The best ideas, the ones that change your life, often come from the most unexpected places. And sometimes if that idea incubates long enough, it can be hatched with the greatest perfection to bring something new to the world. Rafat Pirzada’s idea came when he was 7-years old, watching a documentary film on television back in 1960s. “They were showing a telephone with a built in monitor so you could see who you were talking to,” he recalls.
Albert Einstein once said, ‘Imagination is everything. It is the preview of life’s coming attractions.’ It was the power of Rafat’s imagination, coupled with his determination and desire for perfection that helped him create the startup dream: setup a company with 3 friends, get VC funding on their terms and be the first Pakistani origin founder in Silicon Valley to have a liquidity event at over a billion dollars. Cyras’s $2.6 billion acquisition and the journey building up to it, is the kind of story destined for the history books. What Cyras promised to do was make communication networks faster, more efficient and allow telecom companies to seamlessly migrate from the voice-centric network of the past to the data-driven networks of the future. Unlike the other solutions, Cyras had figured out how telecom companies could make this migration on their existing infrastructure.
This is the story of how it all came together from Rafat’s perspective. It’s got to do with the confidence to take the leap of faith, a great product and a team that just didn’t take no for an answer.
Scouring through his life, there seems to be a recurring theme of ‘networks’ in Rafat Pirzada’s life, both the technology as well as the people. He was always surrounded by the best talent and held exceptional skill to forecast the future. Throughout his career, he was usually the youngest member of the team taking on the most challenging assignments, until he became a serial entrepreneur.
“Entrepreneurship is in the DNA of the Pakistanis,” begins Rafat. “Whether you read through religious references that constantly preach the benefits of working for yourself rather than someone else, or compare the steps the creation and management of Pakistan with that of establishing and management of an enterprise,” begins Rafat. “Or how Dr. AQ Khan led Pakistan’s creation as a nuclear state while competing with the countries that were stronger and much more powerful than him. Or even Agha Hassan Abdi who created and built BCCI to be one of the top 10 banks in the world, after having done the same thing twice earlier. These are all incredible stories in innovation and skill.”
Whether or not the rationale is agreed upon or not, the heroic steps taken throughout Pakistan brief but turbulent history, is a wealth of learning from a business and management perspective. Entrepreneurs are problem solvers. The better entrepreneurs invest in their people and think out the box and create win-win situations for everyone. “It wasn’t until I launched my own company that I realized how familiar this concept was. And there are many lessons to be learned from history to not only better understand where things went wrong, but also how to do things right.”
Rafat grew up in the British education system at the Karachi Grammar School. After his A-levels, he briefly spent time in Manchester, England at UMIST before transferring to the US to do his undergraduate work at Skidmore College and Dartmouth College. He went onto completing his Masters from Columbia University. He found universities in the United States welcoming students to be part of the fabric of their institutions rather than be at formal distance from their cores, as was the case in the UK.
Every entrepreneur can usually pinpoint the specific period in their lives which helped them achieve what they have today. That special place where they draw their learning and understanding of what being an entrepreneur means. For Rafat, it was being captain of his neighborhood cricket team. “This was probably the best training I could have had for my entrepreneurship career.” The captain was in charge of doing everything amidst a chaotic and unstructured ecosystem. From raising finance, to arrange the matches, convincing players to join and talking their parents into allowing them to play, making strategy ensuring there was strong teamwork in play at all times.
When he was looking for his first job, he had the opportunity to interview with Dr. Ishrat Usmani, the father of Pakistan’s nuclear program and was working for the United Nations in New York. During the interview, Dr. Usmani lamented that most young Pakistanis he came across in the US were technically sound and could follow others but were neither creative nor entrepreneurial. If you want to be able to succeed in amidst the competition, Dr. Usmani said, you must do both. Rafat took the lesson to heart. The bottom line is this: Engineers look for solutions while other or professions look at problems. That’s why engineers build economy and are so critical for the progress of any country.
Rafat’s professional journey started on the East Coast and he followed the American dream of going West, landing a job at Boeing in Kansas. “My successes as an entrepreneur have a lot to do with my work experience there.”
Recurring Group Study
Rafat was part of the networking group and Local Area Networks were just taking off. Because Boeing was an early adopter for the technology and he got exposed to all the action right up front. “The experience has been invaluable for me.” In addition to the culture shock of being in Kansas, Rafat had also never worked before in his life. He was also starting to realize that unlike in the academia, where there was a right answer for everything, real life was not quite as straight forward.
