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August 29, 2017

Lessons in Exiteering: The Element 14 story

The story of Element 14 and subsequently Icera and Neul are object lessons in how to create value through ruthless focus which, in the case of Element 14, delivered a spectacular 32 X return on investment.

Central to the story of all three companies’ stellar success is Stan Boland. Stan is a physics graduate of the University of Cambridge, with a fascinating CV. He combined his scientific background with an interest in business by starting out as an engineer then crossing over to become Foreign Exchange Manager for Rolls-Royce plc (aerospace firm). In the 1980s, he became deputy treasurer for the now-defunct Bell Group, owned by controversial Australian businessman (and Australia’s first billionaire), Robert Holmes à Court. A spell as Asst Treasurer for a large PE-backed buyout Bricom eventually led Stan back to technology and ICL, the former British computing behemoth, where he worked from 1990 to 1997. Then, aged 37, he moved to the public company Acorn, where he set about creating the first of three major deals.

Based in the ‘Silicon Fen’ of Cambridge, Acorn was considered “the most influential business in the innovation cluster’s history”. Acorn held 40% of ARM, then a private company. Stan, as new CEO, merged the remaining chip-design group with an expert team of chip designers from ST Microelectronics which he hired into a separate company, Element 14 (so-named as silicon is the 14th element in the periodic table), which then specialised in digital subscriber line (DSL) equipment. Morgan Stanley bought the rest of Acorn for £440m in a deal he engineered.

As part of that Morgan Stanley deal, Stan and a group of his programmers bought Element 14 from Acorn for a reputed £1m, while raising some £9m from VCs Bessemer Venture Partners in the US, Atlas Venture and Amadeus Capital Partners in the UK. Less than 18 months later, he sold Element 14 for $640m to US chip firm, NASDAQ – listed Broadcom Corporation. In the UK, the Telegraph reported enthusiastically that the deal made millionaires out if its 68 staff in offices in Cambridge, Bristol and Mechelen, Belgium; some 40% of stock was owned by the fledgling company’s employees.

After serving a brief period as VP, DSL Business Unit for Broadcom, Stan returned to pioneering in the chip business, founding mobile phone baseband chipmaker, Icera, in 2002. Based in Bristol, Icera developed soft modem chipsets for the mobile device market, including embedded modems for smartphones, tables, e-books and other mobile computing devices. In Stan’s nine years at the helm, Icera raised $250m from backers including Balderton, Accel Partners as well as Atlas and Amadeus (who had each invested in Element 14), alongside 3i Ventures (now DFJ Esprit) and Tudor Investments. The company was sold in May 2011 to Silicon Valley’s Nvidia, the specialist manufacturer of high-end graphics process units (GPUs) for the gaming and AI market.

Following that experience, in 2013, Stan joined, led and ultimately sold Neul, a Cambridge-based, 30-employee Internet of Things specialist. Neul was in serious trouble when Stan joined but he managed to refocus it and Neul was sold to Huawei for a reputed $25m, returning investors’ cash plus.

Since September 2015, he has served as Co-founder and CEO of FiveAI Inc, developing the artificial intelligence required for safe urban driverless cars. That mission looks like it promises to be an exciting one!

Solve the most painful problem first and solve it fast

The starting point for every one of my businesses is to identify a marketable problem to solve. At Element 14 we spent the first 3-4 months focusing solely on that. Our choice of investors was critical and Bessemer in Boston were invaluable. Rob Soni, who had done 15 communications technology deals over the years advised us on the transformation and introduced us to 70 or more CTOs and VP Engineering across his rolodex. This helped us rapidly accelerate our thinking and so we positioned ourselves as a DSL ‘fabless’ chip company for telecoms, i.e. a chip manufacturer building software for chips, but without the burden of a manufacturing plant. The pivot from Element 14’s first idea of being a developer and licensor of a more general purpose processor core (a bit like ARM) into a vertically focused business transformed its prospects and led to a highly valuable and rapid exit.

Never skimp on people

Once we had decided on the problem, the next priority was to build a specialist DSL team. In 2000, the market was unbelievably overheated, but we still hired the best people we could find with deep expertise. We searched for and found the world’s leaders in DSL technology, who happened to be in Belgium, and we persuaded them to quit their safe jobs and join us. We built a raw team of 30 engineers into a global leader in DSL chipsets in less than 2 years.

Strong connections with major clients create demonstrable value

We were incredibly well connected already with major players around the world and we knew that Lucent and Alcatel in particular were ‘pregnant with demand’ for what we had to offer.

We never shied away from talking to the biggest corporations around the world. Less than a year had gone by from acquiring the business when we were approached by Broadcom, initially for a partnership discussion, but rapidly moving towards the potential for an acquisition.

They knew how well connected we were and we moved rapidly into negotiations. It was partly the value of the prospective client base and Element 14’s clear mastery of the subject that led to it being a ‘must buy’ Company.

An investment bank gives you options. Or the appearance of it.

There were massive arguments about appointing an investment bank – Broadcom had never used one and I had never had sold a business without one. After a lot of threats, which we eventually ignored, we appointed Deutsche Bank Alex Brown. When engineering an acquisition you have to get yourself into a position of confidence and the appearance of many options. The bankers coached me on what to say in each circumstance, good and bad, to maximise the result. That’s what an investment bank gives you; don’t sell without one.

Appointing an investment bank kicked off a competition to create optionality, which was critical. The initial offer was $200m and we eventually sold for $640m.

The big regret…

I don’t have any regrets, but don’t be shy about talking to the biggest and best. Don’t worry about global competition. Always get on the plane.

And the big take-away…

Focus on a massive problem and build the best team you can.

First published in The Art of Exiteering: In conversation with European tech founders.

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