| By
Afshin Shaybani
 Well, it’s
that time of the decade again. You know what part I’m talking
about …… time when we all have to cough up the excesses
of the decade past and cleanse our lustful beings. The time when
we need to repent and ask Mercury, the Roman god of commerce and
profit to show us his generous side yet one more time. The time
when we all wait for something to happen and end this misery, anything
that gives a jolt to this damn economy …… anything.
Whatever can add a couple zeroes to the balance on my bank account
statements is more than welcome!!!
Talking of misery, those professionals who are really taking it
on the chin are the ever brave and fearless entrepreneurs. You know,
I feel for these guys, I really do. There was a time when these
ladies and gentlemen ruled in the city of Menlo Park and were the
sovereigns of Sand Hill Road. There was a time when their collective
backs were on the saddle and they were riding high. And now, look
at how things have changed. Now the Venture Capitalists are ruling
the world where entrepreneurs once roamed. Now, it seems, the saddle
is on the entrepreneurs’ back and they are the ones giving
the VCs a ride, and a rough one at that. "Revenge is mine ……"
cry the VCs. They have not forgotten the days when a couple kids
walked into their offices asking for millions of dollars to sell
diapers on the Internet. No my friends, the bubble ––
as much as I hate to mention this word –– has burst,
the tide has turned It is now the VCs’ spurs that are poking
at the entrepreneurs’ rear ends, if you know what I mean.
These days, one better not have the two words "dot" and
"com" on one’s business card if there is to be a
prayer for a VC meeting. Looking at the way VCs are funding companies
nowadays –– and yes, there are still a handful to take
a look at! –– I do not blame them one bit for their
harsh terms and conditions and ungodly vesting schedules. The definition
of success has changed hence the change in company valuations and
chances for funding. There used to be a time when a "successful"
company could have easily commanded a multi-billion dollar market
capitalization whereas today, you can tone that number down by a
couple orders of magnitude.
Don’t get me wrong though. There are still companies that
are receiving funding from investors and there are still VCs who
are keen on putting their money in the next big thing. They just
take more time to do it –– a lot more time than before.
The bottom line is that VCs hate putting their money in the bank
to earn a mere one percent interest as much as the next guy. They
do have money, lots of money, and they need to put the money to
work. The only difference is that the level of due diligence that
these guys do has shot up exponentially. It takes a lot more time
and a tremendous amount of scrutiny before they dish out their dollars
to entrepreneurs. And when they do, they want control, they want
to be able to decide the fate of the company as well as a big chunk
of the pie and impose vesting schedules that were unheard of in
the past decade. The good news is that, as we all know, this is
a cyclic event. Once companies start making more money and show
real profits (and I mean real profits, not the WorldCom/Enron-type
profits or the pro-forma hogwash!), valuations will start to increase.
Remember way back when a giant meteor hit the earth and drove dinosaurs
who roamed proudly in their domains into extinction? That must have
really burst their bubbles… Do keep in mind, however, that
out of that came a whole new species with much more intelligence
(I think…) that rules the earth today. Patience and perseverance
is key my friends…
In our quest to introduce to our readers a few of these warrior
entrepreneurs who have managed to secure funding in these tough
times, we have profiled four Iranian professionals who are weathering
the storm. They provide their perspectives and share with our readers
the secrets of their success. Especially interesting is their VC
experience. We hope you enjoy and learn from these four profiles.
Right
Timing
Tahmassebi
summarizes Resonext in the following:
• Building the right team: “I believe that you have
to build a great team. It all comes down to it. Building great
management is number one in building the right company and it
feeds on itself.”
• Focusing on the right market: “Focusing on the right
and growing market helps.”
• Keeping people motivated. “Keeping your team motivated
and making sure employees are working hard and at the same time
having fun is essential to successfully running a company. As
a CEO you have to set the vision and cannot micromanage. Set the
milestone and let people execute.”
• Right timing: “… timing has to be right for
the company to become successful.”
"Quite
a bit has changed since the year 2000. There has been a correction
in valuations and investors do not want to fund "me too"
companies." This is what David Tahmassebi and company were
up against when they started working on the third round of financing
(series C) for their wireless networking company, Resonext.
After earning a BSEE degree from the University of Maryland, Tahmassebi
moved to California in 1989. There he worked at GTE Government Systems,
Stanford Telecom, and VLSI Technology. He managed the Consumer Business
Unit of VLSI where he led efforts to expand the sales of the company's
source and channel decoding products. He then co-founded Resonext
with Morteza Saidi whom he had met at Stanford. They initially raised
$7.5 million on their vision and have closed $68.5 million in funding
since the company's inception in 2000.