Rafat, like his peers, was given a great deal of latitude, which meant there was room to make mistakes. “The first mistake is always scary but as long as you have an environment that will allow you to fail and then come back from it, that’s an incredible learning curve.”
Rafat moved onto further west and joined Sprint to be part of their strategic architecture group. “It was a about 20 individuals who were tremendous knowledge in their own fields some have been in senior management and decided they wanted to be individual contributor but they were expressed in their field. Sprint was looking for someone established with experience in local area network, which was very new at the time, and his name was suggested.
“Sprint was probably the job I learned grew the most professionally. I was by far the youngest person there where my contemporaries were in their 50’s and I was at least 20 years their junior. I quickly made a name for myself.” Part of Rafat’s job was to be an evangelist for the technology so he often educated senior management. He thrived in the environment and within a year, worked his way up to the rank of principal engineer, which was a highly technical track.
Even though the web as we know it today was still a few years away, the 90s was an exciting time for telecom service providers in the race in the data space, the high-powered group was quintessential to keeping the company ahead in the game.
Part of Rafat’s job was creating blueprints for everything. “I had to create a blueprint on the their internal network infrastructure and how to interconnect everything. At this point, the ecosystem of corporate America was very mainframe-centric. I scribbled a pretty bold statement I had adapted from General MacArthur writings: ‘Old mainframes don’t die; they just become servers on a LAN.’ That essentially epitomized the fact that infrastructure was moving towards a distributed computing model. As such, network infrastructure become very important so I think my role in convincing the company, had a huge impact.”
Rafat’s group was really defining the roadmap the company would take, and ensuring that the technology was aligned. Because of his background, he was put into yet another group that had a combination of the best of the ‘Bell-heads’ and futurists like him to figure out how to re engineer the network to be more data-friendly. “And this was key learning for me because it helped me to better understand the pain points of telecoms when I was starting my own startup.” But like all good things come to an end the people who had built this group left and the new management that inherited the group, didn’t know what to do with the high powered group.
In the meanwhile, Rafat’s friend and colleague from Boeing had joined Cisco and recommended him to come and help Cisco gain traction and credibility with their service providers. “Up until that time, I was dealing with technological issues and architecture, bringing both together. This was more of a sales support role with marketing so it was a different orientation altogether.” Rafat was living on a plane and traveling to all kinds of exotic locations interfacing with carriers and devising strategies to better align Cisco with them.
Again, things changed when his boss left and Rafat was left floating somewhat aimlessly through the company once more. His boss had actually joined Xylan in Los Angeles, a company that built LAN switches as the Chief Strategy Officer. It that had just gone public and he wanted Rafat to join and work his magic. “My boss was kind of a difficult person to deal with and within a few months, had a falling out with the CEO and left.” A directionless Rafat became a victim of politics and soon every one who had come from Cisco were let go. “Sure there was some immediate relief since I no longer needed to travel extensively, but I needed to figure out what to do next.”
It was only January 1997 and the year had already gotten off to a very rough start. “The economy wasn’t doing too well, I had maybe $10,000 in my savings account, my wife had just graduated and there was no income coming in.” Their saving grace was that it was just the two of them and they were willing to tighten their belts until the tide turned. After a few false starts, Rafat got an interesting phone call from an ex-colleague from Cisco. He had just met with a startup he thought was onto something big and recommended Rafat meet with them. “That phone call was the turning point in my career I had never imagined.”
The Accidental Entrepreneur
Up until then, Rafat had only worked for large companies so he had very little idea what startups were doing. “This transformational opportunity came my way and I quite accidentally became an entrepreneur.”
Fiberlane was a very unique company in the late 1990s, it was a company that had been created by Vinod Khosla at Kleiner-Perkins. “Vinod wanted to do something in two very hot technologies: IP and SONET and in typical Vinod style, he wanted to IP expertise with SONET experts and see what could come out of it all. I was the only person there who came who understood both sides of the story.” To make things more complicated in an organization when there is no real goal to begin with, he created three distinct offices and microcosms within the company. “The main company in Mountain View focused on the chip design work, a Vancouver office where the Network Management part was being done and another presence in Petaluma, the hub for telecom expertise, where the System end was being developed.”
