Fresh companies with fresh ideas and fresh funding

July 24, 2006

20 Min Read
Top Ten New Startups

Welcome to an entirely new Light Reading feature – the “Top Ten New Startups” list, not to be confused with Light Reading’s “Top Ten Private Companies.”

Why’s that? Well, silly, The Top Ten Private Companies are successful private companies with revenue and products, which might be close to IPO or acquisition. In other words, they’re more mature startups, with proven business models, more than four or five years old. With this Startups to Watch list we looked for things a little more green in nature – you know, real startups – brand new companies, which we defined as companies that have been funded with a Series A or B round of venture financing within the last 24 months. Yeah, that’s it: fresh companies with fresh ideas and fresh funding.

These companies, by nature, should be a bit raw. Some of them may very well go rancid before they’ve become fully cooked. Some of them may not even have a product or revenues yet. But some of the companies on the list have both – pretty amazing itself, since we were looking for companies under two years old. To make the list, a company needs an interesting and somewhat unique concept – ideally an entirely new sort of product.

In combing the Earth for these startups, we looked at three things: (1) Quality of the idea; (2) Quality of the people; and (3) Quality of the investors. If you get all three right, chances are you’re on the path to success. We focused particularly on the people factor – especially the founders and investors – and what they’ve done before.

Here's the list

— The Staff, Light Reading

Next Page: Mavenir Systems

Put together a team with stunning startup credentials, the hottest market in telecom, and two of the biggest names in technology venture financing, and you've got a solid new entrant.

That's the story over at Mavenir Systems Inc. 's headquarters in Richardson, Texas, where the old band from startup IP Mobile is getting back together. IP Mobile was sold to Cisco Systems Inc. (Nasdaq: CSCO) for $425 million in August 2000. Having raised little more than $7 million in funding, the company has built a new team focused on service convergence. (See Mavenir Converges on $13M.)

After 18 months in stealth mode, the company is planning a marketing blitz starting this September, after raising $13.1 million from big name backers Austin Ventures and North Bridge Venture Partners .

North Bridge was one of IP Mobile's backers in 1999 and fancies more of the same kind of return.

The company reckons there's a gap in the market to target service providers that want to deliver their services to any device across any network, but which don't want to deploy point solutions or wait years for for standards-compliant IP Multimedia Subsystem (IMS) technology to become commercially available.

With an experienced management team, more than 50 staff drawn from Cisco, Alcatel (NYSE: ALA; Paris: CGEP:PA), Ericsson AB (Nasdaq: ERIC), Nortel Networks Ltd. , and Qualcomm Inc. (Nasdaq: QCOM) – including Pardeep Kohli, Alcatel's recently departed president of mobile NGN and former CEO of mobile softswitch firm Spatial Wireless, now part of Alcatel – Mavenir has the brains, track record, and backing to be a convergence hit.

Next Page: Brightcove

If you're trying to get noticed as an Internet video startup, you need to have big names, big dreams, deep pockets, and the ability to actually/maybe/possibly pull off what's on your PowerPoints.

Brightcove Inc. , founded in August 2004, probably the best known company on this list, qualifies on every level.

The company is led by competent managers and a solid board. Among the bigger names is founder Jeremy Allaire, the former CTO of Macromedia Inc. (now Adobe Systems Inc. (Nasdaq: ADBE)); Accel Partners general partner Jim Breyer, one of the early backers of Redback Networks Inc. who is now on the boards of Wal-Mart and Marvel Entertainment; and Mister Made-for-TV himself, Barry Diller, who has about as storied a career as any media executive still living.

Brightcove is backed by AOL Inc. (NYSE: AOL), Accel, General Catalyst Partners, Hearst Corp., and others. The company closed a Series B funding round of $16 million in late 2005, giving it $21.5 million raised to date.

More than just a video sharing site, the company has built a way to deliver video all over the Internet and, theoretically, make money in the process. Brightcove is allowing content producers to upload video, share it, distribute it, embed it into Websites and blogs, and – provided anyone wants to watch said video – make a buck by selling downloads or sharing ad revenues.

