RealChip Turns to Redwood Rajs
RealChip Communications Inc., a fabless semiconductor startup working on voice-over-IP chips, is a perfect example. Last week the company announced that it was replacing its CEO, John Zucker, who had been with the company since last year, along with chairman of the board and co-founder Raj Raghavan. The replacements? Two venture capitalists from Redwood Venture Partners LLC known as the “Rajs” -- Raj Singh and Raj Parekh, who founded Redwood in 1997 and have a well known proclivity for selling companies.
The mission? Singh and Parekh are expected to raise cash for RealChip and perhaps put it on the road to an acquisition. Singh was named CEO, replacing Zucker. And Parekh was named the company’s chairman, replacing co-founder Raghavan.
“It was clear in the second quarter when things started to deteriorate that we needed to change our strategy and that we needed a new management team,” says Suresh Dholaklia, senior vice president of engineering and a founder of RealChip. “We needed people to work with our board, and everybody agreed to make the changes in October.”
According to Dholaklia, the transition of power was amicable. Zucker, who had been brought in as CEO, had been in retirement after working with Micron Technology Inc. And before that he had been executive vice president of Mitsubishi Electronics. He has once again returned to retirement, says Dholaklia, who adds that Raghavan has left the company he helped found to start work on a storage area networking startup.
“They wanted me because I relate more to startups in their first two years,” says Singh. “Zucker has more experience with large companies, preparing for an IPO, growing sales. I am more of an entrepreneur. We talked about it, and if things change in a year and we go for an IPO he might come back.”
Individually, the Rajs have had some success in the past. Singh’s claim to fame was his involvement with Fiberlane Communications, a company he helped found in 1996. After a tumultuous two years of internal disagreements, Fiberlane was broken up into two different companies in 1998: Cerent and Siara Systems. In 1999 Cerent was sold to Cisco Systems Inc. (Nasdaq: CSCO) for about $7 billion. And Siara was sold to Redback Networks Inc. (Nasdaq: RBAK) for $4.3 billion.
Parekh spent much of his career at Sun Microsystems Inc. (Nasdaq: SUNW) where he worked as vice president of engineering and CTO. He was also general manager of Java Products at Sun Microelectronics. Back in 1993 he also helped found Silicon Graphics Inc., today a publicly traded company that generated about $1.9 billion in revenue last year.
In 1997 the two teamed up to form Redwood Venture Partners, and in 2000 they helped form Comstellar Technologies Inc., a communications incubator.
While Redwood has a fairly respectable success rate so far, it hasn’t been able to top the success that Singh had in the late 1990s. About 10 of the 40 or so companies in the Redwood portfolio have been sold, including companies like Cyras, which was sold to Ciena Corp. (Nasdaq: CIEN) in March of 2001 for $1.1 billion; Catamaran Communications, which was sold to Infineon Technologies AG (NYSE/Frankfurt: IFX) for $250 million in April 2001; and SwitchOn, sold to PMC-Sierra Inc. (Nasdaq: PMCS) last September for $450 million. None of their companies have gone public.
And some have struggled. Roshnee, a company started by Singh, was split into two companies: Optivation and Inara Networks Inc. Optivation has faded out of view and Inara appears to be struggling. Others, like Cratos Networks, have also hit hard times. Then there is Corona Networks Inc., which was once called Campio. In the early days, Singh served as CEO, while Parekh was the chairman of the board. The jury is still out on the company, which plans to sell an aggregation and IP services switch to carriers, but it recently raised $40 million in venture funding (see Corona Networks Scores $40M).
Even though their recent track record may not be rock solid, RealChip is still betting that the Redwood Rajs have sufficient experience and connections to guide the company toward an acquisition, which in this market would be a huge success.
The company, which is nearing the end of its product development cycle, has raised a total of $26 million and is about to raise its third round of funding. Dholaklia says that getting Singh and Parekh on board will be critical to raising this next round of funding. And with another round, he hopes the company can sustain itself until it’s able to find a buyer or weather an IPO.
“We need a working product first,” he says. “But we also need to move to the next level, and we think that the Rajs can help us target key customers like Nortel and Cisco and raise money.”
As for Singh, he doesn't hide the short-term nature of the gig. He says he only plans to be at RealChip for a year. After that he will return to his newfound career as a producer of Indian movies. He has already been involved in completing and releasing two films this year.
— Marguerite Reardon, Senior Editor, Light Reading