Comstellar introduces strategy for developing new technology companies

Sept. 1, 2000



A new organization, Comstellar Technologies Inc. (Los Altos, CA) will establish and operate a group of independent communications infra structure companies under a new business model. The initial group of fledgling companies will focus on developing new communications technologies that include components to enhance optical-switching systems, improve wireless communications, and efficiently process digital signals.

The objective is to establish and operate, on a long-term basis, a series of independent communications infrastructure companies. Comstellar's chief executive officer, Sanjiv Ahuja, says the new company is built on a unique business model based on the belief that by combining the agility of a startup with the resources of a large organization, new companies can be built and launched at an accelerated pace with higher success rates.

"Our approach is to take new concepts-our own concepts and those of entrepreneurs who approach us-and provide them with financial resources, management resources, branding, infrastructure support, and financial skills, to help them develop industry contacts and relationships," says Ahuja. "We want to work through the concepts and evolve the companies together into successful communication infrastructure companies."

Comstellar will also include Redwood Venture Partners to provide startups with a more conventional venture-financing alternative. Using Redwood as its financial venture arm, the company plans to develop 12 to 15 companies each year, as well as make small investments in each evolving company. Redwood will still operate a separate venture fund. Like Comstellar, it will focus on entrepreneurs developing new technologies for communications.

Putting several companies beneath a corporate umbrella, or "mothership" company, may not seem like a unique concept. After all, MRV Communications Inc. (Chatsworth, CA), founded in 1988, has been creating and managing optical startup companies, as well as forming independent business units, under a similar business model for years.

However, Comstellar insists its business model is far different from the traditional incubator companies, including MRV.

"Unlike other models, our purpose is not just to take companies and provide them with a little money," insists Ahuja. "That's the first critical difference. The second is that we are creating many of these companies ourselves, with our own ideas and our own concepts in the communications field. Also, these companies are complementary, providing, in our view, an end-to-end solution to the customers."

Ahuja says one way to consider Comstellar's objective is to compare it with the way in which General Electric Co. operates. Each one of GE's companies is a completely independent entity. Each operates under an independent financial and management structure with independent incentives. Yet, there is still an underlying strength of management experiences and strategies that will, in many ways, enable the separate entities to complement one another to provide a comprehensive solution to the customer.

"That makes us significantly different from any incubator company," says Ahuja. "Our objective was, and continues to be, to build a very significant communications company based on a very different business model. That's why we provide our companies with management help prior to actually recruiting outside management. We provide senior management and senior leadership."

To that end, Comstellar created what it calls its "CXO bench" that includes a series of senior executives-chief marketing and technology officers-from which, based on the needs of the particular company, can be drawn a team of people to help take the company to its next level until a management team is hired.

These management teams may, at any one time, be involved with from one to three individual companies simultaneously. Comstellar is still in the process of developing its CXO bench.

Once a company is formed, Comstellar will continue to hold a significant ownership, as well as a significant board presence, within its structure. But beyond that, says Ahuja, there is a fundamental belief that each company must do what is necessary to evolve in its own way. Basically, the company is free to succeed or fail.

"That's why these companies are not just divisions of a larger company, but separate companies," says Ahuja. "We can influence the direction and strategy of the company and maintain some leverage, but they must each do what is right to succeed. We take the strength of a startup and meld it together with the benefits of a large company."

The strengths of a startup generally include its agility, nimbleness, focus, aggressiveness, incentive, and an overall natural drive to succeed. Comstellar intends to combine those attributes with its branding, infrastructure support, marketing, industry relationships, credibility with customers, financial resources, and a strong management bench to bring innovation into the communications marketplace. In time, the company believes this combination of startup and legacy attributes will yield many new and creative technology ideas within successful new companies.

Comstellar's senior management team, in addition to Ahuja, who is a former president and chief operating officer at Telcordia Technologies (Morristown, NJ), includes other successful entrepreneurs and senior executives in the communications industry. Raj Parekh, former vice president of engineering and chief technology officer with Sun Microsystems Inc. (Palo Alto, CA), is chief technology officer and chairman of the board at Comstellar.

Raj Singh, a founder of StratumOne Communications Inc. (Santa Clara, CA) and Fiberlane, which later split into Cerent Corp. (Petaluma, CA) and Siara Systems Inc. (Mountain View, CA), is the company's president. He is also a founder of Redwood. Jack Skydel is on board as vice president of business development, and the chief financial officer is Paul Kothari.

The hope of this "dream" team is to quickly build Comstellar into a leading technology company. The company, headquartered in New Jersey and California, has already raised more than $140 million in investment capital.

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