Brightcove, of course, will get its pound of flesh in the process, but it's important to note that its Internet TV platform won't stay only on the Web. The company's broadband video channels will soon be distributed and available on TiVo set-top boxes as well, so the distance between Internet TV and the living room just got a lot shorter.

Next Page: Mu Security

One of the things we were looking for on this list was companies with something interesting and unique, not yet another “me-too” product. Mu Security Inc. appears to fit this description with a new class of security device targeted at a wide market: It’s a security analyzer for testing any sort of IP-based communications device for vulnerabilities. (See Mysterious Mu Tests for Leaks and Security Startup Says Mu to Bugs.)

We’ll call it a “robot hacker.” The Mu-4000 Security Analyzer was designed to auto-hack a network, generating and morphing communications protocols to find the holes. The concept is to reverse-engineer security by thinking like a hacker and finding the security vulnerabilities first, rather than looking for the bad guys and plugging holes later, like a traditional security device.

It shouldn’t come as any surprise that Mu would develop a new category of product. Its founders, CEO Ajit Sancheti and CTO Kowsik Guruswamy, worked at One Secure, maker of one of the first intrusion detection devices, which was eventually acquired by NetScreen and integrated into security products now owned by Juniper Networks Inc. (NYSE: JNPR). They’re considered pioneers in the instrusion detection field.

Sancheti says the market for security analysis is huge because of the proliferation of devices communicating in IP, and that the Mu-4000 works on all of them. “We have found flaws in routers, phones, gateways, printers, and firewalls,” says Sancheti. He believes the telecom space will be a big market for the product, where equipment providers and carriers are just coming to grips with how to secure VOIP and IPTV networks.Mu appears to be off to a flying start. The product was created and made for general availability within 13 months. The company, founded in 2005, is a mere year and a half old and has drawn two rounds of funding, totaling $14 million, from top-tier investors including Accel Partners , Benchmark Capital , and Duff Ackerman & Goodrich LLC (DAG) . (See Mu Security Raises $4M and Mu Security Lands $10M). The company claims to have dozens of customers in both the enterprise and service provider spaces. It has 30 employees, up from 13 at the end of 2005, according to Sancheti.

Oh, and in case you were wondering, the name “Mu” comes, not from the "lost continent of," but from “Mutate,” meaning the product mutates communications protocols, as a hacker would, to find security holes.

Next Page: T-Vips

Imagine that either Cisco Systems Inc. (Nasdaq: CSCO) or Juniper Networks Inc. (NYSE: JNPR) had a small subsidiary staffed by engineers with broadcast network experience as well as an understanding of IP. Imagine, too, that they were building a system from scratch focused on shunting video traffic around IP networks.

That team exists, but not within a giant vendor. It's called T-VIPS AS , and, just like the IP video space it has targeted, it's hot property. (See T-VIPS Makes US Debut.)

Founded by a bunch of former Tandberg Television executives in September 2004, the Oslo-based company focused on developing video-over-IP hardware platforms suitable for both the broadcasting and telecom markets, and it's had early success in both.

Its video gateway products are used to transport video signals, including high-streams, over IP networks, whether that's a broadcasting company shunting video from site to site, or a telecom carrier distributing TV signals around its network.

The proposition is that transporting video over IP saves a lot of money compared with the traditional satellite or ATM/SDH network distribution alternatives, and T-Vips claims to have tackled some of the key issues surrounding the quality of video over IP, namely forward error correction (FEC) at 1 Gbit/s-plus speeds that, in theory, ensures that all the packets arrive, in the right order, and with negligible network jitter.

One operator already using T-Vips kit for IP video backhaul is Norwegian service provider Lyse Tele AS , which is feeding video content from local TV stations into its IPTV headend with T-Vips gateways.

The vendor has also had success in the Netherlands (with Dutch cable operator Delta), Portugal, and Italy, but doesn't want to provide too many details about its partners or customers in case rivals catch on to the market potential.

In February 2005 it announced first-round funding of 28 million Norwegian Kroner (US$4.5 million), half each from Northzone Ventures and Selvaag Venture Capital . It has since signed up 21 business partners and claims to have delivered its products to all continents. (See Comsyst Partners With T-VIPS and Network Electronics, T-VIPS Team.)

