Raza Raises Fast Cash
Raza Foundries walks like a VC, it talks like a VC -- yet it's funded by some of the same venture capitalists against which it competes.
Maybe they're dazzled by the speed Raza purports to lend to the development of startups. This pitch has helped it raise $175 million to date from VCs and vendors alike.
Raza’s latest funding round, announced Monday, was a $125 million Series C round that brought the company’s post-money valuation to over $1 billion. Cisco Systems Inc. (Nasdaq: CSCO) led the round, with the assistance of Applied Micro Circuits Corp. (Nasdaq: AMCC), Infineon Technologies AG (NYSE: ISX), LSI Logic (NYSE: LSI), PMC-Sierra Inc. (Nasdaq: PMCS), Siemens AG (Frankfurt: SIE), Virata (Nasdaq: VRTA), and Xilinx Inc. (Nasdaq: XLTC).
Raza Foundries was seeded with money from Benchmark Capital. Its Series B round included investments from Benchmark, Technology Crossover Ventures, and Bowman Capital.
Saiyed Atiq Raza, former president and chief operating officer of Advanced Micro Devices (NYSE: AMD), founded Raza Foundries one year ago.
“For our Series B round, we wanted to expand our contacts in the venture capital arena, since what we do is complementary to VCs,” says Dana Krelle, Raza’s vice president of market development. “Once we did that, our attention was turned to getting strategic investors that are either suppliers or customers of the companies that we are building,” he says.
In many ways, Raza Foundries is a venture capital firm. It typically takes a 25 to 50 percent stake in a young equipment vendor, component maker, or network software company in exchange for startup capital and whatever nurturing is needed to help the company succeed.
Unlike some VCs, though, Raza promises not to commandeer the CEO post at a portfolio company. “We never take the CEO role in a company,” Krelle explains. “If the core team doesn’t have a clear leader among them, we have them elect one.”
The logic here, Krelle explains, is that naming a gray-haired CEO can cause conflict with a company’s founders and may stunt the growth of a company during its first six months.
That doesn't mean Raza will idly watch a portfolio company buckle under the guidance of a novice chief executive. “By the time we start talking with Wall Street, we will have taken the steps to find the permanent CEO of the company,” Krelle says. “We just don’t do that right at the beginning.”
Raza also installs its own staff in its portfolio companies to take care of building various departments, such as human resources, accounting, and legal, that are essential to a company’s growth. These transitional workers won’t leave the portfolio company until they’ve hired their own replacements.
With just the right finesse, Raza Foundries manages to assume control over most of the working parts of a company without scaring off its founders (see Estrin Launches "Perpetual Startup" ).
“When we are involved with a company, we are able to accelerate their success much faster than any venture company can,” Krelle says. “We are in some competition with the venture capitalists because they are out to do some of the same things. But we think we do them in a much better way.”
Though Raza Foundries has yet to see one of its portfolio companies pull off a successful IPO, it did help start Maple Optical Systems, which closed a $50 million funding round in October (see Maple Gets $50M for MPLS Box). Raza also helped YuniNetworks Inc. find its way into AMCC’s arms via a $241 million acquisition in April (see Semiconductor Merger Mania).
Despite its trajectory, though, Raza Foundries is a startup like any other. It must constantly be careful not to grow too fast or to spread its 60 staffers across its 14 portfolio companies too thinly.
A look at a listing of Atiq Raza’s various executive positions suggests this will be a tough task -- especially in these times when startups are so starved for any advantage they can get in the race to launch a product. According to data from Venture Economics, Mr. Raza sits on the boards of 13 companies, 10 of which are funded by Raza Foundries.
Also, as Raza Foundries becomes linked to more and more firms, it will have a tough time hiring talent that doesn’t come from either one of its investors or its portfolio companies. "If we have a choice between several people, and everything else is equal, we’d prefer to take the person from outside our community," says Krelle. "But this is capitalism, and if we find the right person and they are interested in the opportunity, then we’ll go after that person.”
As for its own future, Krelle says Raza Foundries expects to take itself public in the next 12 months. “What’s been going on in the stock market is a positive thing, because the market has gone back to looking for quality. The market's being rational now, and that will work in our favor because we’re exactly delivering what investors are looking for -- real revenues and real profits.”
-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com