Novafora Inc. , a stealthy video chip firm helmed by the founders of Terayon Communication Systems, has closed, Light Reading has learned. Sources say Novafora has ceased operations less than eight months after the company closed a deal to acquire Transmeta Corp. Back on July 30, PEHub, a Thomson Reuters site, reported that all 40 employees had been let go and that the company was selling its Transmeta assets. (See Novafora Snaps Up Transmeta.) The last time Novafora did anything in the public eye occurred on May 19, when CEO Zaki Rakib, rang the opening bell for the New York Stock Exchange as a representative of the Israel Venture Association (IVA). Novafora (formerly known as Sipharos) was founded in 2004, with Zaki Rakib coming on board with brother Shlomo as CTO as Novafora secured its first round of significant funding in 2007.

Sources familiar with the situation say the company simply burned through its coffers and was unable to convince investors to help get it off the ropes. Novafora, which had about 60 employees before acquiring Transmeta and ran some ops out of Israel, previously disclosed that two venture capital partners -- Gemini Israel Funds and Vertex Venture Capital -- had invested about $25 million in the startup. Downhill after Transmeta deal
The situation appeared momentarily bright late last year when Novafora announced it had offered to acquire Transmeta in a stock and cash deal valued at $255.6 million. At the time, Zaki Rakib said Novafora intended to incorporate Transmeta's "LongRun2" power management technologies into a new line of video-processing chipsets. Novafora had plans underway to launch its first product in the first half of 2009, promising a "better mousetrap for video processing" for a broad range of fixed and mobile devices. They managed to seal the deal in February despite facing the specter of a class action lawsuit alleging that Transmeta and its massive patent portfolio was being grossly undervalued. The suit noted that Transmeta had about $255 million in cash and cash equivalents as of Sept. 20, 2008, so the terms of the Novafora offer valued Transmeta's "operations and intellectual property at zero." (See Novafora/Transmeta Faces Scrutiny .) Or close to it. For Transmeta's part, it placed an enterprise value (market capitalization, minus cash, plus debt) of $11.6 million on the deal. An analyst at Algorithm Capital was then quick to point out that Transmeta's technology portfolio cost more than $400 million to develop over a period of about 10 years. So, what's going to happen to the remaining assets? Calls to Novafora (or what's left of it) have not been returned, but sources speculate that the company will attempt to sell off its intellectual property, which was bolstered significantly through the Transmeta acquisition. The closing of Novafora marks the latest failed attempt by the Rakib brothers to make hay with advanced silicon. At Terayon in 2001, they spun off a Docsis chipset division called Imedia Semiconductor, which briefly took a run at a market dominated by Texas Instruments Inc. (NYSE: TXN) and Broadcom Corp. (Nasdaq: BRCM). Terayon, however, made its own Docsis cable modems and cable modem termination systems (CMTSs), making it next to impossible for the chip division to win OEM deals with vendors that, in essence, competed with Imedia's parent company. Terayon eventually folded Imedia Semiconductor and started to buy and integrate chips from the legacy suppliers.

The Rakib brothers resigned from Terayon in 2004, about three years before Motorola Inc. (NYSE: MOT) stepped in to buy the company for $140 million. (See Motorola Seals Up Terayon .)

— Jeff Baumgartner, Site Editor, Cable Digital News