March 27, 2000

Electrical and Computer Engineering Professor's Company Acquired by California-Based Vitesse

(from the News and Observer, Raleigh, NC)

Start-Up Strikes It Rich

Raif Onvural isn't as smug as he could be. But suddenly, he is very rich.

Orologic Inc., the company Onvural co-founded in 1997 with Yannis Viniotis, announced Sunday afternoon that it will be acquired by a California semiconductor company for $450 million in stock. Not bad for a company with no revenue, no products on the market and virtually no name recognition.

Onvural's stake was not disclosed. He seemed pleased, not surprised, by the premium Orologic was able to fetch. After all, years ago he was boasting that Orologic - which designs software for computer chips - could be to networking what Intel has been to personal computers.

"It was a long way coming," Onvural said of the purchase, which he sees as the ultimate validation of the start-up. "That's what makes it more pleasant."

Considering that Orologic has 25 full-time employees, one can pretty much figure that Vitesse Semiconductor paid $18 million per brain.

Onvural has always figured that would happen. But early on, he had trouble finding people to buy into his vision.

As Orologic's president, Onvural toiled to raise enough money to keep the company running since its launch late in 1997. He knocked on a lot of doors. The North Carolina Enterprise Fund opened its door.

The fund, which invests exclusively in North Carolina-based companies, invested $2.5 million in Orologic over the years and is the single largest shareholder in the company. That investment is now worth $150 million.

Orologic's story is a high-tech fairy tale. Advanced, even arcane, semiconductor technology suddenly is worth millions to a giant chip company looking for a new trick to add to its repertoire.

It is the quintessential Silicon Valley story. But it doesn't happen every day in the Triangle.

"This is the biggest return [on an investment] that we've had to date," said Joseph Velk, executive vice president with the 10-year-old North Carolina Enterprise Fund.

"Pretty much everyone else in this region didn't understand or wasn't interested," said Onvural, who made the rounds several times to other local venture capital firms. "Hopefully they'll be looking a little bit closer next time."

It was tough for Onvural, a Turkish native who has lived in North Carolina since 1983. California venture capitalists understood the importance of what Orologic was developing, but didn't want to invest unless the company moved to Silicon Valley. Onvural, who has two North Carolina-born sons, wasn't willing to move.

Orologic makes software to run a computer chip that controls the traffic traveling through a network and prioritizes the different kinds of data. For example, a network handling both voice and Internet data traffic would give priority to a phone call over an e-mail message.

The company's first product, a chip running a technology called PACEMAKER, is due out in May.

When Onvural, a former IBM engineer who got his doctorate in engineering from N.C. State University, and Viniotis, an associate professor of electrical engineering at NCSU, first started developing such technology, it was ahead of its time. Onvural said he was placing his bet that the networking industry would go the same way as the personal-computer industry. Instead of developing all their own networking technology, he predicted that giants such as Lucent Technologies, Nortel Networks and Cisco Systems would start buying semiconductor products.

Since then, this kind of network processing has become hot. Vitesse's acquisition of Orologic followed similar deals in the market. Earlier this month, a company called Extreme Packet Devices was acquired for $415 million in stock by a Canadian semiconductor firm, PMC-Sierra. Motorola bought a network processing company, C-Port, for $430 million in stock in February. And Lucent bought Agere Inc. for $415 million in stock in January.

Orologic's decision to go with a partner came at the 11th hour.

One day last November, Onvural had a ready-to-sign deal on his desk for another $20 million in venture capital to fund the roll-out of the company's first three products this year. That day, a phone call came with an offer to buy the company.

That deal didn't work out, but Orologic talked to six different publicly traded companies, and had serious bids from two, before deciding to go with Vitesse, which is based in Camarillo, Calif.

Vitesse, with a stock market value of $14.3 billion, will provide Orologic with the money it needs to launch its technology properly. Named after the French word for "speed," Vitesse specializes in circuits for telecommunications firms and networking equipment manufacturers.

Orologic, which got its start at the First Flight Venture Center in Research Triangle Park and now has space in the Perimeter Park office complex in Morrisville, will stay in the area.

In fact, said Hugh Thomas, vice president for marketing at Orologic, with the backing of a new parent, the company is looking for 20 new engineers and marketing types to fill out its staff.

"I dreamed that we were going to be a public company here," Onvural mused from behind his desk on Sunday afternoon. "We're a happy bunch here."

Employees at the company - all 25 own Orologic stock - first heard about the acquisition on Friday when Louis Tomasetta, president and chief executive officer of 850-employee Vitesse, flew out to sign the acquisition papers. He stayed to have a talk with employees then left at 4:30 for a flight back to the West Coast.

"That's when the party began," Thomas said.

San Francisco-based Thomas Wiesel Partners, the investment bank that helped Orologic and Vitesse execute the deal, sent over a case of Dom Perignon champagne. There wasn't any left by the time the festivities ended.

Folks at the North Carolina Enterprise Fund, which has historically kept a low-profile in the regional investment scene, aren't trying to take any credit for the 5,900 percent return on its Orologic investment.

"These are very respected people in their industry," Velk said. "They had a good view of the market's requirements when they started the company."

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