A New Chance for Old Startups?

A new kind of venture capital firm is opening in the U.K. -- one dedicated to helping salvage aging startups from BT Brightstar, the incubator of BTexact Technologies, British Telecommunications plc (BT)'s test lab.

If all goes as planned, a new firm called NVP Brightstar will start life in Ipswich by the end of this month. It will include four selected telecom startups from BT Brightstar, which will close its operations.

Two former BT Brightstar employees will man the office, including Harry Berry, formerly head of BT Brightstar, and Chris Winter, its CTO. Other management help will be provided by partners in New Jersey's New Venture Partners LLC, the group that spun off from the in-house VC group at Lucent Technologies Inc. (NYSE: LU) in December 2001. Cash backing and advice are coming from Coller Capital, a U.K. firm specializing in buying aging startups and either liquidating or finding new backing for them. Coller was the money behind the Lucent deal.

It's an arrangement that illustrates a key trend in corporate telecom: Namely, that carriers and equipment vendors are looking to shed the venture-capital operations they started back in the boom (see VC Funding Dips Again). Like exotic pets who've outgrown their homes, in-house incubators have become a hindrance and an expense.

"It gets harder and harder, given the market pressures in telecom, for companies to invest in new businesses that have long-term payoffs," says New Venture Partners' managing partner Andrew Garman, who like his colleagues will be lending a hand at NVP Brightstar.

For Garman and the others behind NVP Brightstar, the need presents an opportunity, since many startups in corporate incubators have considerable value.

Three of the firms that are leaving BTexact for NVP Brightstar, for instance, are already shipping products for revenue: a.p.solve, which makes workforce automation software; Azure Solutions, a provider of revenue tracking software for carriers; and Evolved Networks, which makes an expert system for telecom design. But they need more help than BT can give them to get off on their own.

A fourth company, Microwave Photonics, a developer of optical technology for use in cellular systems and wireless LANs, will be added to NVP Brightstar as well. "It's still in the development stage, but it's interesting and exciting," says Garman.

The four initial firms in the NVP Brightstar portfolio will be incorporated as independent companies by the end of this month, as part of the closing of the deal. Each will later get an infusion from the overall fund, which is now worth about $100 million. The partners will later seek funding from other investors.

Other companies in the BT Brightstar incubator may come along later. For now, they will remain with BTexact. "We'll keep an eye on them," Garman says. Key to the NVP Brightstar venture will be an exclusive arrangement with BTexact, whereby NVP Brightstar gets to launch companies that formerly would have gone to the in-house incubator. NVP Brightstar also gets right of first refusal on any companies in BTexact's incubator that BTexact may choose to part with.

The main financial backing for the NVP Brightstar project is coming from Coller Capital, which owns a 77 percent stake in the venture. BT owns the remaining 23 percent stake. How much of the $100 million in the fund now was donated by each party hasn't been disclosed.

Garman says this is only the start for his firm, which sees a good business in running the aging incubators of big telecom firms -- along with deep-pocket partner Coller. "We'd like to put together several of these," he says.

— Mary Jander, Senior Editor, Light Reading

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