bi-weekly column with timely,
relevant and possibly irreverent
insight into the BC technology
July 28th, 2006
Greenstone Venture Partners
Convenient Exit For Convedia
keep on lovin'
While believers, keep on believin',
I'm so glad that I know more than I knew then.
Gonna keep on tryin',
Till I reach the highest ground.”
– Red Hot Chili Peppers, Higher Ground
Somewhere Terry Matthews is smiling today. The last of
his “children” has grown up and left the roost.
Convedia, FKA Starvision, of Burnaby has sold to Radisys
(Nasdaq:RSYS) for US$105M and a possible further US$10M
in earnout… all in cash. Remember the go-go 90’s when
the rage in technology start-ups in Ottawa and Vancouver
were the Newbridge affiliates? Terry Matthews had a
huge company on his hands whose bread and butter was ATM
(Asynchronous Transfer Mode) switches and other gear
related to data networking. He would take managers from
within the company and allow them to roll out into new
companies that would leverage ATM in some way and build
new gear or new applications. These were the
affiliates. They would be funded by Newbridge and Terry
Now, most of Canada knows that Newbridge was an Ottawa
company and many of the affiliates were born right
there. Cambrian Systems sold to rival Nortel for
$300M. Tundra Semiconductor is a large public company.
ACC sold to Ericsson for $280M. CrossKeys went public
then faltered badly and was acquired by a UK company.
What most people don’t realize is that four of the
twenty affiliates created were based in Vancouver.
Why? Vancouver had a huge office for Newbridge because
they acquired their most successful ATM Access product
from MPR Teltech (birthplace of a couple of other
companies you may have heard of… PMC Sierra and Sierra
Who were our four BC affiliates? Castleton Networks
made edge devices for network access. It grew in
Burnaby to about 60 people and was acquired back into
Newbridge when it struggled to raise outside capital.
Vienna Systems was a VoIP pioneer largely based in
Ottawa that was acquired by Nokia in 1999. Out here in
Vancouver there were a dozen or so employees of Vienna.
The first VoIP wave was a bust and Nokia shut down
everything in late 200 except the Vancouver office.
Nokia now has a few hundred people out here that were
born from the ashes of a Newbridge affiliate. Abatis
Systems was a huge success for Newbridge when, in the
summer of 2000, it sold for US$680M (at the time,
because of the exchange rate, that was $1B CDN!) after
starting in early 1997 in the offices of the old MPR
Teltech. The fourth was an ATM applications company
with a telemedicine and distance education networking
product. The company was called Starvision Multimedia.
Back in 1995, two Newbridge ATM experts from MPR Teltech
founded Starvision Multimedia which proposed to use the
advanced networking capabilities of ATM to deliver video
applications to industries like medicine and education.
Peter Briscoe and George Lipski thought that ATM offered
a superior, quality controlled environment for these
types of applications, especially over dedicated lines.
About $20M in venture capital agreed with Peter and
George and MDS Capital joined Newbridge and Terry
Matthews fund called Celtic House to fund the venture.
By 1998, when I looked at the company in my BDC Capital
days, they were foundering. Expensive dedicated lines
were becoming an anathema due to the explosion of the
Internet and its “free” capacity. ATM was starting to
lose momentum to straight IP routing with bigger
bandwidth thanks to companies like Cisco. But most
importantly, medicine and education were tough markets
that were not really ready for dramatic technology
shifts like operating remotely on a patient.
The company nearly came apart altogether when it failed
to raise outside money. Peter persevered. He became
the CEO. He shrunk the company, re-focused the
engineering on the emerging VoIP market and renamed it
Convedia. He raised money from the existing investors
in a painful re-capitalization. During this very
difficult time for his company, he no doubt felt some
chagrin and envy as he went up the elevator every day on
Still Creek Drive in Burnaby. Right in front of his
eyes Abatis had its enormous success and he and his
staff were watching newly minted millionaires from the
other management team leave the same parking lot every
day. Worse still, his old colleagues didn’t do too
badly when Alcatel bought Newbridge (all of them located
in the building next door). But Peter was about to find
some success of his own.
In October of 2001, Peter and his team raised money from
new investors Mayfield Fund and Ventures West. This was
US$20M in re-start money that really helped the company
to its current successful exit. The media server
products were built and some sales were starting to
happen. The VoIP market was becoming real and Convedia
helped build the sophistication that the packet voice
network required to deliver what we all expect from
traditional phone service. It is no small feat to get
the Internet to do things with voice like call display,
voicemail, conferencing and the myriad of signaling
protocols that make a voice network function. Convedia
built their IP media servers to help make it all work
and by 2004 they had achieved leadership in their market
Some would argue that the momentum for Convedia’s market
is not fully realized yet and that there is still
tremendous growth possible. Certainly Radisys
management thinks that there is upside. But after 11
years, give Peter and his team some well earned credit…
they made it to the top of their mountain.
Some lessons and observations about this story:
First and foremost – persevere when you believe in
you and your team’s capabilities. As one peer put
it today, “This company nearly died three times”.
But it didn’t and success eventually came.
Networking hardware is, well, hard – The company
raised US$50M to make it to a profitable company.
That is about the going rate for any telco grade
gear company. Maybe half that for an edge device or
appliance. It is expensive and clearly the initial
investors get very little when it sells for a
slightly more than 2x what went in. Comparables in
VoIP? Kagoor Networks sold to Juniper for US$67M
and raised US$40M.
Newbridge Affiliates – it worked. Their success
rate was better than any other VC fund in Canada,
mostly due to the connections to people and
resources back at Newbridge. Where is the next
technology company big enough and smart enough to do
Exchange rates suck – The investment returns of the
past five years have been hammered by the CDN
dollar. The Canadian investors in 2001 paid
CDN$1,600,000 for every US$1M they invested. They
received CDN$1,100,000 for every US$1M on the sale
in 2006. That’s a 32% hit that you really can’t do
Congratulations to Peter. He can now stroll out of his
office knowing that someone else may be jealous of his
success. He persevered and it paid off. And he may
also tip the champagne glass as the last of the old
Affiliates to reach its exit. I’m sure Terry Matthews
will do the same thing. Well done.
What Do You Think? Talk Back To Brent Holliday
Something Ventured is a bi-weekly column designed
to supplement the T-Net British Columbia web site with
some timely, relevant and possibly irreverent insight
into the industry. I hope to share some of the
perspective and trends that I see in my role as a VC.
The column is always followed by feedback (if its
positive or constructive. I'll keep the flames to
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