After A Devil of a Time, Tasman to Score $14M This Week

Tasman Networks was not just the victim of a $200 million bubble-era valuation. The San Jose, Calif.-based maker of network routers had laid out an ambitious business plan when it approached investors for its first round of venture capital in 1997. Maybe too ambitious. After spending four years in the lab and burning though $59 million of venture capital, the founders of the company (then known as Tiara Networks) still had ambition, but little in the way of actual results. Their board was angry.

The board ousted the company’s founding management team in April 2001 and started circulating a term sheet to new investors, hoping that one of them would recapitalize the company and jump start its operations. After 13 months, in May 2002, they had what they were looking for: a $20 million recap “Series F,” led by two new investors at a post-money valuation of $36 million.

“When I joined, in April 2001, the company was focused on the carrier space,” says Chief Executive Paul Smith. “The numbers weren’t great, the burn rate was high. It all needed repair work.”

Some of that has already been done. Smith fine-tuned the company’s product line and began to focus on selling the technology to OEMs. Seven new OEMs signed contracts with the company in the last 12 months and Smith is building the company’s sales and marketing operation.

Smith has garnered enough new momentum to bring in new investors to close a $14.4 million round of venture capital this week. It’s the company’s seventh round (Series G) of venture capital and it’s first after the two-year old restructuring.

The deal was priced by San Francisco-based Parker Price Venture Capital, with a post-money valuation around $35 million. Co-led by Parker Price and the venture arm of Asian IT conglomerate MiTAC-SYNNEX Group, Harbinger Venture Management, the deal also included Mayfield and New Enterprise Associates. The company’s own management team invested $700,000 in the round.

“You can always blame the market [when the company’s not doing well], which has some merit, but here, the shortcomings of management have been remedied by the new management team,” says C.K. Cheng, Harbinger’s general partner in Santa Clara, Calif.

Smith, Cheng says, is equal parts visionary and executive.

“Being a visionary you need to have a new idea and a new approach to lead the company to the next phase, but you also need to be hands-on to understand the technology and the marketplace to be able to motivate the team,” Cheng says. “In a small company you cannot afford to have a CEO that can’t balance the two.”

Three years into it, Smith has added new product managers, a new director of sales, customer service, international business development and a new director of technical marketing. He also added 30 Indian developers to his team, which includes 60 more people in Silicon Valley.

The company’s technology now delivers Internet access, IP telephone, broadband services and wireless connectivity with partners like Cable & Wireless PLC and Wayport, a startup that provides wireless Internet access in hotels and airports.

The latest round of capital will be used to expand the company’s sales and marketing teams and to build its engineering capacities.

Though things are looking up, and Tasman’s investors expect the company’s revenue and customer base to keep growing over the next 18 months, the company’s not completely out of the water yet.

“They still need to execute,” Cheng says.