Case Study: CoreTek - A Success Story in Technology Development


Added on  2019-09-26

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A physicist by training, Dr. Parviz Tayebati received a B.Sc. with first-class honors from the University of Birmingham, England, in 1982, followed by a master’s degree from the University of Cambridge in theoretical physics and a Ph.D. in quantum electronics from the University of Southern California in 1989.Parviz then joined Foster-Miller, Inc., near Boston, a small firm that in the past had derived much of its revenues by undertaking government-funded research using the SBIR Programs (see Chapter 9).While there, Parviz led research in optical computing and, most important, learned much about the process for winning technology development awards from the federal government.Throughout the 1990s, Internet bandwidth and information applications grew dramatically in a kind of virtuous circle, with more bandwidth making newapplications practical and acceptance of these new applications driving demand for even more bandwidth. Recognizing the opportunity to apply his technical and management skills to this area, Parviz formed CoreTek, Inc., in 1994 with the vision of developing truly innovative, enabling technologies to support this growth. Continued expansion of the Internet required components and architectures enabling bandwidth to grow faster than costs. CoreTek’s tunable laser technology was important because it could address cost growth in two ways: it reduced manufacturing and inventory costs for the source lasers, and it provided an essential element of the wavelength-managed network, which promised to reduce costs by dramatically increasing network use and efficiency. He initially secured government funds for the development of what was viewed as a speculative technology. Between founding the company and 1998, CoreTek received more than $5.5 million in SBIR grants, nine Phase I awards, and five Phase II awards.Parviz soon realized that to make his dream come true in this fast-moving field, he would have to accelerate his development program. Therefore, in 1999, CoreTek raised $6 million in an “A” round of preferred stock from a syndicate of three VC firms, led by Adams Capital Management (www.acm.com), valuing the company at $11.5 million priorto the investment. The VCs were attracted by the fact that the company was in a hot field and was able to secure significant amounts of government funding. For his part, Parviz chose this investor group not only on the attractive deal that he was offered (in fact, another group of VCs offered a higher valuation), but by witnessing the speed with whichthey could make decisions and their deep knowledge of the telecommunications industry—the fit was excellent. Parviz and his team were now working 24/7. The development proceeded rapidly, as CoreTek built its first manufacturing line. But the money was still not enough, and only nine months later, the company closed on a “B” round of $20.5 million at a pre-money valuation of more than $52.5 million from an extended syndicate of four VC firms. In 2000, a number of the major telecommunication giants expressed an interest in acquiring CoreTek. At that time, the telecommunications industry was anticipating major growth, and technologies such as that developed by CoreTek were seen as vital for them to reach their targets. The oligarchical structure of the industry worked to CoreTek’s advantage—a breakthrough in cost/performance in components could radically shift market share. Finally, in June 2001 Nortel Networks purchased CoreTek for $1.35 billion paid in Nortel’s publicly traded stock. Parviz joined Nortel as vice president of business development. At that time, Parviz and the other insiders of the company still owned approximately 30 percent of the company.

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