Because there were three different environments starting off without a strong, central management, there was a lot of chaos. “When senior people began leaving, Vinod had to become the acting CEO in addition to being the VC, and the situation was just one big mess.” Somewhere towards the end of 1997, it became clear that there were two separate companies, so Mountain View and Vancouver entities merged and the Petaluma office became the other. “Even though the structure was beginning to take shape, the company still lacked direction so much so that the biggest decision that would be taken would be what to order for lunch.”
Inception of Cyras
Tax Day, April 15th, 1998, Rafat and two friends took a decision to be more in control of their destinies. Rafat was the customer-interface and strategy guy; another friend was the engineer who could build the products based on customer requirement, the third friend had an Accounting and Operations background, and they would later contact a talented engineering executive who had left Fiberlane from Vancouver, and got him onboard. And sitting there at lunch, they planned the blueprint of their company on a piece of napkin – typical startup style. They named the company Cyras Systems to contain the phonics of their names: Sunil, Shekhar, Rafat, Alnoor.
Because they all shared the same vision, the chemistry amongst the team was very good among and so they would build their company on the weekends and work during the week. “Other than Vinod Khosla, I had never dealt with VCs, I didn’t know what a business plan looked like and by virtue of being the ‘marketing guy’ on the team, it was my job to create all of this.” And create he did.
Rafat had a talent for organizing his thoughts and convincing others of it. After all, he had accumulated enough experience working with the big companies in highly competitive and cutthroat environments. “We had a lot of market research and began working on our business plan, rotating the ‘brainstorming house’ each week. As our passion and plan grew, it was becoming apparent that things were not necessarily improving at Fiberlane, so we began the process of disassociating ourselves from there.” Rafat and the other others couldn’t wait to run off into the sunset and start their own shop but they didn’t want to raise suspicion. Soon, Fiberlane handed a-very-happy-Rafat some severance pay and informed him he was being let go because they had hired a new VP of marketing.
By end of June, Rafat’s team was out, they forged ahead with their business plan and had their first VC meeting through a TiE connection, on July 4th weekend. “He didn’t have an office so he invited us to his apartment in San Francisco. He went through our plan and liked our technology perspective, market perspective and direction, but felt the composition of our team seemed very heavy on the non-engineering side. I guess he was politely telling us he wouldn’t fund us.” On their way out, Rafat saw a wall hanging that said, ‘I am like a bumble bee, all the aerodynamic experts say that its impossible for the bumblebee to fly the way it does, the equation just don’t workout but the bumble bee does fly; so I am just like the bumble bee so.’ “I remember sending him a note thanking him for his time and reminding him that we were the bumble bees and we would eventually succeed.” And with new fervor, they started knocking on doors.
“It was quite a turbulent time because whoever thought the idea and the roadmap was good, refused to back the team. But all of us had contributed equally and we wanted to go forward as a team.” They collectively agreed to keep knocking on doors.
During all this, they were able to attract their first employee. “A brilliant engineer from Stanford who had the ‘do something different’ bug and blended well with the team. As it turned out, his father worked as a banker, and he connected us.”
The banker heard them out, liked the group and promised to connect them with his colleague Jerry Newman at the bank who interfaced with VC. “Jerry’s office called a few days later and scheduled a meeting with a him at some ungodly hour of the morning. So we got out early to beat the morning traffic, not knowing that would become the most significant day of our lives.” In a seemingly endless meeting, a very aggressive Jerry Newman peppered them with a lot of questions. At the end of the meeting, the only comment he made was to shrink the size of our presentation. They left, somewhat disheartened at yet another failed attempt, until they spoke to the investment banker. “Turns out, Jerry typically didn’t spend more than 30 minutes with anyone, so he clearly saw something, which only means one thing: it’s not if you will get funded but when you will get funded and how much you will raise.”
Jerry saw enough potential in the idea and the team that he began working with Rafat on tweaking the pitch into an articulate summary. “Once he was satisfied with it, he contacted VCs who were more likely to fund us. Lo and behold, the Valley’s top VCs were calling us up. They had received our summary and wanted to meet. And these were completely different types of meetings and we could quickly tell these guys were interested.”
