Starent exit proves fruitful for VC shareholders

Cisco System’s $2.9 billion acquisition of wireless telecom equipment maker Starent Networks Inc. (Nasdaq: STAR), announced early last week, may have created some happy venture firms, which continued to hold shares after the company went public.

Tewksbury, Mass.-based Starent raised about $95 million in VC funding before launching an IPO in June 2007 that raised more than $126 million in proceeds.

Highland Capital, North Bridge Venture Partners and Matrix Partners were early stage investors in Starent, and as of Jan. 15 held substantial stakes in the company, according to regulatory documents. (Late stage investors included Itochu Technology, Focus Ventures and T-Venture Holding GmbH, the venture arm of T-Mobile, according to Thomson Reuters, publisher of PE Week.)

Unless they’ve sold shares since the beginning of the year, North Bridge owned 10.5 million shares of Starent (or 15%), Matrix owned 8 million shares (11.5%) and Highland owned 3.6 million shares (5.2%).

At a sale price of $35 per share, that’s a $369 million payout for North Bridge, $282 million for Matrix and $128 million for Highland.

In addition, the three venture firms each had representatives sitting on the board, who were shareholders, as well. In January, North Bridge Managing Partner Edward Anderson held 66,666 common shares (worth $2.3 million), Matrix General Partner Timothy Barrows held 157,671 common shares ($5.5 million) and Highland General Partner Sean Dalton held 7,480 common shares ($262,000). All three were in line to receive more shares if they exercised stock options.

Calls to North Bridge were not returned for comment.Meanwhile, Cisco’s acquisition comes as the San Jose, Calif.-based networking manufacturer seems to be leading the tech M&A charge out of the downturn.

In addition to Starent, Cisco recently bought Norwegian video conferencing maker Tandberg for $3 billion.

Analysts expect Cisco, which ended the last quarter with a cash balance of $34 billion, to keep up the dealmaking pace, especially now that some stability has returned to the public markets.

“The ability to expand in markets where we have been strong clearly has been a big part of what we’ve done in the past,” said Hilton Romanski, vice president of corporate development at Cisco and who runs its global acquisition and venture investment strategy.

Cisco, which was founded in 1984, has spent about $56 billion on 174 deals for acquisitions, according to Thomson Reuters data. That includes Cisco’s $590 million purchase of Pure Digital Technologies earlier this year. Pure Digital, which makes the popular Flip digital video camera, had previously raised $95 million over four venture rounds from 2004 to 2007, according to Thomson Reuters. Pure Digital’s venture backers include AllianceBernstein, Benchmark Capital, Crescendo Venture Management, Focus Ventures, ,Morgan Stanley Private Equity, Samsung, Sequoia Capital, Steamboat Ventures and VantagePoint Venture Partners.

Many of the acquisitions Cisco has made over the year were startups or private companies with assets that bolster Cisco’s core business of making switches and routers that direct computer traffic.

But as the networking business has matured, Cisco has forayed into several new interconnected markets, such as Web-based video conferencing and online video.

The top U.S. network equipment maker has only acquired 14 public companies so far, but Romanski said they will be more active in that space.

Cisco likes to push into big markets that are in transition and hasten the pace of adoption of new technologies by buying small companies that are market leaders and using its heft to build scale, Romanski said.

Anupreeta Das of Reuters contributed to this article.