Cereva update....
Cereva's board changes: not all good news
By Beth Healy, 8/20/2001
ou've got to wonder what's up when they bring in the big guns.
Cereva Networks last week announced that venture heavyweights Paul Ferri of Matrix Partners and Ed Anderson of North Bridge Venture Partners had joined the Internet storage-system maker's board of directors. The move was positioned as good news.
But coming more than two years after the company's launch, and more than a year after the last big batch of funding was made public, the story can't be all good.
It's doubtful that Ferri and Anderson joined the Marlborough company's board to watch it coast to an IPO. (In case you haven't noticed, nobody's going public these days.)
But both VCs, founders of their firms, have taken the unusual step of replacing their younger partners from the board.
Cereva was founded in 1998 as an Internet infrastructure company, with a system to make data flow more efficiently over the Web. Matrix and North Bridge, both of Waltham, were backers of Cereva's first round of about $8 million. Jeff McCarthy of North Bridge and David Schantz of Matrix joined the company's bard.
Then, in May 2000, Cereva raised a big second round of $58.5 million, led by Wall Street's Goldman, Sachs & Co., and Worldview Technology Partners of Palo Alto, Calif. Matrix and North Bridge participated, along with Oak Investment Partners of Westport, Conn.
By January of this year, Cereva was positioning itself as a storage-systems company - a hotter space than infrastructure. The company had hired a chief financial officer, often a sign that a tech company aims eventually to go public. In April, it was billing itself as ''the leader in Internet storage solutions.'' Red Herring Magazine named the company one of the top 50 private US companies.
Flash forward to May: Cereva dumped CEO Alan Lutz, a veteran of Newbridge Networks, Compaq, and Nortel, and named board member Mahesh Ganmukhi to succeed him. Ganmukhi is an alumnus of Lucent Technologies, and Acton switchmaker Ignitus Communications. More to the point, he once worked for Cascade Communications, a trophy investment of both Matrix and North Bridge.
In an interview Friday, Ganmukhi said his old friends Ferri and Anderson joined the board simply because the three of them go way back, and he wanted to work with them again.
''They both have a lot of business experience, financial experience,'' he said. ''They are really the geniuses in the field.''
And, he added, ''What prompted them coming on the board of our company now is ... we're coming to maturity, and a different kind of expertise [is] needed.''
The extent of the issues at Cereva weren't clear last week. Jamie Gruener, a senior analyst at the Yankee Group, a Boston research firm, said the many storage start-ups of the past two years are facing difficult times. Not only are their potential customers spending less money in the slower economy but, as with other sectors in high-tech, there are too many companies chasing the prize.
''It's a really tumultuous time, and I think we're going to see consolidation of these companies in the next 12 to 18 months,'' Gruener said.
Matrix's Ferri, 62, said in a Globe interview last week that he is continuing to join the boards
of portfolio companies, including at least one that's facing difficulties.
Tim Barrows, Ferri's successor as managing general partner at Matrix, said Cereva is not troubled and that ''we have high aspirations for the company.'' He also said the partners who have worked with Cereva so far, McCarthy and Schantz, will continue to be involved with the start-up. The two, who both joined their firms relatively recently, in 1998, ''have put a huge amount of effort into the company,'' he said.
Barrows indicated Matrix has put more money into the company since the round announced last May. But if there has been a subsequent round, it clearly has not been made public.
In press releases, Cereva has claimed it raised $110 million in financing, but that's not all equity, or venture money. Some $20 million was garnered in the form of bank credit or equipment leasing. Last September, Cereva was listed as one of Comdisco Venture's 15 largest commitments. (Comdisco filed for bankruptcy protection last month.) On its Web site, the company says it has raised $86.4 million plus the $20 million in credit.
Cereva chief Ganmukhi said the company is working on a round of financing that it will announce in the near future.
''Going public,'' he said, ''is further out.'' |