"At the beginning there were only two of us, Morteza and I,"
says Tahmassebi. "Once we got funded, the number of people
who actually joined the company was only two, besides the founders,
from the original seven or eight whom we had originally rounded
up. We had seven million dollars in the bank and only four of us!"
Such were the days of the year 2000. Nowadays, securing funding
does not seem to be as easy. VC money is harder to come by and competition
for their attention and investment is fierce. "How hard is
it to get funding today? It is harder to get money today comparing
to last February when we closed our Series C financing. As the stock
market goes down, investors become even more worried and valuations
decline because public companies’ capability to potentially
acquire smaller companies diminishes."
He does have some encouraging words for entrepreneurs though. Tahmassebi
continues, "Having said that, there is a lot of money out there
that investors need to put to work and they are still looking for
good deals. They are looking for 80-90% success rate in terms of
their investment. For that to happen, you cannot be company number
five or number six, you have to be in the top two or three in the
market."
Having customers and real revenues are necessities now. "The
level of due diligence that VCs do now is unheard of." To provide
Tahmassebi with series C financing, VCs hired external contractors
to take detailed look at the internals of Resonext. "They did
a thorough technical as well as business due diligence. They looked
at our customers and solicited feedback from them," says Tahmassebi.
He believes that VCs definitely want to see customer traction and
tangible results in a time and age where PowerPoint slides do not
work anymore.
Tahmassebi also emphasizes the need to work with quality investors.
Quality investors, he says, make a big difference in subsequent
rounds of financing.
Having raised close to $68.5 million dollars and presiding over
a company in the hot wireless networking space, Tahmassebi is confident
in his ability as well his company’s resilience to make it
through these tough times. He and his people work hard and look
forward to enjoying more accomplishments in the future. We, at SiliconIran,
wish him and Resonext great success.
Santur,
the company,
the instrument …
Bardia
believes VCs look at the following when funding a company:
• Valuations
• Amount of risk involved
• Comparable companies
Many
know that "Santur" is a traditional Persian musical instrument
with rows of strings with various tensions and thicknesses. The
musicians use their wooden mallets to vibrate each set of strings
to generate a given note. There is a remarkable similarity between
the Santur and tunable lasers designed and produced by Bardia Pezeshki’s
Santur Corporation. Says Pezeshki, "The name of the company
parallels our technology. There is an obvious analogy between sound
and light. Different colors correspond to different notes, hence
the name of the company."
Born in Tehran, and after living in England, Pezeshki came to the
United States at the age of 16. After earning his Masters and PhD
degrees from Stanford University, he joined IBM opto-electronics
in New York and then joined SDL (later acquired by JDS Uniphase)
where he worked on tunable lasers. He then co-founded Santur in
November 2000.
Pezeshki developed the idea for Santur while at SDL. He presented
the idea to SDL and offered them ownership in the company in exchange
for the intellectual property developed at SDL. "SDL was also
interested in seeing the idea of tunable lasers pan out at Santur,
as they owned equity in the company. Management at SDL were wise
to let us work on that project. They knew that technical people
are sometimes emotionally attached to their ideas, and so, they
decided that it was best for SDL to let us develop that technology
independently. Nevertheless, negotiations on equity, rights and
even issues like Santur being able to hire people from SDL were
very tough."
Pezeshki further developed the idea of tunable lasers and added
some intellectual property before he approached VCs for funding.
"In the first round we raised $20M from two premiere VCs, Sequoia
Capital and Menlo Ventures. It really helps to have good VCs in
tough times. Quality VCs promise to be with you in subsequent rounds
of financing and sets aside money for those rounds from the beginning.
They are committed to helping you. Thomas Weisel is the lead VC
in the second round," says Pezeshki.
Santur closed the first part of the second round of financing with
a total of about $25M. According to Pezeshki, "Finding money
got progressively hard. We started looking at the beginning of the
year 2001 when things were a lot easier. What made it particularly
hard is that we are in the telecom sector. Nowadays, a lot of VCs
will not even talk to you if your idea is in the telecom field.
In general, VCs are now looking for liquidation preferences and
trying to bring your company valuation down to get the best deal
that they can. A company that was worth $12B a year and a half ago
is now worth $200M. If you were successful back then, they would
expect you to be a multi billion dollar company, whereas today,
a successful company will be worth only a few hundred million dollars."
There is no doubt that we will once again bear witness to better
times, especially in the telecom market, and at that time, Bardia
and entrepreneurs like him will be the ones who reap the profit
for "hanging in there" and being able to guide their companies
through tough times.
