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Roshnee to Split in Two

Light Reading
News Analysis
Light Reading
9/20/2000

The news is out that Roshnee Corp., a metro area network equipment startup, is going to split into two -- a system vendor called Inara Networks based in San Jose, Calif., and a component manufacturer in Ottawa that will probably retain the Roshnee name. Details will be announced in the next few weeks.

Raj Singh, Roshnee’s founder, says that history is repeating itself -- that the current breakup is similar to the one that occurred at Fiberlane, another startup he founded.

That breakup became something of a legend in startup history. Fiberlane split three ways in 1998, and two of the resultant startups, Cerent and Siara Systems, sold for a combined total of more than $11 billion in the following year. The third startup, Cyras Systems Inc., is preparing for an IPO that could create an enormous splash on Wall Street (see Cyras CEO: 'We're Cleaner').

The circumstances surrounding the breakup of Roshnee bear some similarities with Fiberlane's. Roshnee has had a components division in Ottawa and a systems division in San Jose since it was set up earlier this year (see Fiberlane Founder Finds Another Startup). But now Singh says the time has come for these divisions to go their separate ways.

“Each group has equally viable technology that can create separate multibillion-dollar companies,” he says. “With the demand so high for components and the supply so low, we saw there was a bigger business opportunity for a separate component company.

“The two groups are too far from each other,” Singh adds. “Managing two companies in two different locations from one place is difficult. But when you have divisions that have their own sustainable technology, it’s better to have them managed separately. We did the same thing with Fiberlane.”

Roshnee is also similar to Fiberlane in suffering from internal strife. Two executives quit the company in July (see Raj Singh's Sour Note), and in the past few weeks Singh has temporarily replaced Vinay Kumar as CEO. Singh dismisses these problems as inevitable “people issues."

The big question, of course, is whether Roshnee’s spinoffs can repeat the success of their Fiberlane predecessors -- and that’s a tough one to call, because the company has kept its cards close to its vest.

The reality may be that the components division is doing better than the systems division, reading between the lines of comments made by Robert Coneybeer, a Roshnee board member and general partner of New Enterprise Associates, which led the $11 million first round of financing the company got in March 2000. “The Ottawa team developing the components is still focused on their goal and is completely intact,” he says, implying that the same can’t be said of the San Jose team.

All the same, Coneybeer says that he’s excited by the latest developments at Roshnee. “From the very beginning we knew that this was going to be bleeding-edge technology,” he says. Roshnee is financially sound, he adds. “It never had a big burn rate. They still have the majority of their cash."

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

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