Article from WSJ´s Venture Capital Dispatch.
“A last-minute recapitalization to save a 10-year-old optical networking company demonstrates the extreme risk and possible rewards that come with these types of investments.
Around the turn of the century, telecommunications carriers, hungry for more bandwidth in anticipation of the coming Internet boom, were already looking past the then-evolving 10-gigabit standard to a 40-gigabit standard, leading companies like Mintera Corp. to begin developing products for that market. After the dot-com bust, that market didn’t take off the way Mintera’s investors and other venture capitalists that put money into the sector originally anticipated.
Many companies closed, but a few 40-gigabit companies had decent outcomes, such as CoreOptics Inc., which was sold to Cisco Systems Inc. for $99 million in May, and StrataLight Communications Inc., sold two years ago to Opnext Inc. for $169 million.
Mintera, which burned through about $73 million in venture capital since it was founded in 2000, was able to build a decent business, generating $20 million in revenue over the last year and capturing around one-sixth of its total market. But that wasn’t enough to generate a home run for its investors any time soon.
By this year, it was clear that some of Mintera’s weren’t willing to commit more capital to the company, so it searched for a buyer. Normally, the investors would have stuck by the company, putting in more capital for growth, but the “real reason it had to be sold was that it had been funded by venture capital firms that had mature funds that had come to the end of their lifecycle,” said Jim Murray, a managing general partner of Court Square Ventures, an early investor in Mintera.
The company needed enough capital to keep the lights on while it searched for a buyer. At the end of May, Court Square decided to double down in exchange for a near-majority stake in the business.
As happens in a recap, the equity structure of Mintera was reset. Two shareholders, RRE Ventures and STAR Ventures, held onto stakes, but three others – Polaris Venture Partners, Portview Communications Partners and Glynn Capital Management – were washed out completely.
At the same time, talks were under way with a buyer, Oclaro Inc., but a deal was less than certain. Oclaro looked like it would walk away, Murray said. “We knew it was a good company, if Oclaro didn’t want to buy it someone would,” he said, declining to say how much capital Court Square put into Mintera.
Six weeks after Court Square invested, Oclaro agreed to buy the company in July for $12 million in cash with the potential to earn as much as $20 million if Mintera reaches certain milestones.”
Read the full article here.
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