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Andiamo Crew Reunites With Cisco

Former Cisco Systems Inc. (Nasdaq: CSCO) spin-in exec Mario Mazzola is back in the fold -- or 80 percent there, anyway.

Late yesterday, Cisco announced it's taken 80 percent ownership of Nuova Systems, the startup founded by Mazzola, Luca Cafiero, Prem Jain, and Soni Jiandani -- a quartet of former Cisco executives who left the company just more than a year ago. (See Cisco Funds Nuova and Cisco Names Data Chief.)

They left to found Nuova, apparently, and the project has been a source of Silicon Valley buzz ever since. Now up to 76 employees, Nuova was funded by its founders and reportedly turned down all venture capital offers. (See Cisco/Andiamo Vets Try Something 'Nuova'.)

Mazzola and company have done this sort of thing before, sort of. They were at the helm of Andiamo Systems, a storage switching company that was an explicit "spin-in" -- that is, Cisco nurtured the company with the intention of acquiring it. (See Cisco’s Secret SAN Strategies Revealed, Cisco Owns Up to Andiamo, and Cisco Buys Andiamo Finally.)

That wasn't the case this time. "They funded the company independently," a Cisco spokesman says, noting the execs didn't leave Cisco knowing they'd get acquired back in. "Subsequently after the formation, they talked with Cisco, and then this deal came about," the spokesman says.

Nuova's product still isn't being revealed, but Cisco notes it's a data center technology that's complementary to routers, storage switches, and server networking -- meaning, it's not replacing anything in Cisco's lineup.

The going theory is that Nuova is working on virtualization, a way of controlling traffic in order to better utilize server resources. It's a popular topic among startups. (See Virtualization Startups Gain Steam.)

There's at least some MPLS know-how inside the company. A Nuova employee helped write a July 2006 Internet Engineering Task Force (IETF) draft, "A Framework for Inter-Domain Multiprotocol Label Switching."

Cisco is giving Nuova $50 million and possibly another $42 million, presumably dependent on performance. Nuova becomes a majority-owned subsidiary of Cisco.

Cisco has an option to purchase the 20 percent of Nuova it doesn't own, a deal that would happen in late fiscal 2008 or early fiscal 2009, according to Cisco's press release. (Cisco's fiscal year ends in July.) "The potential payouts made under the call option are primarily based on the success of Nuova Systems' products sold through Cisco, with a minimum potential payout of $10 million and a maximum total payout of $578 million," the release says.

— Craig Matsumoto, Senior Editor, Light Reading

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jasanz 12/5/2012 | 3:44:59 AM
re: Andiamo Crew Reunites With Cisco The story about people leaving Cisco and then being bought back has happened before...

Remember when Cisco bought Komodo Technologies, to get those fantastic ATA 186 and 188 boxes? Most of those guys left Komodo... founded Sipura... and Cisco bought them again last year... :)
brahmos 12/5/2012 | 3:44:57 AM
re: Andiamo Crew Reunites With Cisco as a tool to demotivate the rank-n-file troopers, spin-ins are very effective.
research101 12/5/2012 | 3:44:56 AM
re: Andiamo Crew Reunites With Cisco another way to overpay some employees IGÇÖm surprised this hasnGÇÖt been flagged by the SEC
TripleNippel 12/5/2012 | 3:44:55 AM
re: Andiamo Crew Reunites With Cisco this is worse than post dating stock options. they got to set their option price at basically zero.

mr zippy 12/5/2012 | 3:44:49 AM
re: Andiamo Crew Reunites With Cisco another way to overpay some employees IGÇÖm surprised this hasnGÇÖt been flagged by the SEC

Maybe not. This idea of "spin ins" sounds to me like textbook "The Innovator's Dilema" technique of avoiding having a large and successful company (and it's company "infrastructure", such as politics, business focus, etc.) suppressing a new innovation because it couldn't be successful relative to the company, but could be quite successful in its target market (e.g $10M annual revenue is not going to get proper management and staff commitment from a company with revenue's in the billions. OTOH, for a company with no revenue source, $10M is a whole lot of revenue, and as long as the employees are stakeholders in the companies success, they'll work their butts' off.)

If Cisco are using this technique, then I'd be confident to suggest that the "spin in" employees salaries etc. are directly tied to the success of the spin in, and it's product's potential in the market it fits within. They'd be no incentive to perform if there was no penalty for failure.
kiloSierra 12/5/2012 | 3:44:48 AM
re: Andiamo Crew Reunites With Cisco They'd be no incentive to perform if there was no penalty for failure.

And that's the crux of the matter.

1. Those lucky few Cisco employees who joined Andiamo while still being Cisco employees (they were "seconded") risked absolutely nothing. They kept their CSCO stock options (!!), although vesting was frozen while they were working at Andiamo. There was only upside.

2. Andiamo was completely (and very well!!) funded by Cisco -- no ordinary startup could have raised that much cash from VCs.

3. Andiamo had access to a ton of Cisco resources: office space, Cisco's purchasing power (to negotiate with suppliers), Cisco engineering talent, ...

Even with all those advantages, the Andiamo acquisition has yet to pay for itself, not only in real $$$ expenses, but also in dented employee morale.

As a CSCO shareholder, it really doesn't sound like Andiamo was a good deal for me.

I hope this new thing turns out better...
brahmos 12/5/2012 | 3:44:48 AM
re: Andiamo Crew Reunites With Cisco csco has developed products like CRS-1, ESR10K, 7600 and a lot more without these spin-in plays. when it gets to the point of people needing "significant upside" to work hard (as if their fat salaries & 30% bonuses are just to make them show up)....


brahmos 12/5/2012 | 3:44:47 AM
re: Andiamo Crew Reunites With Cisco for a span of 4 yrs 2002-3-4-5 a lot of people made > 25% bonus. outstanding ones made > 35%. the target is lower but it gets multiplied with other factors which are usually > 1.

in rest of industry people make around 10% bonus I hear ?

add to that job security. I find it hard to believe those grade11+ in cisco have much reason to feel cheated / underpaid (?)

jasanz 12/5/2012 | 3:44:47 AM
re: Andiamo Crew Reunites With Cisco Brahmo,

Do you really think that CSCO is paying "fat salaries" and 30% bonuses to the average engineer? I dont work for CSCO but I know for a fact that CSCO pays the same as many others. Perhaps sometimes they even pay less because working at CSCO means some more security than other vendors of service providers...

And the matter of 30% bonus... I think that the target used to be around 15%... hitting twenty something on a good year...
kiloSierra 12/5/2012 | 3:44:47 AM
re: Andiamo Crew Reunites With Cisco
25% of what?

Also, what about those groups that hire/promoted conservatively, and whose "average" Grade 10 is *way* above the average Grade 11 (12?) in most average BUs?

Which BU within Cisco has the highest revenue per employee? How does that compare with those employees' grade level?

Does that seem like those employees are under-promoted, and under-paid?
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