A sale or a shutdown is likely at one of the area’s best-known tech ventures, Open Port Technology, where a financial storm is threatening to capsize the ship.
On board with founder and Chief Executive Randy Storch is $55 million in equity from a blue-chip roster of venture capitalists, millions more from prominent tech investors and 130 jobs.
Storch and Open Port’s backers have been trying to steer the 7-year-old software company to safe harbor since spring, when Wall Street’s tech stock wreck kicked up a tempest in the capital markets.
The continuing storm scuttled Open Port’s public offering this summer, a move that would have raised $80 million and valued the company at more than $210 million.
Worse still, it slammed the venture capital markets and battered the telecommunications firms that are Open Port’s biggest customers, as well as the equipment-makers that are potential buyers for the firm.
Storch said Wednesday that he’s working to arrange the best outcome in a difficult climate that he likened to the movie “The Perfect Storm.”
“We are in the process of selling the company,” he said, declining to name a buyer. He said negotiations have been ongoing with various potential acquirers for months.
Others familiar with Open Port say that a sale is not assured and that, at best, it would mean substantial layoffs and big losses for investors.
A sale could come as early as Monday.
Among the largest investors are CID Equity Capital, Brookside Capital Partners, Frontenac Co., New Enterprise Associates and Battery Ventures.
High-profile investors include former U.S. Robotics founder Casey Cowell, Allegiance Telecom CEO Royce J. Holland and Joe Piscopo, Pansophic Systems founder.
“I’m sitting facing a total loss of my investment and it’s kind of a bitter pill,” said Piscopo, an Open Port director. “I don’t hold anyone at fault for that except myself.”
Among the biggest individual losers is Storch, with a 3.4 percent stake that would have been worth $6.4 million in the IPO.
The company’s fate today is a far different one than the 41-year-old envisioned when he founded Open Port in 1993 to provide Internet fax services to big corporations.
Like most young tech companies, Open Port took investors on a roller-coaster ride as the company morphed into an ever-more ambitious software competitor, always with an eye to the elusive public offering.
The company is a pioneer in the market for combining fax, voice and e-mail in a single system. Its customers are giants with far-flung networks and global ambitions, such as London’s Cable & Wireless, China Telecom and WorldCom.
Yet despite Storch’s leadership and Open Port’s promising contracts, the company never gained what investors call “traction”–sustained rapid growth and sufficient sales to cover the high costs of developing its nascent technology.
When it filed for a public offering in April, it appeared to be on a promising path. First-quarter revenue of $1.35 million was more than twice the total sales for 1999. Losses totaled $4 million.
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Then the Nasdaq plummeted, setting the stage for what some view as just the beginning of a nasty tech recession. Ill winds kept blowing with Lucent Technology’s stumbles and earnings disappointments by Nortel Networks, a bellwether for the telcommunications equipment industry. Investors took cover.
“They’re taking an infinitely closer look at companies that can’t show a short, clear path to profitability,” said Chicago tech attorney William N. Weaver Jr. of Sachnoff & Weaver. “There are a lot that aren’t going to make it. It is truly grim.”
For Storch and the others at Open Port, it’s a scramble for shore.
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