Optical/IP Networks

Coup at Cratos

It appears the investors behind Cratos Networks have engineered a bloody coup, resulting in the removal of its CEO and a reconfiguration of the company’s board.

Late last month, Cratos CEO and founder Sanjeev Newarikar was escorted out of the Chelmsford, Mass., headquarters by bodyguards, according to sources. Jack Skydel, vice president of business development and founding member of Comstellar Technologies Inc., the venture capital firm that bankrolled the company, has taken over as the interim CEO.

“Sanjeev is not the first founder, nor will he be the last, who has left a company,” says Skydel. “He made a tremendous contribution, but not all founders can go along for the ride.”

Here’s another twist: Raj Singh, the former president and founder at Comstellar, who orginally led the Cratos investment, has given up his Cratos board seat and is now taking a backseat role at Comstellar.

Singh, now pursuing a career as a film producer, was not available for comment. He is on vacation from Comstellar until July and is said to be busy shooting his first film.

Newarikar and Singh were the marquee names behind Cratos. Both had worked together at Fiberlane Communications, a pioneering metro networking company that was broken up and later evolved into Cerent, Siara, and Cyras, all successful startups that were sold for billions of dollars (see Fiberlane Founder Finds Another Startup). Newarikar was the technical visionary who had also worked at Ascend Communications and Lucent Technologies Inc. (NYSE: LU). Singh had a string of hits with his Fiberlane offspring, but he's struggled to get his latest startups off the ground (see Raj Singh's Sour Note).

So what happened at Cratos? Apparently the problems developed during the second round of funding.

The story goes like this, says one source close to the situation:

On April 19th, 2001, Newarikar received a term sheet for Cratos's second round of funding, to be led jointly by Charter Ventures and First Hand Capital Management Inc. The next day, Cratos’s attorney sent some term sheet changes to the investors.

On April 21, Raj Singh reportedly called Newarikar to tell him that Comstellar was organizing a meeting to decide the fate of the company. He also informed Newarikar that he would be resigning from his Cratos board seat.

Two days later, Cratos still had not heard back from the investors, a situation that was “very unusual,” according to the source. Finally, on the evening of April 23, Charter Ventures called to inform Newarikar that it would be passing on the deal.

The next day, Newarikar was escorted out of the building by “hired bodyguards." Comstellar had apparently converted its preferred shares of the company to common shares, so that it would hold a majority in the company. Then it allegedly canned the entire board of directors and replaced them with Comstellar executives.

Comstellar told employees the next day that Charter was not satisfied with changes in the term sheet prepared by Cratos. The source says that when Newarikar was asked about this issue, he said he wasn’t aware of it.

Skydel says that he cannot comment on the specifics of what happened with Newarikar. But a spokesperson for the company denies allegations that Newarikar’s departure had something to do with potential investors.

“We’re happy with the technology development,” says Skydel. “Now we are adding some more management to take the company to the next level. In that context, when these changes happen not everyone goes along for the ride.”

Singh left the Cratos board about the same time that Newarikar was asked to leave (see Raj Singh's Sour Note). But Skydel says that Singh’s resignation has nothing to do with Newarikar’s leaving.

“He has been wanting to scale back his workload for sometime, and he has resigned from a number of his positions within Comstellar,” says Skydel. “He’s using this time to pursue other interests.”

In a recent interview with Light Reading, Newarikar described the Cratos product as a cross between a Cisco Systems Inc. (Nasdaq: CSCO) 15454, a Redback Networks Inc. (Nasdaq: RBAK) SmartEdge, and a Ciena Corp. (Nasdaq: CIEN) CoreDirector (see Cratos Networks Tips Its Hand). Skydel says none of the team left with Newarikar, but they are in the process of filling some key business-level positions.

Unlike Newarikar, Skydel does not have a technical background. Before helping found Comstellar, he had been a vice president of Lehman Brothers.

