroline revealed how her team is composed:

"The company is made up of about half PhDs... and the other half are our assembly workforce who are incredibly talented."

The intricate nature of fiber optic gyroscopes, essential for strategic defense navigation, means that every team member plays a critical role. Caroline highlighted the meticulous nature of their work:

"You have to be so, so careful to not break it when you're handling it... all of this work is done under a microscope."

This high level of precision requires a unique combination of talent, patience, and an often overlooked skill—resilience. This intricate working environment fosters a culture of excellence, underscoring the team's shared dedication.

Creating a Future Through Organic Growth and Strategic Acquisitions

Looking forward, Caroline emphasizes the dual approach of organic growth and strategic acquisitions. Organic growth involves focusing on their core strengths and expanding their R&D capabilities:

"Half the company is R&D, working through government research and development grants to improve our products."

Complementing this is an aggressive pursuit of M&A opportunities, particularly in vertically integrated and adjacent technologies. This approach allows for a holistic development strategy, addressing both immediate revenue needs and long-term innovation goals.

Caroline also detailed the unique foundry services aspect of their business, which opens up additional revenue streams:

"We do high complexity, low volume work that's rare in the U.S. government space, serving companies and agencies seeking specific wafer fabrication processes."

This blend of relentless innovation and strategic market positioning sets North Star Photonics on a promising path.

North Star Photonics’ journey underscores valuable lessons in business resilience, strategic thinking, and the importance of actionable insights. For Caroline, the thrill lies not just in the technology but in the people and shared mission driving their success:

"Enjoy the hell out of what you're doing...I love the technology we're working with, but it is only made interesting because there are wonderful, smart people that I get to work with every day."

With clear goals and an unwavering commitment to excellence, Caroline Chapdelaine exemplifies how carving out a niche in defense contracting can lead to innovation and success while navigating an industry often dominated by established giants.

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