Chapter 12 - Networking: Market Order: LANs 1983-1986
12.12 New DataPBX Competitors
Those with entrepreneurial instincts had many reasons to start firms in the early 1980s: whether because it was what they always wanted to do, in their blood as they would say; or the sudden availability of venture capital and hot IPO markets; or a brilliant idea that compelled them to act; or the pervasive buzz of opportunity whether because of the personal computer, VLSI semiconductor technology, new programming languages, operating systems or applications software; or simply that their neighbors or friends or work mates had acted and they did not want to be left with nothing but envy. The need to interconnect computers and peripherals motivated all kinds of solutions and for many the cost advantage held by data PBXs over LANs seemed insurmountable. Two examples were Metapath and Equinox.
In 1979, Bruce Hunt, who had introduced LAN thinking to Zilog with his Ariel network, left Zilog and entered Stanford University to pursue his Masters degree with Fouad Tobaji as his advisor. All was great, until he exhausted his savings in 1980 and needed to find work. Tobaji suggested Stanford Research Institute (SRI, one of the first four nodes of the ARPANET) and soon Hunt had a job that enabled him to stay in school. At SRI, he kept exploring extensions of CSMA/CD (Ethernet) and before long had one of those compelling ideas. Hunt talked to his brother who loaned him $20,000 to reduce his concepts to a VLSI chip. By August 1982, Hunt had built twenty prototypes using his custom chips, prototypes that made possible inexpensive interconnections among computing devices: a product they would call a desktop data switch. Then came the challenge of finding capital to finance his company’s growth. Hunt remembers:
We started visiting venture firms and talked to a lot of people. And my brother had a friend who was working for one of Norm Dion’s start-ups, and they were interested in data communications. So we zipped on down and gave a presentation of the technology, and Bill Harry, who was Vice President of Development, says: “Well, I’d like you to meet a guy named Norm Dion.” So I said: “Great.” So that night I went home and I called Craig Johnson [Hunt’s lawyer], and said: “Have you ever heard of a man named Norm Dion?” We’re going to have a meeting with him Monday,” and Craig said: “Bruce, you’re in the big time. Don’t blow it.” That’s exactly what he said. He said: “You guys need to be really prepared. He explained Norm Dion was the founder of Dysan and Chairman and CEO. So we worked our asses off, I mean we went into overdrive. Literally, I think we slept two hours until that Monday. We did a complete presentation of the business plan. We had foils and everything.
So we go to what he called a standing meeting at, I guess, one o’clock in the afternoon. Norm wanders in about 1:45. He sits down and he introduced himself, and we gave him our presentation. He said: “Thank you very much, that was very interesting. We’ll talk to you later.” About Thursday, Bill Harry called and said: “Could you guys come back in next Monday?” We said: “Sure.” Then on Friday he called back and cancelled. Anyway, there was two weeks of horrible ‘oh my God, they’re not interested in us.’ About two weeks later they finally asked us back, and we came in on Monday; but this time all my papers were open and on the desk. Somebody had actually read our business plan. So I figured that means they’re at least interested. Norm started to really probe me, and boy, probably the toughest interview I ever went through in my life. I was in such a state of excitement that my brain was racing like absolutely crazy. Finally, he stopped the meeting, and he says: “Well, thank you, I think I’ve had enough,” and then he sat there, and literally, he put his head down and he started to think, and I’m sitting there and I’m saying to myself: “My God, should I say anything? But you think I’m going to say anything now? No way! At 45 minutes he looks up and says: “I think I’m going to do the deal,” and that was it. So he said: “Let’s get going. Can you pull out a couple of those letters of intent that we did before.” He had several of them, one of which was the one he did with Al Shugart to start Seagate. What a deal! Really exciting stuff. He says: “I want you to estimate what it will take to get you to this stage, and that’s what we’ll do.” So we said: “Fine.” So that’s where the $640,000 came from. That’s the way he started the company.
By December 1983, Hunt’s data switch, named the Robin, had proven successful and Metapath was incorporated. In January 1984, $4 million of venture capital was raised with Dion’s venture capital arm and Oak Investment Partners leading the round. (Oak had been an early investor in Ungermann-Bass and many other LAN-type companies.) That same month, Metapath introduced Robin. Sales proved difficult, however, and a down financing of $570 thousand to save the company was raised in January 1985 at one-fifth the price of the 1984 financing. For 1985, sales totaled only $700 thousand. In 1987, Metapath was acquired by Prentice, another firm struggling to cope with market changes.
Bill Dambrackas knew first hand of the computer communications opportunities. As Director of Engineering at Racal-Milgo and prior to that time with Infotron, he was aware of the success of Micom and concluded it was time to start his own company. So in February 1983, Drambrackas founded Equinox. His idea was to create a low-cost dataPBX to be sold through the same distribution channels Micom was abandoning as they converted to a direct sales organization. In December 1983, Equinox introduced their DSS-1, a data switching system capable of interconnecting 1,320 terminals and computer ports. Success came rapidly. In 1985, a financing led by Oak Investment Partners and DEC secured $3 million with a company valuation of $30 million. Equinox would be buffeted by market conditions and competition but would eventually, in 1993, become a public company.