“My expertise is clearly on the financial side,” says Skydel. “I’ve never built a company from scratch, and it probably won’t ever happen in my lifetime. I’m just the interim CEO until we can get someone else in here.”

-- Marguerite Reardon, Senior Editor, Light Reading

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flanker 12/4/2012 | 8:27:47 PM
re: Coup at Cratos
Didn't Morganthaler kick Tachion's founder out and install their own VC? Jeff Matros?

Looks like Comstellar is pulling a Morganthaler.


flanker 12/4/2012 | 8:27:47 PM
re: Coup at Cratos
Didn't Morganthaler kick Tachion's founder out and install their own VC? Jeff Matros?

Looks like Comstellar is pulling a Morganthaler.


Bonehead 12/4/2012 | 8:24:17 PM
re: Coup at Cratos I am not familiar with what went on at tachion but I doubt there is any similarity in terms of what went on behind the scenes. In this case I am surprised Comstellar let the little dictator twerp stay so long. Had he stayed on there would have been no hope for survival. Now at least they have a slim chance. He should payback any money Comstellar gave him.
cologne 12/4/2012 | 8:21:53 PM
re: Coup at Cratos Bonehead,
Obviously you know him well, and have probably worked with him in the past. My condolences.
Often I tell people stories about him, and they stand with stunned silence, jaws dropped, convinced that I'm embellishing. But look at the bright side ... if HE can start a company and get $8M in funding, there's hope for even the most incompetent entrepreneur.
Here's a trivia test ... how many companies have fired him?
lala 12/4/2012 | 8:17:45 PM
re: Coup at Cratos I can't believe there doors are still open. Comsteller only put in 2.5 million which would only last until mid June. Also the secret location in Richardson is looking to down size I hear. This office only consist of 8 employees now does this mean they are closing down or going bankrupt. I also heard that they layed off some of the contractors as well as some management. Who has the arcitecture for this product could some of it belong to another co? Possibley Cisco.
Bonehead 12/4/2012 | 8:17:43 PM
re: Coup at Cratos Thanks for the condolences, I deserve it.
I am curious , do you know how many times he was fired ?

I was told of two times prior to Cratos (makes 3).

Trivia Question for Cologne; Do you know how long he lasted at each and any of the reasons he was fired besides the obvious personality flaw and incompetence ?

I am also wondering if he is legal trouble. If not it is surprising, those that worked closely with him should know why.
cologne 12/4/2012 | 8:16:33 PM
re: Coup at Cratos I not absolutely sure of the exact number, but I believe it is closer to twice your guess. (I know more than I'm willing to say in this notes string, just to be on the safe side.) Despite what a company may have stated as the "actual cause", you can bet that everyone reached the same conclusions: nobody can work with the guy, and he doesn't produce.
I actually don't know of any current legal trouble, but I know of plenty of reasons he should have been sued in the past.
- cologne
supertramp 12/4/2012 | 8:16:19 PM
re: Coup at Cratos The word locally here is that cratos's VP Engineering was setting up the founder by feeding false information to the investors. He was also trying to turn employees against the founder by fooling them. Recently, he even bragged about how easily he could fool his directors and turn them against the founder.

Apparently he has been introducing himself as the founder of cratos and takes credit for the company. At Unisphere, he took credit for other people's work and looks like he is doing the same at Cratos.

This guy is incompetant and very political. Most engineers won't go work for him.

I feel sorry for engineers who work for him and don't realize that they are getting fooled all the time.
Bonehead 12/4/2012 | 8:16:12 PM
re: Coup at Cratos Nice Try Sanjeev (Supertramp).

You are good at spinning stories against others.
Maybe you can find talent in writing fictional stories now that you have tome.
netskeptic 12/4/2012 | 8:16:10 PM
re: Coup at Cratos > Completely untrue comments regarding the VP at
> Cratos. Sounds like Supertramp is SN for sure.

Forgive my ignorance, can anybody divulge the name of this VP ? Just curious and there is nothing on the cratos web site.



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