Carl Furgusson, VP of product development at OEM partner Tandberg TV, reckons T-Vips' video-over-IP focus has "enabled the team there to develop innovative products" that are ahead of major broadcast technology firms such as Thomson S.A. (NYSE: TMS; Euronext Paris: 18453).

And Karl-Christian Agerup, a partner at investor Northzone, says the decision to fund T-Vips was made easy because of the experience of the team, which "already knows the market, knows how to manage the R&D process, and which had already developed IP products within Tandberg TV. They have everything it takes to be successful."

In addition to the personnel, headed by CEO Johnny Dolvik, T-Vips is in the right market, reckons Agerup. "Look at the future, and how video content will be transported from studios and from venues and stadiums. It will be over fiber, not satellite."

Next Page: Vyatta

Anything that goes up against Cisco Systems Inc. (Nasdaq: CSCO) tends to get crushed into the ground or acquired (or both). But Vyatta Inc. has a fighting chance, given it offers something Cisco can't: free routers.

Using the Extensible Open Router Platform (XORP) from The International Computer Science Institute (ICSI) of Berkeley, Calif., as its base, Vyatta has developed an open-source router. It's an inevitable step, given the way Linux and open-source philosophies have permeated the PC industry.

Founded in spring of 2005, Vyatta launched its router in February 2006 in true open-source fashion, posting the code on the Web and giving it away at tradeshows. (No booth necessary; Vyatta folks just walked around handing out CDs.) A subscription model, Vyatta's first foray into commercialism, was launched on Monday, July 24; it comes with support and, of course, free upgrades

The term "open-source startup" conjures visions of one guy in his parent's basement, but Vyatta has more firepower than that. Vyatta's staff of 20 includes executives familiar with open-source business, including CEO Kelly Herrell, whose resumé includes Linux vendor MontaVista Software Inc. and open-source appliance vendor Cobalt, acquired by Sun Microsystems Inc. for $2 billion in 2000.

A networking heritage runs through Vyatta. Founder and chairman Allan Leinwand hails from the early days of Cisco. Vyatta even has Tony Li – router guru and former Cisco and Juniper Networks Inc. (NYSE: JNPR) employee, now with Tropos Networks Inc. – on its advisory board. (See Li Takes Tropos Route.)

A yet-undisclosed funding round came from a set of serious names: JPMorgan Partners , ComVentures , and ArrowPath Venture Capital .

Vyatta will get its start in the IT world rather than telecom. Still, if open-source can replicate the success it's had in the server world, this could be the start of a new business era for routers of all types.

Next Page: Nistica

Nistica is an honest-to-goodness telecom equipment startup, something that's becoming a rare breed. (See Startup Shortage.) The company's plan is to take reconfigurable optical add/drop multiplexers (ROADMs) down to the edge network.

Why is that a big deal? ROADMs promise to simplify the optical network for carriers, allowing them to make changes at will to a wavelength's path through the network. Previously, any change – say, terminating a wavelength at a particular node – required manual intervention and a rebalancing of the network, as changes tended to change the power levels of other wavelengths. Ideally, a ROADM would allow operators to make changes remotely without having to rebalance the network.

ROADMs have been too expensive for the edge network, though. Nistica's goal is to bring down costs to the point where this kind of intelligence can reside at the optical edge – theoretically bringing more capability and flexibility to carriers.

Nistica would seem to have the crew for this sort of thing. Its founder and CEO Ashish Vengsarkar came from Photuris, a bubble-era optical networking startup that was acquired by Mahi Networks, which in turn got bought by Meriton Networks Inc. (See Photuris Crew Rides Again.)

Nistica is starting out lean and doesn't need a lot of support, at least in terms of its bank account. Less than $5 million in Series A funding from Pennsylvania Early Stage Partners, Technology Venture Partners LP , and Bill Cadogan, announced in May, has been enough so far.

But what Nistica lacks is a big-name VC backer. Cadogan, former ADC (Nasdaq: ADCT) CEO and a member of Mahi's board, has joined as chairman, but he's working with the company as an individual, not representing Vesbridge Partners LLC , the venture firm he's been working for.

