Venture firms pour $18M into Quadrant Int'l
By Peter Key
07/24/98
Philadelphia Business Journal
Pg. 1
Copyright Philadelphia Business Journal Inc. 1998
East Whiteland, PA, US, Middle Atlantic --
EAST WHITELAND -- Quadrant International , an emerging growth digital-video hardware and software firm that's attracted a lot of attention from PC makers, has received more than $18 million from a group of venture firms.
The financing was arranged by Lehman Brothers Inc., the New York-based investment bank. Participants included Atlantic Coastal Ventures LP of Stamford, Conn.; CSK Venture Capital of Tokyo and Exeter Group of New York.
Leonard Sharp, Quadrant's vice president of sales and marketing, said the company plans to use much of the money to increase staff so it can speed up development of new products. The increase will take Quadrant from 60 to 80 people, about twice a many as it employed at the beginning of the year.
Quadrant and the financiers backing it are banking on two things: the predicted merger of personal computers and home video and audio systems into information-entertainment centers; and Quadrant's ability to create the hardware and software that enables the components in these centers to convert digital code to sound and pictures and vice-versa.
Even if PCs, TVs and audio systems don't become one as quickly as anticipated, Quadrant should be fine. That's because the company is poised to exploit a trend that is just about here: the explosion in popularity of the digital video disc.
This year, computer manufacturers are expected to sell 10 million PCs with drives that read DVDs, Sharp said. Next year, he said, they are expected to sell 50 million machines' with the devices.
The reason is the increasing power and decreasing price of the chips that serve as the central processing units for PCs.
Until recently, few chips had enough power to simultaneously keep a computer running and process the signals from a DVD drive. That meant computer makers had to put in circuit boards, called cards, with separate microprocessors, to run the drives.
Now many chips are inexpensive and powerful enough that computer makers can use them to run DVD drives. But they still need the software that tells the chips how to run the drives.
That puts Quadrant in a good position because it can offer the cards and the software. And what puts it in an even better position is that its software is recognized as better than competitors' software by two measures: the quality of the picture it produces and how much of the chip is required to run it. (The latter is important because software that takes a lot of the chip's capacity won't allow the computer to do much else while it's running.)
Video cards cost PC makers from $60 to $80 as opposed to less than $10 per machine for software, according to Sharp. So the PC manufacturers strongly prefer software, especially in the low-priced machines that are now dominating the market.
That puts Quadrant "in an excellent position to dominate the digital video market at a time of unprecedented growth in the industry," said Brian Wade, Lehman Brothers' global head of private placement.
And that's due to planning on the part of Quadrant founders, Chairman Gregg Garnick and Chief Technology Officer Mike Harris.
The company's first product after its 1994 founding was a card that enabled people to hook up video cameras or other video devices to their laptop computers. Next came a card that enabled people to send the signals from their video cameras or videocassette recorders into personal computers so they could be edited digitally.
All along, Quadrant's strategy was to put itself in a position to capitalize on convergence, the merging of PCs, TVs and audio systems. So it focused as much on developing the software required to run its video cards as it did the cards themselves.
That's unusual, according to Sharp. He said chip makers, for example, often devote a ton of time to developing a new chip, and only at the last moment worry about the software that will enable software developers to write programs for it.
Quadrant not only developed the software as it developed its cards, in one case it developed the software for a chip on one of its cards before the chip maker did. It then licensed the software to the chip maker, Sharp said.
Quadrant also made sure that its software was modular, constructed in a sort of building-block fashion. That way, as it came out with more complex devices, it didn't have to develop completely new software for them. It could just add some new software modules onto modules it had written for its previous products.
That structure also makes it easier for makers of PCs and DVD players to integrate Quadrant's software with the other code used in their products. And it means that all products that use Quadrant software will run similarly enough that users of one won't have much trouble using the rest.
Quadrant's commitment to modular software enabled it to be the first company to develop software to run DVD drives for PC makers. It also should make it easier for Quadrant to develop the software for the more complex video products coming down the pike.
"We have under development, and can demonstrate, the ability to translate the video data coming off a satellite,"
so it can be processed by a personal computer, Sharp said.
Quadrant also is developing software that will enable people to record on DVDs. That software, which Quadrant expects to have ready by mid-1999, will make possible DVD recorders, which will have much higher video and audio quality than VCRs.
Quadrant won't reveal financial figures, but Sharp said the company expects to triple revenues and earnings this year.
As for future plans, Sharp said an initial public offering would provide an exit strategy suitable to Quadrant's venture investors. But he said Quadrant could get them out in other ways, too.
"Our technology is of interest to a lot of companies a lot bigger than us as well," he said.
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