 2003:
the Year of the Turnaround
Elements
essential in garnering investor confidence according to Aramideh
• Roadmap to profitability
• Viable product
• Customers
• Cost under control
• Scalable and automated manufacturing process
“We
have enough cash to weather the storm” says the confident
Saied Aramideh, Vice President of Product Management at iolon. This
is the one sentence we do not hear often these days when companies
drown one after the other in the tempestuous oceans of today’s
high-tech economy.
With an Executive MBA degree from Concordia University and more
than 12 years at Nortel Networks and Corvis, Aramideh joined iolon
as VP of Product Management with the overall responsibility for
the product management and market introduction strategy for iolon's
suite of world-class tunable devices.
iolon is a spin-off of Seagate with funding from the VC firm Kleiner,
Perkins Caufield & Byers and Vinod Khosla is one of the key
strategic persons behind the company” Aramideh says.
iolon received its Series C round of funding in February 2001 with
lead investor Bowman Capital followed by additional Series C funding
of $16.7 million in April 2002, bringing the company's total funding
to date to over $85 million. This additional funding is a significant
event. Our ability to raise these funds in such a challenging economic
environment at the same valuation and with the same term sheet as
the original Series C funding announced 14 months ago, and to have
achieved solidarity amongst our prior investors in this additional
Series C closing, is a testament to our value proposition. It is
further independent validation of iolon's clear technological and
market leadership position in high-power, widely-tunable lasers,”
adds Aramideh.
Apparently, finding money was not all that tough for Aramideh and
company since their investors “stuck with them” which
is yet another testament to the fact that choosing quality VCs is
essential in a company’s success.
Aramideh explains “tunable lasers are known to be disruptive
technology which carriers are willing to deploy upon availability.”
Even armed with such a cutting edge technology, Aramideh admits
that iolon had to present real customers for investors to provide
more funding to the company.
When asked about his opinion on a high-tech turnaround, Aramideh
sounds very bullish. “Carriers are willing to deploy our –disruptive
– technology as soon as it becomes commercially available.
They may start building tunable laser-based backbone infrastructures
as early as May 2003. 2002 has been known to be the ‘Year
of the Line Cards’ whereas, I believe, 2003 is the ‘Year
of the Turnaround,’ Aramideh proclaims. He believes that carriers
will stop their chassis upgrades and take the next step and deploy
next-generation platforms in 2003.
Damn
the Technology
By Laurie Falconer
“Damn the technology!” booms the CEO, Chairman and founder
of Movaz Networks, a two-year old optical networking equipment company
founded on a business plan fitting on a single eight and a half
by eleven inch sheet of paper. “Even during the boom, we had
a gut feel that the carriers would be all about economics in the
coming years and that is what is saving us during the downturn.”
Even though he says “damn the technology”, Bijan Khosravi
is nothing but serious about the technology, as long as it isn’t
just a “cool” idea, but rather a practical, money-saving
proposition for his service provider customers.
Just a few weeks ago, fiber optics equipment maker Movaz Networks
Inc. has raised a $60 million round of funding primarily from its
earlier investors, bringing the company's lifetime funding to $142
million.
Norcross-based Movaz closed the round in late April. The round,
Movaz's third, included $50 million in equity funding and another
$10 million in non-equity.
Investors in this current round, Movaz's third, include Oak Investment
Partners, Worldview Technology Partners, Menlo Ventures, Meritech
Capital Partners, Anschutz Investment Company, Telus Ventures, Silicon
Valley BancVentures Inc. and GATX Ventures Inc.
The $60 million round is one of the largest in Georgia history.
Some of the investors in this round included West Coast venture
capitalists that CEO Bijan Khosravi knew from his previous post
as CEO of a Silicon Valley optics company, which later merged with
Redbacks Networks Inc. in a deal valued at $4.3 billion.
Two-year-old Movaz plans to spend this $60 million round on further
development of its suite of optical equipment products, which Khosravi
says cost half as much as similar equipment made by industry giants
like Lucent Technologies Inc., Nortel Networks Corp. and Cisco Systems
Inc.
Telecommunications companies spent a whopping $20 billion on fiber
optics in 2000, just before the dot-com bubble burst and telecom
spending tumbled to about $16 billion in 2001 due to overstock and
fallen demand for new equipment, according to research by Gartner
Inc.
Telecom companies are expected to spend about $16 billion this year,
well below historical spending figures, but that doesn't phase Khosravi.
He is convinced that Movaz will come out on top when the fiber optics
market recovers.
"I believe in the curve model, and we are at the bottom of
that curve right now," Khosravi said. "There are upswings
coming."
Movaz pulled in about $1 million in revenues during 2001, and Khosravi
has said he expects that figure to jump into the "tens of millions"
by the end of 2002.
The company has grown to 300 employees since it was founded two
years ago. |
