3Com Makes a Small High-Tech Company's Day — and Year
In this purchase, not everyone is sorry to lose their independence
Yes, it's true -- "liquidity events" happen to real entrepreneurs.
And NBX Corp.'s saga incorporates virtually every cliché imaginable
about hot high-tech startups on the brink of the millennium, including
a happy ending. The 90-person company, which makes telecommunications equipment
geared to small businesses, was founded in late 1996 based on an idea from
two 20-something Massachusetts Institute of Technology engineering grad
students.
Alex Laats, who worked in MIT's technology licensing office and
one of NBX's founders, took the concept to Harris & Harris Group Inc.,
a publicly traded venture-capital group that provided seed money. He
also "found some adults to run the company," including veterans from
AT&T Corp. and Lucent, says Ed Wadbrook, NBX's vice-president of product
management and marketing. Harris invested a total of $1.7 million in the
company over about two years. Other venture capitalists, such as
MIT Endowment, joined in.
Last October, the company started shipping its product, a PBX system that transmits
voice over data lines, and it now has 120 installed. It's banking
on -- what else? -- Year 2000 problems in many small-company phone systems
to spur owners to buy replacements for their existing equipment.
Ready for the punch line? On Tuesday, February 23, 3Com Corp. agreed to buy the company
for $90 million, plus the value of 3Com shares it gave employees in exchange
for their NBX shares. Harris & Harris said its gross proceeds were
about $12.4 million on its 14%. Wadbrook wouldn't discuss what the
entrepreneurs and employees made. But he did say that their equity split
was typical of most venture-capital financed companies -- about 20% for
the employees, with investors holding 80%. So are the NBX entrepreneurs
sad to lose their independence? Is this the Holy Grail? Neither, says Wadbrook.
Everyone is staying on to join 3Com. "The holy grail hasn't been reached," he
says. "We want worldwide domination of LAN telephony."
By Julia Lichtblau in New York
julia_lichtblau@businessweek.com
To: FINANCE
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