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Can Mangrove's Reeves Hit the Trifecta?
Not satisfied with having sold two companies for $4 billion, a telecom entrepeneur gears up to do it again.
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Business New Haven
5/12/2003
By: BNH
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Jonathan Reeves is a serial entrepreneur. Trained as an electrical engineer, the UK native moved to the U.S. in 1984 to work for General DataComm, working his way through positions in engineering, sales and marketing and product development. In 1995 he teamed up with some GDC colleagues to found Sahara Networks, which was sold 18 months later to Cascade Communications for $212 million. In January 1999 Reeves founded Sirocco Systems to develop an optical edge-switching platform. About 18 months later, a company named Sycamore came along and paid a whopping $3.8 billion for Sirocco - just before the tech bubble burst. Now Reeves is back with Mangrove Systems, formed in mid-2002. Last month Mangrove attracted $20 million in first-round financing from a consortium of Bessemer Venture Partners, Highland Capital Partners, Columbia Capital, and Silicon Valley Bank Investments.
Why Wallingford? Is that simply where you've stayed since landing at General DataComm?
Absolutely. Having established a home in central Connecticut it made sense to start the businesses here. That hasn't been without its challenges: When we first started Sahara, and later when we founded Sirocco, my investors questioned whether we could find the talent we needed in Connecticut. Fortunately, on both occasions we proved them wrong, and now with Mangrove it really hasn't come up as an issue. To start Mangrove we've brought people in from all over the world. To build a great company you've got to have the very best people - wherever they may be from.
In layman's terms, what did Sahara and Sirocco do?
Sahara built what's called an ATM access multi-plexer. In the early to mid-'90s, a technology known as ATM was finding favor because it allowed a whole variety of voice and data traffic to be carried across a single network. This allowed [telecom] carriers and service providers to potentially run all their infrastructure using all their technology and technique. The Sahara box allowed you to bring in voice and traffic such as Ethernet traffic from local area networks (LANs) and various other data connections and map them into ATM so they could be switched in a unified fashion throughout the network. Sirocco built a product called a XXXXX switch. In the late '90s there was tremendous emphasis placed on optical networking techniques [by which] information could be switched as waves of light through the service provider's network. This led to a tremendous increase in the potential capacity of those networks while still running over the same fiber-optic connections they had previously installed.
What does or will Mangrove Systems do?
The Mangrove product is a platform that we refer to as a family of GFP [Generic Framing Procedure] switches. One thing about networking is that it's constantly changing and constantly evolving. We've found a particular application niche for using [GFP] technology that we think is not being served by the larger suppliers - Nortel, Fujitsu, etc.
How far through its life-cycle is the telecom slump? Is it almost over? When will companies be prepared to invest in new infrastructure once again?
That's an excellent question. I believe that the telecommunications slump is still far from over. But there are encouraging signs of life. As we are talking to customers we find that there is a great deal of interest in our concept. There are various applications they are beginning to look at - they themselves are beginning to plan for the recovery, thinking about what types of technologies and networks they will need to be building in the 2004 and 2005 time frame. In the late 1990s and 2000 the pendulum had swung too far to the right - we were in this euphoria phase, infinite bandwidth requirements, and so forth. Then reality set in. Actually, I life to think that the pendulum has swung too far to the left now - it's all doom and gloom, nobody's ever going to buy anything again. Of course, both situations are unrealistic and untenable. Eventually it's going to go back to a traditional, regular business, growing quite nicely, with opportunities for innovation.
So to attract $20 million in seed financing, what are the investors actually buying - the idea? The person? The market?
To attract venture capital financing today requires three or four specific things. Irrespective of who you are, you have to a have a good concept. Secondly is the team itself. The investors would not invest in a company purely because I was involved; they look at the whole picture including the quality of key team members. The third thing that's required is customer validation. In boom times one could come up with a concept, develop a product, tweak it a little bit based on some customer feedback late in the program, then sell the company or go public. That is of course not true today. Today, to get funded, the concept has to be proven and validated by potential customers - they have to express their support for the approach and support for the project. The fourth piece is you have to demonstrate a very strong understanding of your competition so you can show where you might have an opportunity for strategic partnerships. The service-providers are reluctant to buy products from startups today because so many have gone under, that they've wasted money and time and energy testing products and validating products for companies that no longer exist. So they look for partnerships with larger players. In order to convince [potential] investors that this is a good investment, one also has to demonstrate how this would fit within the product portfolios of larger companies.
The qualities that make someone a great engineer are not necessarily the same as the qualities that make someone a great entrepreneur. How do you see yourself?
From personal experience I've found that some of the more creative engineers were ones who did have an entrepreneurial flair. If you look at success stories from the computer revolution - Bill Gates, Steve Jobs - these are people who are very technically inclined but have been able to apply that to market intelligence, to a take a technology concept and see it through and deliver it to customers. What you do find is that the engineer-turned-entrepreneur is not necessarily the best guy at running the company day to day. It's important to build a team around you who can deal with all the other aspects [of running the business].
How does someone who sold his company for $3 billion need $20 million of other people's money now?
First of all, people always look at the 'success number' and they hold a particular number in mind. But first of all, when you start a company, the venture capitalists own a very significant portion of the company. And when the sell the company, the venture capitalists make most of the money. But I'm certainly comfortable - let's put it that way. In terms of setting up a new company, you really need to have outside dollars, and it's critical that you're getting partners who are not only going to invest the first $20 million, but also the second $20 million and the third $20 million and so on until your reach profitability.
Is Connecticut a good place to start a technology company?
Connecticut does have a pretty good base of talent in the technology area - and frankly, there are very few companies for these people to work at. There is actually a distinct lack of innovation in the state at this time - that wasn't necessarily true a few years ago. There aren't many new games in town. We're one of the few, and as a result of that we can attract the best and the brightest minds.
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