In parallel, Atam Lalchandani a very accomplished executive in Silicon Valley and an expert in VC financing, introduced them to El Dorado Ventures, a very well regarded but small VC firm. “After meeting with us a couple of times they called us to their office and told us that they are willing to give us a conference room table (they were replacing theirs) and check for $1 Million if we could get a bigger VC to lead the round. This was the first concrete offer we received and all of us were very excited.” Atam’s mantra was, ‘the best time to raise money is when you don’t need it and the absolute worst time is when you need it the most.’ The Cyras founders understood this well and never missed an opportunity to raise funds. All told, they raised more than $200 Million.
Meanwhile, Dado Banatao became Chairman and invested in the company as a seed investor. Their value proposition with the VCs went berserk and in 1998, they raised their first $8 million. The downside for the team was that in order to raise this much funding, they had given up a lot of the company but felt confident that it would be because of the money that they would be able to build something. Like many iconic startups in Silicon Valley, Cyras’ first office was also a garage (Shekhar’s house in Fremont and the cafe at Border’s bookstore in nearby Milpitas doubled up as their meeting room) until they moved into the warehouse.They set up an office in the warehouse, move in with their 20 employees and Cyras Systems had arrived
The biggest learning for Rafat was the attitude between the different classes of VC firms. “All the VCs they had been meeting before, were only interested in projections and forecasts before they would open the gates for us to meet with anyone senior. The top tier VCs had a completely different approach. They were interested in the roadmap, the people and how we could change the world.” The VCs who picked Cyras, already wanted to be in that space; it was just a matter of finding the right team to back.
The relationship with the VC firm is a critical one. Their interest, market reputation and ultimate payback banks on how well their entrepreneurs do. At one time or another, Cyras was backed by a lot of VC firms including names such as Menlo Ventures, Draper Fisher Jurvetson (DFJ), Viventures, El Dorado Ventures, New Enterprise Associates (NEA), Worldview Ventures and Mustang Ventures. For most of these firms, Cyras was in their top 5, if not the most profitable deals they had backed. To get a better grasp of the whole picture, just take a look at the companies some of these firms back today. The wow factor continues to grow.
“In our case, we had all the functions in place to hit the highway running. And because we were so passionate about the technology, they knew we wouldn’t make a lot of mistakes so the execution risk would be lower. And unlike the earlier people, they could sense the chemistry between us. We were four equal partners in a business we wanted to run.”
“If you had to pick one trait that can take you places in Silicon Valley,” laughs Rafat, “I can say without a doubt, its better to be lucky than smart. If we hadn’t hired the engineer when we did, nothing would have happened.”
Cyras Takes Off
While Fiberlane seemed like a classic disaster on how not to operate a startup, Cyras did everything the absolute opposite. Cyras ensured their clear vision was embedded into and believed in by team members at every level; they provided their teams with guidance; they let the employees present to the Board so the connection grew from both sides and they didn’t let the VCs micro-manage operations.
Cyras was optimizing SONET for data and working on SONET in a way that hadn’t been done before. “The industry thinking was that SONET would die out after 2.5Gbps. Our premise was different and we engineering the Next Generation 10Gbps SONET system. And that was the right call.”
VCs were very pleased with Cyras’ progress and then something magical and completely unexpected happened. They were just getting into our second round of funding, which is usually the toughest round, when Cerent (Fiberlane had split into Cerent and Siara) filed for an IPO. “Nobody knew what Vinod was doing but it became very clear to the investment community that this space was very hot. Because of our heritage with Fiberlane, we became a very sought out commodity.” A top tier VC, NEA, was courting Cyras and they met with Peter Morris, the partner driving this deal. NEA was known in the market to be very good, but very slow moving.
“For us, NEA proved to be the exact opposite. Peter arranged for us to pitch to a partners meeting the next week and 15 minutes after the meeting, he told us how much money they were willing to put in and what the valuation was, and that he wanted to close this quickly. We agreed to honor the meetings we already had lined up, where everyone wanted to write us a check. NEA came in with the largest investment but we refused them a board seat. It was unprecedented and unexpected. And they accepted.”
You know the model that Google had where the founders were really driving the company? That was something started at Cyras. The only difference was that in Cyras Systems’ case, there were four brown people who were sitting on what could potentially be the most important start up company in Silicon Valley at that time.
Meanwhile, Cisco acquired Cerent for $6.9 billion, the biggest acquisition of that time. VCs initially thought Cyras had the potential to be a $1 billion company, but after the Cerent acquisition, they were convinced that Cyras could be $10 billion company. “Our VCs had worked closely enough with us to see we were a better company and our products was far better.”