Next Page: Zeugma Systems

The “stealthy” Zeugma Systems Inc. was first funded in 2004. Though it's been shy on details, we already know quite a bit about the firm, which looks to be building some sort of packet-aware broadband subscriber management system. (See Zeugma Gets $13.5M for Mystery Box.)

More specifically, it looks to be developing a platform with OAMP, broadband subscriber management, and next-generation application-aware service management software, according to information dug up from the company’s Website, recruitment ads, and patent applications.

Here’s what we like most about Zeugma: (1) the market – broadband subscriber management (it’s not shrinking any time soon); and (2) the people, all of which have a track record with successful products and companies.

Two of the company's top executives come from Siara Systems, the once red-hot company that was acquired by Redback Networks Inc. for $4.5 billion in November 1999, and eventually became the basis of Redback’s new generation of edge routing products (though Redback may have just slightly overpaid). Founder and CTO Siegfried Luft was a co-founder of Siara, where he and his team developed the first release of the SmartEdge 800, which has been a big part of Redback’s resurgence in the edge routing market. Marketing VP Tom Meehan served as director of product management at Siara.

Zeugma Founder and CEO Andrew Harries was a founder of wireless modem company Sierra Wireless Inc. (Nasdaq: SWIR; Toronto: SW), another successful company. He also spent several years with the Mobile Data Division of Motorola Inc. (NYSE: MOT), where he worked on strategic planning and developed new portable devices. Engineering VP Jeff Dillabough comes from PMC-Sierra Inc. (Nasdaq: PMCS) where he was director of product development.

The company’s got some cash, too. The Vancouver, B.C.-based company has raised a total of $15.75 million in financing. (See Zeugma Raises $13.5M.) Chief funders include San Francisco-based Granite Ventures LLC , Ventures West, Yaletown Venture Partners, and GrowthWorks WV Funds .

What’s the only warning sign? The pretentious name. “Zeugma,” you see, refers to an ancient Mesopotamian city at the site of a bridge uniting the banks of the Euphrates River. The name derives from the Greek word meaning "a yoke.” We hope it’s all not some sort of bad yoke.

Next Page: SoonR

The SoonR Inc. platform effectively turns any Web-connected cellphone into a smartphone. This gives mobile phone users access to the stuff they keep on their PCs at home, such as things like email, calendars, and address books.

Once users get creative with it, it becomes a little more disruptive. For instance, users can reach their Skype Ltd. client at home to place less expensive long-distance calls while out and about. Users with media players on their cellphones can grab MP3s off their home computers.

SoonR users download a small application to their computer at home and link to it using a standard html-based browser on their cellphone data service. The company is working to make its product operable on enhanced mobile Web browsers made by Openwave Systems Inc. (Nasdaq: OPWV) and Opera Software ASA . SoonR users can also use Microsoft Corp. (Nasdaq: MSFT), Google (Nasdaq: GOOG), and Yahoo Inc. (Nasdaq: YHOO) desktop search tools to search for documents on their home PCs using their cellphones. SoonR claims it has been granted a series of patents protecting its technology, should the carriers decide to build a similar service themselves.



So is it an idea that can stick? The company has already made some progress on customers. SoonR says 12 wireless and broadband carriers around the world are testing the technology to offer mobile desktop access to their subscribers. Melinda Rogers, VP of venture investments at one of those broadband providers, Rogers Communications Inc. (NYSE: RG; Toronto: RCI), decided to personally invest in the company. Most recently, the Indian operator Tata Indicom signed up to offer the service after reading about SoonR at a blog site.

Does the company have the personnel to pull it off? The management team looks competent. SoonR CEO Martin Frid-Nielsen, CTO Steven Boye, and VP of Engineering Lars Gunnersen all worked at Borland in the 80s, where they led the development of the old Quattro Pro spreadsheet application. They’re also credited with developing the first personal organizer for the PC, Borland’s “Sidekick,” as well as an early product that synchronizes the PC desktop with a mobile device. Frid-Nielson later founded the Web development software company NetObjects and brought Boye and Gunnersen aboard. There, the three developed some pioneering Web authoring tools such as NetObjects Fusion. NetObjects was sold to Merant, which was then sold to Serena Software Inc. for $400 million in 2004. Frid-Nielsen, Boye, and Gunnersen lit out to start SoonR.

