Calix in Billion Share Bind?
Sources say it may be so for Calix Networks, which has made quite a splash over the past few years with its $260 million in funding raised and its claim that it's sold more than 500 systems to more than 50 customers.
Two sources close to Calix, including one former employee, tell Light Reading that Calix now has some 1.2 billion shares outstanding -- meaning held by investors, employees, and executives. For a company that was once reportedly valued at $525 million, it will be interesting to see what Calix ultimately brings in, either from the public markets or an acquirer, and yet more interesting to see how its employees fare in the deal. The privately held company declined to comment on its finances and ownership structure.
Of course, share dilution is a problem that isn't particular to Calix. It points to the troubles of any startup that raised money at the stratospheric valuations of 1999 and 2000.
Things started out modestly enough for Calix. According to the company's articles of incorporation, Calix was authorized to issue 25 million shares as of December 1999. But then it issued more than 81 million shares as of August 2000, and then more than 87.7 million shares as of February 2001.
That brought the share count to nearly 200 million by February 2001 when the public records of investment ended. After that, it's likely that Calix had to issue many millions more to draw in new investors in later rounds, at much lower valuations. This is commonly referred to a washout or down round in VC parlance, in which earlier investors are heavily diluted to pave the way for new money at lower valuations (see Washed Out in the Valley).
Light Reading's sources say this is exactly what happened -- and that Calix issued more than 900 million shares in just a little more than two years.
Bart Schachter, founder of Blueprint Ventures, said he is not familiar with the specifics of Calix. But he said the idea of a company having a billion shares is not so surprising, considering the scale of dilution that has happened in the startup industry.
"This is a way for the new investors to say 'I don't care what happened before, I'm only willing to pay market pricing if I'm going to invest in the company at all,' " he explains. "Diluting prior investors by a factor of 100 times is 'market' today, no matter how deep the pockets of current investors. In fact, these rounds are affecting those who invested the earliest and the most, especially in equipment companies."
In the case of Calix, what's not clear is the price paid per share for each of Calix's funding rounds, thus, Calix's valuation remains a mystery. Such a spike in outstanding shares also suggests that Calix's most recent funding round and the latest round of executive hirings have cost the company dearly. Indeed, unless early employees were issued new stock, it's likely that the holdings of early shareholders have been massively diluted.
Light Reading attempted to contact several of Calix's board members, particularly those hailing from venture capital companies, but got no responses.
— Phil Harvey, Senior Editor, and Scott Raynovich, US Editor, Light Reading