A Comstellar idea

One of the hardest challenges for start-ups is to operate an efficient business while developing a new technology or product. Technologists aren't always the best business managers and vice versa. The lack of that blend of skill has caused many start-ups to fail, even in today's frenzy of new competitive companies entering the market.

Comstellar Technologies hopes to change that. Led by Sanjiv Ahuja, the start-up will provide other start-ups with a range of services, depending on the company's needs. Comstellar will help develop start-ups' business plans and fill in with engineering, design, financial and marketing aid. It also will provide executive talent and leadership, while offering recruitment services when needed.

"We want to operate in a mode that leverages the creative focus, the inventiveness and incentives of multiple start-ups," Ahuja said. "Some of those concepts will come from entrepreneurs that approach us, and some will be our own ideas, and we'll be pulling the team together."

Comstellar will be selective about the start-ups it backs, Ahuja said. "It has to fit in our strategic view," he said. "If a company comes up with the next iteration of the Class 5 switch, that is not of interest to us. It has to be a disruptive leap in technology."

The company seeks to acquire more than 20 start-ups in the optical, wireless and digital signal processing areas, Ahuja said. Several companies already are on board.

"Some are in the public market, and some are private, but all are focused on infrastructure," he said. "In the early stages, we have provided management expertise and human capital resources, financial resources, branding assistance, marketing assistance and strategic assistance."

Comstellar wants to help create and develop newcomers to become players in their respective markets, he added.

"We are an operating company," Ahuja said. He doesn't classify Comstellar as an incubator because the company's long-term goal is to maintain some ownership of the companies that it helps to succeed. Looking forward a couple years, Ahuja said, "we'd like to have 35% to 100% ownership of the two or three dozen core technology companies [we help launch]."

In addition, Comstellar has a venture capital arm - Redwood Venture Partners, which was founded by Raj Singh - that will become part of the company. From this angle, Comstellar will make equity investments in 30 to 50 start-ups; however, it will not gain operational control of those companies, Ahuja said.

One reason Comstellar might opt for such a large ownership stake in its start-ups is to improve their chances of going public. The Investment Company Act of 1940 specifies that companies with more than 40% of assets in non-controlling stakes in other companies must be treated as a mutual fund and will be scrutinized more closely, said George Nichols, stock analyst for Morningstar.com.

"The SEC hates mutual funds becoming public," he said. "To get around the act, [an incubation company] would take as large an ownership stake as practically possible. If you have many small stakes in many companies, the SEC will block you from going public."

Incubators commonly own more than a 50% stake in the companies they aid, Nichols added. "Incubators are more hands-on than venture capitalists. They do more in providing in-house resources to the young companies, and they expect to have an equity stake."

Officially launched last week, Comstellar is working with several companies and boasts an impressive leadership team. Ahuja left Telcordia Technologies in March and has been operating quietly as Comstellar's CEO since that time. Joining Ahuja on the executive team are Raj Parekh, chief technology officer and chairman of the board, formerly with Sun Microsystems; and President Singh, founder of StratumOne Communications and Fiberlane, which bore Cerent and Siara Systems. Jack Skydel, former managing director of Lehman Brothers' global technology group, is vice president of business development; and Chief Financial Officer Paul Kothari came from TheStreet.com. At least one other recognizable name will join Comstellar's rank in the next few weeks, Ahuja said.

With strong leadership comes financial backing: Comstellar has raised $140 million in investment capital.

"Sanjiv is a killer exec who makes thing happen," said Ed Glassmeyer, general partner with Oak Investment Partners, who served on a board with Ahuja. "He's the kind of guy a venture capital firm likes to back."

Sender Cohen, a partner with Soros Private Equity Partners - also an investor in Comstellar - echoed thatsentiment. "What drew us to them was the team. Our business is betting on people, and you can't get a better combination," he said. "They really bring to the table all the elements you need to succeed here," including Ahuja's incumbent local exchange carrier expertise and Singh's start-up expertise.