The company was launched in October 2004 and has raised $4 million in one round. Among its investors are Sand Hill Capital co-founder William Stewart, a valley VIP who has raised funds for WebTV (sold to Microsoft Corp. (Nasdaq: MSFT)) and Packet Engines (sold to Alcatel (NYSE: ALA; Paris: CGEP:PA)). PalmSource Inc. (Nasdaq: PSRC) interim CEO Patrick McVeigh is also a personal investor.

Next Page: M2Z Networks

One hallmark of a startup worth watching, besides the strength of its board and backers, is the absolute BIGness of its vision. When a startup shoots for the stars, it's great fun to follow the meteoric rise – or the earth-shaking implosion – that follows.

In the case of M2Z Networks Inc. , founded in December 2005, we have a startup founded by two well known blokes: Milo Medin, former CTO of @Home, and John Muleta, former head of the Federal Communications Commission (FCC) 's Wireless Telecommunications Bureau. They have three solid venture capital backers: Kleiner Perkins Caufield & Byers , Charles River Ventures , and Redpoint Ventures . Finally, there's the board, led by KCPB's John Doerr, the man with his fingerprints on some of the most spectacular successes (Amazon.com) – and failures (GO Corp.) – in Internet history.

Now for the "bigness" part. The company is aiming to build a nationwide wireless network (384 kbit/s upstream, 128 kbit/s downstream) on the 2,155-to-2,175 MHz spectrum band. This network will be free, family-friendly, and won't cost the government or taxpayers a thing to build or use. In fact, if the network helps the government scrap the Universal Service Fund, the company's spectrum application with the FCC claims, it would save the government "$8.4 to $20.5 billion over 25 years."

M2Z acknowledges its plan is aggressive, but the company claims it can, in exchange for an exclusive license to the spectrum it's requesting, cover 33 percent of the nation within three years of getting the green light. The company says it will have 95 percent of the U.S. covered by its broadband network by the tenth year after it gets its spectrum license.

With off-the-shelf, WiMax-compatible hardware, M2Z says everyone can use its network – from cops to kids and everyone in between. The company will offer faster data rates as part of a premium service, and it will use revenues from that service to pay the U.S. Treasury 5 percent of its gross revenues as part of a usage fee for the exclusive spectrum license.

There's no word on how quickly the FCC will weigh in on M2Z's spectrum application. Details on the business plan are also funny. With a big idea like this, however, sometimes its more important to look at the potential scale of the operation before the business model is fully formed. (Remember Google?)

Next Page: Gigle Semiconductor

No, this isn’t a startup funded by Jennifer Lopez and Ben Affleck. Gigle Semiconductor is a chip company focused on home networking. It's a contentious area, where low prices will carry the day, and high volumes will be paramount for survival.

Gigle has the right heritage for the challenge. Among the founders, CTO Jed Hurwitz and COO Mike Wilson bring in the experience with high-volume consumer markets. They hail from European chip giant STMicroelectronics NV (NYSE: STM), where they spearheaded a digital-imaging group that's now a $500 million business.

The two other founders, CEO Juan Carlos Riveiro and VP of operations Hakan Fouren, bring a home-networking background from Design of Systems on Silicon (DS2) , a chip company specializing in powerline communications. But Riveiro, who was DS2's CTO, says he wants Gigle to be more than a powerline company. That implies Gigle's chips would have interfaces for phone lines and cable as well. Gigle might also cover wireless possibilities by making its chip suitable to sit alongside wireless chipsets.

The four founders had met one another through the normal course of business and were looking for something new to tackle. Over an evening meeting, they hashed out Gigle's product idea, and the company was launched in September 2005.

Sounds simple enough, but the idea – still in its stealth sheath – was enough to attract some big names. Accel Partners and Pond Venture Partners Ltd. contributed equally to an $11 million round in January 2006.

Gigle is novel for having a headquarters split between Scotland (Hurwitz and Wilson) and Spain (Riveiro and Fouren). Including contractors, the employee count is up to 31. And yes, the name is pronounced "giggle" – go ahead and laugh.

As for the product, Gigle officials aren't even saying how close they are to market.

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