It’s a burnout more spectacular than most.
It’s a Silicon Valley horror story just in time for Halloween.
And it’s a cautionary tale for investors and startups that are perhaps looking to develop technology offshore.
Santa Clara-based Ishoni Networks Inc., a voice-over IP chip developer, was almost bilked out of its intellectual property and forced into bankruptcy by an Indian subsidiary called Ishoni Networks India Private Ltd, which is loaced in Bangalore, India’s version of Silicon Valley.
Ishoni had created the subsidiary to handle software engineering, but by law, the subsidiary had to be a standalone company, which gave the company its own name, an all-Indian nationals board of directors and an Indian managing director.
Along the way, Ishoni’s fall has dragged down the venture capitalists that have poured in more than $83 million since the company was founded in 1998. VCs such as Bessemer Venture Partners, Brad Peery Capital, CSFB Private Equity, Deutsche Bank Alex Brown, INVESCO Private Capital, Infinity Capital, Information Technology Ventures, Lucent Venture Partners, MVC Capital (formerly known as meVC Draper Fisher Jurvetson), PacRim Venture Management, Phillips Venture Capital Fund and SinoStar Capital.
Ishoni still exists, though its Santa Clara headquarters have been whittled down to 15 people, says a Phillips spokesman. This from a company that reported sales of $22 million in 1999 and had 170 employees on its payroll at the time, according to Boston-based Investext.
Numerous calls to the company went unreturned, as did calls to the VC firms Bessemer, Infinity, ITV, Lucent and MVC.
The story of the downfall goes back to April when Ishoni India executives told their engineers that the company was bankrupt.
Then, after 90% of them resigned, the executives reportedly forced the out-of-work engineers to join a rival firm controlled by Ishoni India’s executives called Ample Wave Communication Networks. The new company was apparently aiming to bankrupt the old company and snap up its intellectual property at a bargain price.
All this came to light when the Indian subsidiary stopped returning the phone calls of Ishoni’s Silicon Valley-based CFO. Further evidence was unearthed when the company’s U.S.-based COO, Vivek Mansingh, made a surprise visit to Bangalore in May.
The tale of Ishoni India was first reported in the United States in August by LightReading, an online trade publication that covers the optical networking industry.
Indian police swooped in and foiled the plan in August. Currently, three former Ishoni India executives are charged with illegally copying Ishoni’s software.
The company was already in trouble a year prior to when this scheme started. Back in February 2002, Phillips took control of 51% of the company with a $25 million investment.
But none of the company’s earlier backers were willing to step up and co-invest. Just a year before that, the company had scored a $35 million Series C round on a $200 million post-money valuation.
Also in 2001, Ishoni struggled was struggling to cut expenses. Travel budgets were slashed and some staff at the U.S. office were laid off, according to published news reports.
Still tangled up in a cross-border legal battle, the company says it is trying to regain its credibility and win back customers.
It continues to ship its chips and expects to launch a follow-up product within a few months, the company’s COO has said.
Email Carolina Braunschweig