Morgan Stanley says SCMR will trade on Friday, Oct 22nd.|
Here is an interesting article from today's Globe:
Corporate family tree
From Westwood firm, generation of start-ups spring.
By Steven Syre and Charles Stein, Globe Staff, 10/14/99
hen Bob Sullebarger decided to have a reunion party for the people who used
to work at Cascade Communications, he put a picture of the tree of life on
the front of the invitation. Over the root of the tree he wrote Cascade, and
on the branches he put the names of the many firms that have been created by
Sullebarger's tree of life was the perfect metaphor. Cascade, a Westford
technology company that was sold in 1997, has given birth to a whole new
generation of local high-tech companies. Call them 'Cascade's children.'
By our count there are at least 11 Massachusetts firms that can trace their
lineage to Cascade. The young companies have set up shop in the towns around
Westford and have gone into the same basic business as Cascade, building
state-of-the-art telecommunications equipment. In this case, the apples
didn't fall far from the tree.
The companies are all small. They each employ 50 to 100 workers. All have
the word 'networks' or 'communications' in their title. Some actually
have a product for sale. In most cases, the product is still on the drawing
board. But all have great ambitions and a desire to duplicate the success
they experienced at Cascade.
The alumni say they learned much of what they know about technology at
Cascade. But they also learned other lessons - like how to recruit people,
build a team, and create an aura of excitement in a fledgling company.
'I wake up every day and think about what I can do to translate that ethos
to my new company,' says Sullebarger, director of marketing at Spring Tide
Networks, a Boxborough start-up.
Cascade was created in 1991. Desh Deshpande was one of the founders. The
following year Dan Smith was recruited to be chief executive. The pair
proved to be a winning combination. At a time when most of the Massachusetts
high-tech community was in the dumps, they turned Cascade into a hot
business. When the company went public in the summer of 1994, its stock
climbed 50 percent on opening day. Within a few years, its market value
topped $8 billion.
The company was in the right place at the right time. The telecommunications
industry was in the early stages of an upheaval and Cascade made a switch
that the phone companies needed.
But most of the alumni remember other things about their Cascade experience.
'I think the management team showed people there is a right way and a wrong
way to run one of these companies,' says Jim Dolce, who co-founded Redstone
Communications in Westford after leaving Cascade. Dolce sold his company to
Siemens in March for $500 million.
What did the Cascade leadership do right? Alumni say it created an
atmosphere that inspired people to do their best work. They also distributed
stock broadly throughout the company, a common practice now but one that was
unusual at the time. One venture capitalist estimates that 100 Cascade
employees ultimately became millionaires thanks to their stock ownership.
Sullebarger recalls that Cascade people were encouraged to make their own
decisions, no matter where they sat in the company hierarchy. 'It was
better to ask for forgiveness than ask for permission,' he says. That kind
of responsibility encouraged risk taking, says Sullebarger, and may explain,
in part, why so many Cascade people have become entrepreneurs themselves.
In 1997 Ascend Communications, a California company, bought Cascade for $3.7
billion. Disappointing earnings in early 1997 knocked down Cascade's stock
price and made a deal almost inevitable. In January 1999 Lucent Technologies
bought Ascend for $19.6 billion.
The sale of Cascade made some people rich, but also sent many to the exits.
Having seen what a great start-up could do, ambitious executives left for
greener pastures. 'Cascade was a model for people like me,' says Bing
Yang, a former Cascade engineer and one of the founders of Convergent
Networks in Lowell.
The Cascade connection has proved valuable to would-be entrepreneurs looking
for cash to start new companies. In the world of venture capital, success
begets success. Matrix Partners, a Waltham venture capital firm that
originally invested in Cascade, has put money into many of 'Cascade's
children,' on the theory that Cascade's former executives have the right
stuff. 'Their track record makes the companies more backable,' says Tim
Barrows, a general partner at Matrix.
All of the companies have recruited former Cascade engineering talent. Many
have recruited fellow alumni as board members and advisers to their new
firms. Think of it as networking among networking companies.
Four of the post-Cascade companies - Cadia, Castle Networks, Redstone
Communications, and Omnia Communications - have already been sold for prices
that range from $150 million to $500 million.
But the bar may be about to be raised. Deshpande and Smith have created a
Cascade child, Sycamore Networks, that is generating plenty of buzz in the
networking community. Analysts say when the Chelmsford company goes public -
an initial public offering is expected in the next few weeks - Sycamore
could wind up with a market value of more than $5 billion. None of the other
Cascade spinoffs has yet to go public.
Like the rest of his fellow alumni, Yang will be watching the Sycamore IPO
with keen interest. After leaving Cascade, Yang and some colleagues created
a new company, Cadia Networks, that was sold after just six months for $150
million. 'That was the benchmark a few years ago,' says Yang. 'By today's
standards it is peanuts.'