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Life-Long Incubator Launched

Light Reading
News Analysis
Light Reading
7/12/2000

A group of telecom entrepreneurs launched a venture capital incubator yesterday called Comstellar Technologies Inc. The new company will create and support startups from their birth through IPO and beyond. The idea may appeal to first time entrepreneurs, but it could be a tougher sell to the more seasoned crowd, say current CEOs of start-ups.

Leading the team for Comstellar are experienced executives in the telecom industry with ties to companies like Sun Microsystems Inc., IBM Corp., Tellcordia Technologies Inc., Lehman Brothers, and Redwood Venture Partners LLC.

The most notable name in the pack is the company's president, Raj Singh, who founded StratumOne and Fiberlane, the company that spawned Cerent and Siara Systems - which were sold for a combined total of more than $11 billion last year. Since then, Singh has continued in the same vein (see Fiberlane Founder Finds Another Startup).

Comstellar will provide big company support such as capital investment, managerial support, marketing expertise, and industry contacts while also giving the start-ups freedom to direct their own destinies, says Sanjiv Ahuja, former president and COO of Telcordia and CEO of Comstellar.

Sounds like the pitch that every other incubator out there gives, right? But Comstellar says it is different because instead of merely getting a start-up from one round of financing to another, it plans to hold onto the companies all the way through IPO and beyond. A bold move, but one that Ahuja says will help Comstellar achieve its ultimate goal, which is to have a broad portfolio of companies from wireless component vendors to hardware system vendors all under one umbrella.

"Our objective is to have each start-up fit into a longer term strategy for building communications infrastructure," says Ahuja. "I think that we are unique in that we are taking the strengths of a start-up and melding them together with the strengths of a big company."

The model may sound appealing to first time entrepreneurs with few connections and not much business savvy, says Ed Kennedy, president and CEO of Ocular Networks Inc. But for those people who have been around the start-up block a few times, the deal seems less angelic and more like a long term deal with the devil - especially considering that Comstellar plans to take anywhere from 30 percent to 100 percent equity in these start-ups.

"This is my third start-up," says Jim Dunn, CEO of AirFiber Inc. "And I don't think that having all the big company stuff is such a good thing. In fact, I would say that it's more of a bad thing. It's definitely not worth giving up 50 percent of your company."

But for start-ups that don't know the ropes, experience and expertise from people like Raj Singh could be a tremendous help.

"The more you can leverage those who have done it before the better off you are," says Gordon Saussi, president and CEO of Megisto Systems, Inc., a 15 person IP start-up that just closed its first round of funding last month. "But the more you can do things for yourself, the more value you can maintain."

Comstellar has already raised $140 million in capital with investments led by Accel Partners and New Enterprise Associates. Other investors include Clarity Partners, First Analysis Venture Capital, Goldman, Sachs & Co., J.P. Morgan Ventures, Lehman Brothers, Mayfield Fund, Oak Investment Partners, and Soros Private Equity Partners. It plans to announce the first group of start-ups in the next couple of weeks.

by Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com

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