Former LineRate and NexGen CEOs Talk Exits and Trade War Stories

11/12/13Follow @MichaelXBD

Before getting in, you should think about how you’re going to get out.

That was the message of last week’s Colorado Capital Conference, an event run by the Rockies Venture Club.

While the event featured the usual startup pitches and networking, the focus of this year’s keynotes were planning and executing exits. That’s a fitting topic, as this year has seen several notable exits—NexGen Storage and LineRate Systems both sold for more than $120 million, while Rally Software (NYSE: RALY) and the Noodles and Co. (NASDAQ: NDLS) restaurant chain made their successful debuts on the public markets.

I dropped by the event to see NexGen’s former CEO John Spiers and LineRate’s former CEO Steve Georgis take the stage to tell how they pulled off such great deals. While each company had a lot of promise, neither had more than $2 million in revenue at the time they were acquired.

Both CEOs also touched on their entire careers. Each started as an entrepreneur simply trying to get their startups off the ground, and advanced all the way to the rarefied heights of Wall Street finance and corporate strategy.

Spiers and Georgis’s most recent startups had charmed (and short) lives before exiting, but they’ve seen their share of misfortune, which often provide lessons as valuable as those that come from success. Here are some lessons from their talks.

You can be too big and have too much money. Before NexGen Storage, Spiers co-founded LeftHand Networks, which Hewlett Packard (NYSE: HPQ) bought in 2008 for $360 million. In the early days of his company, he was the CEO, but he put his ego aside and moved to chief technology officer as his company started taking off.

LeftHand was one of the biggest success stories in the past decade, but like all good stories, it had its share of plot twists. For example, after an early funding round LeftHand hired 20 people with the idea it needed to rapidly develop and improve products. It was in such a hurry it turned to developers and engineers without expertise in data storage or networking.

Predictably, they had to learn on the fly, and it wasn’t easy.

“It was painful. We had some really good guys, but it took a lot of time to bring them up to speed,” Spiers said.

As LeftHand grew beyond its startup phase, it offshored work to India. That was a mistake as well, he said.

The company also brought on a marketing executive long before it was ready to start seeking customers.

“He sat there and twiddled his thumbs for six months while we developed a product. He was a trooper and hung in there,” Spiers said.

LeftHand’s story also could have had a happier ending. When HP bought LeftHand, it probably would have gotten a better deal if it kept negotiating with HP’s competitors. Spiers thinks LeftHand definitely would have commanded a better price had it been ready to sell sooner, as a direct competitor sold for $1.4 billion in 2007.

Bad things happen. I think entrepreneurs need to be able to appreciate gallows humor. Georgis had stories connoisseurs could appreciate.

Around the turn of the century, Georgis ran a telecom infrastructure provider named Network Photonics. It was founded as the telecom bubble was about to peak

It raised $120 million in a year at a $400 million post-money valuation, and then promptly went out of business.

“You would have thought it would have been impossible to go out of business with that much money in the bank, but we proved it’s not,” Georgis said.

Remembering the craziness of the telecom industry at the time, ups … Next Page »

Michael Davidson is the editor of Xconomy Boulder/Denver. He covers startups, venture capital, clean tech, energy, aerospace, telecoms, and whatever else happens above 5,280 feet. Contact him at mdavidson@xconomy.com. Follow @MichaelXBD

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