A tale of two Silicon Valley startups, one classic and one quirky

This is a tale of two Silicon Valley startups, one classic and one quirky.

LensVector and Kwedit both happen to be based in Mountain View and both came out of stealth mode early this month. More striking is the way these companies, each in its own way, exemplify the valley’s capacity for innovation and resilience against economic trouble.

LensVector embodies the tech mantra of smaller, faster, cheaper, better. It is touting a “breakthrough” solid-state technology, about the size of an infant’s fingernail, that can replace the bulky, breakable mechanical autofocus now common in the burgeoning micro-camera market. LensVector is ramping up to serve an industry that in 2012 is expected to ship 2 billion micro-cameras in mobile phones, laptops and other devices.

Kwedit, which offers a payment system for virtual goods bought online, exemplifies the valley’s knack for novel business models — “the world’s first intentionally unreliable payment system,” as founder Danny Shader oddly boasts. With his frequent references to “Kwedit reports” and “Kwedit ratings,” Shader can sound like Elmer Fudd channeling a sly wacky wabbit.

LensVector and Kwedit are riding separate but simultaneous waves of innovation, one in cutting-edge electronics and the other in Internet commerce.

“They’re hard-core,” Shader said of LensVector. Rather than label Kwedit as “soft-core,” he offered a distinction by area code: “We’re closer to 415 and they’re closer to 408.” While San Francisco is a fount of online content, “the closer you get to San Jose, the closer you get to chips,” Shader said.

LensVector’s roots reach to Quebec’s Laval University and Professor Tigran Galstian’s research into “tunable liquid crystal lens technology.” Galstian showed how voltage applied to a liquid crystal cell could control the rotation of molecules to achieve a refractive index akin to a mechanical lens.

In 2005, Galstian’s work caught the eye of Thomas Killick, former director of business development at Precision Optical Systems, who was scouting for an upgrade to the nonproprietary mechanical autofocus that added size, weight, cost and fragility to micro-cameras. Killick teamed up with Derek Proudian, who previously had been the CEO of four tech companies, to try to turn the raw technology into a mass-market product. Proudian, Killick and Galstian are LensVector’s co-founders, with Galstian running a research-and-development team in Quebec.

Proudian’s first task as CEO was to quietly orchestrate early funding from Menlo Ventures while securing patent licenses from Laval. For nearly four years, LensVector shrouded itself in secrecy, wary of potential imitators as it improved the technology and quietly forged alliances with Samsung and Kodak. A couple of years ago, the company dared to erect its “LensVector” sign on Leghorn Street, but Proudian wasn’t worried about blowing its cover. “People might think we made eyeglasses, like LensCrafters,” he said.

LensVector had grown to about 100 employees when, on Feb. 4, it unveiled its technology and announced $30 million in new funding, bringing its total financing to $50 million. Samsung said it expects to ship products equipped with LensVector autofocus later this year. LensVector will initially do its manufacturing in the valley, Proudian said, in a facility capable of producing 60 million units a year.

“This is a classic Silicon Valley story of taking a superior technology and applying it to a large, rapidly growing market,” said Norm Fogelsong of Institutional Venture Partners, which led the recent funding. He envisions wide adoption of the technology as camera phones continue to proliferate. “Somebody said the best camera is the one you have at the time,” he said.

LensVector plans to move from autofocus to other mechanical components on cameras, include the shutter and iris (or F stop). “Leading the revolution in solid-state optics” is the company’s advertising tagline.

Kwedit’s approach might be called semi-stealthy. Shader, like Proudian, is a seasoned tech executive. In the dot-com boom, he led Accept.com, a consumer-to-consumer payment system that Amazon acquired in 1999, and later he led Good Technology, which Motorola acquired in 2007.

As online games quickly spawned a $1 billion “virtual goods” industry, Shader sensed an opportunity within the so-called “freemium” business model common among game publishers. While most people play for free, a small percentage of ardent players pay for upgrades and digital doodads, typically through PayPal, credit cards or pre-paid cards.

Kwedit, whose terms of service require users be age 13 and older, hopes to entice a potentially large market of people without credit cards to “play now, pay later.” The system continues to extend “Kwedit” to those who make good on their promises, paying by mail or at 7-Eleven, and cuts off those who don’t.

Kwedit also enables users to pass their obligations to another party — most likely from a teenager to a parent. One of its virtues, Shader said, is its ability to teach the credit process to teenagers.

Shader spent about a year building Kwedit. He raised $3 million, led by True Ventures, and described his idea to dozens of potential customers and investors who signed nondisclosure agreements. Shader said he was not concerned so much about potential copycats as a desire to control expectations.

Kwedit launched Feb. 3 on the games FooPets and Puzzle Pirates. Cash is already coming in at a pace three times his own expectations, Shader said, and contracts with other publishers are in the works.

Contact Scott Duke Harris at 408-920-2704.