Former LineRate and NexGen CEOs Talk Exits and Trade War Stories
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and downs like that were common. In fact, going bankrupt was in a sense the best exit possible.
“I literally saw my two biggest customers do perp walks,” Georgis said.
They were Bernie Ebbers, CEO of WorldCom, and Dennis Kozlowski, CEO of Tyco International. Both inflated their companies’ performance based on sham accounting and were imprisoned for fraud. WorldCom declared bankruptcy, while Tyco struggled for a few years before splitting into several companies.
Network Photonics could have been a visionary company with great technology that got wiped out when disaster struck, or it could have badly misjudged global economic conditions and demand for its product. But with the industries’ leading companies collapsing in two of the most notorious scandals in corporate history, Network Photonics never really had a chance.
Timing matters, but it’s up to you to be ready. LineRate was born in much better business conditions. The startup was a trendsetter in software-defined networking (SDN), which is using better programs to get the most out of conventional hardware. It’s a hot area right now, but just a few years ago there wasn’t a name for what LineRate was trying to do.
By 2013, SDN had become a big deal, and LineRate was able to capitalize on the hype. The company was generating just under $1 million a year in revenue, according to Georgis, but its potential was great enough F5 Networks (NASDAQ: FFIV), one of its largest competitors, swooped in with a huge offer.
The offer came just as LineRate was looking to close another funding round and was close to finalizing deals with VCs. Georgis said it took some crafty work to progress on both deals simultaneously, but ultimately the company pulled it off.
So LineRate was lucky in that it had the good timing to enter a field that suddenly everyone was paying attention to and that F5’s offer came at exactly the right moment. But the company also made its own luck, with a solid product that would solve a pain point and be too good to be ignored.
“We new that we were bringing very good, very valuable technology into the marketplace, and we knew one of the big guys was going to need to buy us,” Georgis said.
Spiers said NexGen also had good timing. The company’s leaders had a friendly relationship with the then CEO of Fusion-io (NYSE: FIO) , David Flynn. He told Spiers that when NexGen needed capital, Fusion-io might be interested in being a strategic investor.
Spiers thought Flynn was being cordial, and he didn’t follow up. But as NexGen was about to close a round, one of its board members, Kirk Holland of Access Venture Partners, suggested reaching back out to Fusion-io.
Flynn changed his mind about investing, and Fusion-io bought the company. Within weeks Flynn was out of a job.