By Janet Baine

THE TECHNOLOGY SECTOR BOOMED AND PIXSTREAM BOOMED ALONG WITH IT.THEN,THE BOTTOM DROPPED OUT OF TECH AND PIXSTREAM HIT THE ground with a thud, leaving its founders and employees out of work.

It’s a sad story that has played elsewhere many times, but this tale may be poised for a happy ending as a new company takes shape from the ashes of the old.

The new entity is Sandvine.Three of its five founders were the driving force behind PixStream, a company that developed specialized digital video-streaming technology. They believe the currently bleak economic picture will actually help Sandvine avoid the fate of its predecessor.

The PixStream story

PixStream co-founder Marc Morin crammed a lot of business experience into the first few years of his company’s existence.

“You feel like you’ve lived a lifetime of experiences in what had been, from the beginning, four years total,” said the 38-year-old.His company was a four-year-old rising star in Waterloo, Ont., when it captured the eye of California giant Cisco Systems, a provider of Internet infrastructure equipment, last year.

In December 2000, Cisco paid $554 million to buy PixStream, acquisition number 117 that year. The three company co-founders collectively held a 20 per cent interest in PixStream and became instant millionaires.

A Cisco team moved north to Waterloo and began turning PixStream into its video-networking division.The event was hailed as a brilliant success. PixStream threw a party for its employees and hired The Guess Who to provide the entertainment.

“I felt a great sense of accomplishment with our success right up to that transaction,” said Tom Donnelly, vice-president of sales and marketing for Sandvine and a former member of the management team at PixStream. Like his colleagues, Donnelly turned his efforts toward the transition from start-up to corporate division.

He was shocked when, only four months later, Cisco started talking about closing PixStream. The parent company was suffering at the hands of the telecommunications meltdown; by April 2001, Cisco had issued 180 layoff notices at PixStream and was keeping 40 staff members for four months to help close the division.

“It felt terrible,” said Donnelly. “It was very sad, disappointing, frustrating. It was not at all the outcome anyone, including a large number of people at Cisco, wanted.We had worked very hard—we were just completing the task [of integrating PixStream into Cisco] and it felt very frustrating and wrong when this decision was made.”

After a period of mourning, PixStream’s management team began tearing down the company they had built.

The rise of Sandvine

Prior to the PixStream shutdown, its three original founders had begun discussing a return to the entrepreneurial world. PixStream’s death accelerated their plans.

“I don’t think any of us really felt that our long-term future was with Cisco,” Donnelly said. “I think all of us believed we were going to go on and do something else, either individually or in some group fashion a year or two down the road.”

That plan was moved off the back burner.

Sandvine was launched on Sept. 1, 2001 and founded by Dave Caputo, Morin, Brad Siim, Donnelly and Don Bowman. On its first day it boasted 40 employees and $19.5 million in financing from four different venture capital ( VC) firms.

Without exception, customers stood behind Sandvine, while venture capital firms made offers before being called.

Andrew Waitman, general managing partner with Celtic House International, said he saw opportunity in the death of PixStream. His VC firm, led by Terry Matthews, cofounder of Mitel and founder of Newbridge Networks, sent out a “generic offer” to PixStream management when it was first sold to Cisco, asking to work with them again on any new ventures. Celtic House had provided $3 million in seed money to PixStream.

“These guys have lived the war, they’ve got the scars, they have the success,”Waitman said, adding there aren’t all that many second-time entrepreneurs in Canada’s technology sector.

Celtic House contributed $9 million in venture capital to Sandvine. Other shareholders include VenGrowth ($6 million), Tech Capital Partners ($2.5 million) and the Business Development Bank of Canada ($2 million).

Betting on the future

Unlike most start-ups, Sandvine is mum on the product it will sell. Customer trials will begin in mid-2002 and a commercial launch is expected to take place late that year or early in 2003.

“We’re building a networking product targeted at telecommunications companies and service providers,” Donnelly said. “Our target market is small.We can talk to them directly without potentially providing information to competitors.

“It is quite significantly, substantially and obviously different from what PixStream was doing.”

And in an interesting twist of fate, Sandvine is using layoffs at other companies to increase its own workforce. Current economic conditions mean companies aren’t buying, but Sandvine doesn’t care—at this point it has nothing to sell.

Later this year, when the high-tech sector is expected to be back on track, it will be ready.

While Sandvine is renting the same digs once occupied by PixStream, it plans to move to a 27,000-squarefoot building currently under construction. The new facility can house 200 employees.

Morin said getting Sandvine started is just as exciting as it was with PixStream. “It’s a different experience.We have a track record,we have a lot of financing and we have a lot of employees.The market environment is different.

“With PixStream we could look out and be much more evangelical about a solution that was further out.With Sandvine, product, opportunity and execution have to be right on.They have to be precise to get to revenue as soon as possible,” he said.

Morin has enough money socked away to retire now, but he says he’s too young and, besides, he’s having fun.

“We really didn’t start out to make money.You kind of say that if you do things right, that will just happen. And we were lucky that way.”