Press

Second chances for a chip startup

New name, business plan and customers are giving Britestream, formerly Layer N Networks, a chance to carve an online security niche
By Kirk Ladendorf

AMERICAN-STATESMAN STAFF
Monday, October 25, 2004

Early stumbles have killed plenty of high-tech startups, especially those in the complicated and expensive chip business.

But Austin's Britestream Networks Inc. has gotten a second chance to make its mark. All it took was cutting-edge technology, a new market and patient investors.

Britestream is the new name for the former Layer N Networks, a 4-year-old company that has so far received more than $40 million in venture backing. The renamed company comes with an evolved product line, a revamped management team and a small but growing group of paying customers.

Layer N set out to build a chip that could deliver very high-speed, secure online transactions and communications that are increasingly important to how businesses and individuals use the Internet.

Today, the core product of Britestream remains the same. What changed was its business plan. Instead of just selling a chip to server and networking equipment makers, Britestream incorporated the chip onto a circuit board that could be sold to end users to install on any type of equipment.

" This is a unique opportunity," says Bob Weinschenk, the company's new president. "You can't create markets like this."

But Britestream will have to largely carve out a place for itself.

Analysts say that online security will become a $45 billion market by 2006 and that most security solutions will become hardware-based by 2007. But as of now, the market for security processors is miniscule because security remains mostly a software solution. IDC estimates only about $70 million worth of such chips were sold last year.

Britestream's solution moves standard encryption technology known as SSL, or secure sockets layer, from software in a Web browser to a chip and plug-in board. As a result, it potentially eliminates the bottleneck involved in authenticating a user's identity.

The company claims its chips will easily process 100,000 secure transactions a second, which is fast enough for the busiest e-commerce Web sites.

But e-commerce is only one of the applications. The company says its boards can deliver the same security to voice-over-Internet-protocol communications networks, to secure e-mail services and to private data communications connections called virtual private networks.

The journey from Layer N to Britestream hasn't been easy.

The company missed its first deadline by a year. It had promised to have working chips in the summer of 2002 but didn't have them until 2003. That's where the patient investors came in.

" It was actually a much larger product than we thought it was," said board member Venu Shamapant, a partner with Austin Ventures, the lead investor in the company.

" The chip has 125 million transistors. It is bigger than a Pentium 4. There was a hiccup in execution. But the market demand is still there, and this has the potential to be disruptive."

AV and others ponied up a second $20 million funding round for the company in February, bringing the total investment to $41 million.

Founder Mike Salas, who is now the company's marketing vice president, says the company's technical team did an amazing job to complete the chip, even if it took a year longer than expected.

" I challenge anybody to pull off what we've done," he says.

When the chip was completed, the company developed software to create plug-in networking cards. That move took more time and money, but it opened up new potential markets for the technology and greatly expanded the number of potential customers. The combination of chip and circuit board dramatically shortens product development cycles for customers from months to weeks, Weinschenk says.

A year later, the company has customers for its chips and its plug-in boards. Management says it will make several customer announcements in the coming weeks.

The company also overhauled its management team.

Weinschenk, who headed a successful California startup called Pixim, was hired in June as CEO to build on the company's promising technology start. Salas, the former CEO, says he wanted an experienced executive to grow the business. Industry veteran Keith McAuliffe, a former Compaq Computer Corp. executive, was hired in May as chief operating officer, responsible for engineering, software development, operations and manufacturing.

Weinschenk says the company will expand from its present 48 workers to 70 over the next year, adding sales and technical workers. If all goes according to the new plan, the company expects to become self-sustaining in 2006, with one more financing round next year.

Shamapant says Britestream is showing signs of promise, but it is far too soon to declare victory.

" You don't want to jinx them," he said. "The indicators are very strong. The customer interest and the sales traction are pretty good. We have built a product, but we still have to build a business. We have to continue to execute on Act One and figure out what's in Act Two . . . and find new markets that we can continue to take on."

kladendorf@statesman.com; 445-3622

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