Pluris CEO Bolts
The move comes just after Pluris completed a contentious fifth round of funding.
Pluris closed the $53 million round in February, bringing the total amount raised to $215 million (see Washout Rains $53M on Pluris). Notably, three of the company’s previous investors dropped out of the round. The remaining investors, J.P. Morgan & Co., ComVentures, and Crescendo Ventures restructured the equity to entice investors and employees to stick with the company. This is commonly known in the venture-capital community as a "washout" or "cram-down" round, wherein the valuation is so much lower than previous rounds that it massively dilutes previous investors' stakes.
The official word from the company is that Kennedy is leaving to pursue "other interests." But a source close to Pluris says that isn’t the whole story.
"Let’s just say there was strain between Joe and the board during the last round of financing," says the source, who asked not to be named. "While some of this was mitigated by the closing of that round, not of all of the hard feelings went away."
Kennedy says he bears no ill feelings toward Pluris’s VCs. “I’m not at all bitter,” he says. “But I did learn one thing. Now more than ever, it's important to understand the quality of your investors. Everybody’s a nice guy at a party, but you need to be able to count on them for substantive support when things get tough. When you’re in a financial crunch, everyone thinks they are an operations expert even when the experience isn’t there.”
Well, at least he's not bitter.
Kennedy, whose stock option vesting was accelerated as part of his departure package, also says that his leaving should not be interpreted as a negative sign for the company’s health. In fact, he says the company is poised to finally begin shipping products for revenue. Trials at Qwest Communications International Inc. (NYSE: Q), Level 3 Communications Inc. (Nasdaq: LVLT), and Deutsche Telekom AG (NYSE: DT) have all gone well, he stresses.
Even so, this might not mean a whole lot at the end of the day. Qwest has already stated several times that it is cutting its budget and not spending on new network builds or upgrades (see Qwest Keeps Cutting). Pluris is also trying to enter a market where Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR) dominate with 99 percent market share. What's more, Juniper just warned that its revenues would be less than expected for the first quarter of 2002 (see Juniper: Guidance Down, Stock Up).
Other next-generation router startups include Caspian Networks, Chiaro Networks, and Hyperchip Inc. (see A New Optical Taxonomy). Then there is Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7), which has been around just as long as Pluris: Although the company went through a successful IPO in 2000 and has actually shipped some product to customers, it still garners roughly one percent of the total core-router market.
Kennedy officially resigned two weeks ago, but he has agreed to stay on at the company until the board is able to find a suitable replacement. He says he doesn’t expect that process to take long.
“If you’re a potential CEO, this is perfect time to enter the company,” he says. “You are going to know what is going to happen to this company within nine months. It’s not like joining an earlier-stage company where you have to spend three or four years figuring out if it’s going to work or not. It’s relatively low risk.”
As for the future, Kennedy says he has no immediate plans. But most likely he will end up at another startup. He has never taken a private company public, but Kennedy has led his last three startups to acquisitions.
The Gigabit Ethernet startup Rapid City, where he was chairman and CEO, was sold to Bay Networks in 1997. Kennedy worked as vice president and general manager of Bay Networks’ switching division until June of 1998, when the company was acquired by Nortel Networks Corp. (NYSE/Toronto: NT). Prior to his tenure at Rapid City, Kennedy was president and CEO of Hughes LAN Systems, maker of bridges, routers, terminal servers and other LAN products. That sold to Whittaker Corp. in 1995. And before Hughes, he helped found Phoenix Technology, a LAN security company, which was sold to Bridge Communications.
— Marguerite Reardon, Senior Editor, Light Reading