April 28, 2005 Peribit, Redline VCs reap returns By Paul Bonanos Venture investors in Silicon Valley startups Peribit Networks Inc. and Redline Networks Inc. reaped substantial returns from the sale of the two companies to Juniper Networks Inc. of Sunnyvale, Calif., for a combined $469 million. Juniper paid $337 million in cash and stock for Santa Clara, Calif.-based Peribit, a maker of software and systems that improve the performance of enterprise networks. Redline, a Campbell, Calif.-based developer of data center appliances, was purchased separately for $132 million but will be combined with Peribit as they are integrated into Juniper's corporate structure. The two companies generated a combined $40 million in revenues last year. Upon completing its last round of venture financing in October 2003, Peribit had raised $41 million and was valued at $100 million. Both Peribit and Redline had raised three rounds of venture funding. Peribit's early backers included Accel Partners of Palo Alto, Calif., and Foundation Capital of Menlo Park, Calif., while Mayfield of Menlo Park and WK Technology Fund of Taiwan supplied later funding. Advanced Technology Ventures of Palo Alto was Redline's first institutional investor and largest shareholder. Charles River Ventures of Boston led Redline's most recent round, a $12 million round. Foundation Capital's Adam Grosser would not discuss the specifics of Peribit's growth in valuation since Foundation's initial investment in early 2000. But company statements at the time of its third round said that the $100 million figure in October 2003 represented a quadrupling of the startup's valuation in two years. Compared with a valuation of $25 million in late 2001, the purchase price of $337 million would represent an increase in value of roughly 1,250% from that point, which was already about 18 months into Peribit's lifespan. "Peribit's growth rate was phenomenal," Grosser explained. "Their revenues grew at least 100% per year for four years, and I think they will soon be accretive for Juniper. Peribit had close to a thousand enterprise customers, including about 300 of the Fortune 500." Foundation was Peribit's first investor. The startup spent nine months headquartered within Foundation's offices, Grosser said. The firm's investment was one of the last ones from its $255 million third fund. Accel Partners joined Peribit's investor syndicate for its first round of funding and held a stake in Peribit equal to Foundation's holding. The firm invested from its eighth fund, launched in 2000. "Peribit helped define the category of wide-area network optimization," Accel's Peter Wagner said. "They quickly emerged as the leader in that category." Wes Raffel, a general partner with ATV, said the firm's investment in Redline was the first from ATV's seventh fund. He would not discuss the change in Redline's valuation since the firm invested in 2001, except to say that it had increased sharply. "They were preproduct when we first invested," he said. "I think all the shareholders are happy with the outcome." Raffel described Redline as the market leader in its subsector. "The Web and application acceleration business is an emerging market," he said. "In a very short time, Redline managed to sign up Microsoft [Corp.], General Motors [Corp.], Fidelity [Investments] and [Walt] Disney [Co.] as customers." Raffel added that Juniper "has made tremendous investments in sales and marketing, and they'll be able to scale Redline a lot faster than we could've done. I think the combination is a good one for Juniper." Raffel would not say how many of ATV's investments from its seventh fund have resulted in exits. He said there have been "some good ones and some bad ones" thus far. The $800 million fund was launched in 2001. Foundation Capital's Grosser said both deals would fuel Juniper's growth as rival Cisco Systems Inc. of San Jose, Calif., experienced flattening growth, especially in the wake of Juniper's $4 billion acquisition of network security hardware maker NetScreen Technologies Inc. in late 2003. "After that deal, Juniper lacked a critical mass of product to sell, and this deal gives them something new," he noted. Gordon Davidson and Sayre Stevick of Mountain View, Calif.-based Fenwick & West LLP provided legal advice to Peribit on the deal. Peribit retained the mergers and acquisitions team from Merrill Lynch & Co., led by Gary Kirkham and Jack McDonald, for financial guidance. Juniper retained Katie Martin, Bret DiMarco and Michael Russell at Wilson Sonsini Goodrich & Rosati PC of Palo Alto for legal counsel and turned to an investment banking team led by Jordan Nasir and Ian Pereira at UBS for financial advice. Redline's legal and financial advisers could not be ascertained by press time. www.TheDeal.com Copyright © 2005 The Deal LLC