The Cyras Exit
In the summer of 2000, Cyras Systems initiated a very innovate process to raise funds from Wall Street in the form of a pre-public convertible (to stock) bond. They selected Credit Suisse First Boston (over Goldman Sachs, one of the toughest decisions the board ever made at Cyras) and began prepping for the roadshow. They secured $150M in a greatly oversubscribed offering from some of the leading institutional investors, making Cyras the only private company to be able to structure such an offering. The commitments were for over over $1 billion on terms that the debt would convert at 100% markup at whatever the IPO stock price would be, with the expectation that an IPO would happen sometime in 2001. To put the numbers in perspective, this was the same time when Pakistan was unable to get a loan for the same amount from the IMF.
In late September that year, the markets turned drastically and CSFB called and said there will be now new IPOs in the technology space for the foreseeable future. A more realistic valuation of the company was $2 billion a significant change in the mindset from the potential of being one of the biggest IPOs in technology history. However, CSFB said that if this valuation was acceptable there would be no dearth of companies wanting to acquire Cyras, as just a few weeks ago only a figure north of $10 billion would be considered a viable offer.
After several companies made bids to acquire Cyras, Ciena, the Linthicum maker of optical networking equipment, acquired them for $2.6 billion in late December of 2000, with the acquisition closing in March of 2001. In early 2002, Light Reading, one of the leading trade magazines reported that if you added all the acquisitions post Cyras in 2001, their aggregate valuation would still be half of what Cyras was acquired for.
After what was an incredible rollercoaster ride, Rafat and the other founders finally went into retirement in August 2001, but the roller coaster would not yet let him go. After Ciena announced that the Cyras founders were leaving as part of their quarterly call with investors discussing the company performance and forecast, the stock dropped by almost 50% in a matter of minutes. The Cyras founders woke on their first day of retirement to the news that their net worth had reduced by almost half overnight!
The Cyras Lessons in Entrepreneurship
There are many lessons to learn through the experiences that Rafat shares, however, there are two that stand out for him. First, entrepreneurs need to figure out what the bottom line for the company is. “Have you addressed the customer pain and solved something? Do you have a strong management team with the ability to execute? Are you targeting a large and rapidly growing opportunity? Entrepreneurs often fail to have the ‘best-in-class’ technology position,” explains Rafat. You need to have the ability to sell to Blue-Chip customers else you will never be able to have a long-term financial model. No sustainability means the end of the road, which isn’t a good thing for anyone. “These are tough questions that need serious exploration. If you haven’t found the answers, you need to change strategy to make it work for the company.”
The other lesson that stands out has to do with the bottom line for the entrepreneurs themselves. “If you consider that every individual is an amalgamation of his experiences, the richness of that toolkit will be determined on the richness of the experiences. So whether it’s being captain of the cricket team or getting over the culture shock of a different city, each of these diverse experiences make the difference between success and failure.” While creating the bottom line for the business, entrepreneurs also must pay heed to their own value creation and assess what they bring into the organization.
“Entrepreneurship is about passion, endurance, realism, focus, being economical, creative and team-oriented. If you have all these elements in your toolbox, you’re approach towards the success of your business will be ‘perfect’ (which is also the acronym for all the elements described!)
The Evangelist and Mentor
In late 2001 as one of the first muslims in Silicon Valley to create a billion dollar company, Rafat was asked to give the keynote talk at the annual dinner for the Islamic Chamber of Commerce in Silicon Valley. At the conclusion of his talk, he asked if anyone in the audience would like to take on the challenge to create a billion dollar company and his mentorship. Up went the hand of a young engineer, Raghib Hussain, who had just formed a company Cavium. In 2007 Cavium reached the billion dollar mark in it’s valuation. Raghib was one of many Pakistani Americans in Silicon Valley who would seek his mentorship and guidance.
Rafat felt a calling to serve Pakistan, much akin his iconic father, Syed Sharifuddin Pirzada, but in a different capacity. He had all this experience and so he went on a lecture tour of Pakistan in February 2002. The IT Boom in Pakistan was just starting but Rafat disagreed with much of the policy that was architected. “I still think it was a huge mistake for Pakistan to jump on the call center bandwagon. The approach should have been to build development centers and support engineering, rather than a support franchise.”
As a result of what the government ‘envisioned’ for the industry, there are only pockets of innovation being done, which nobody is able to scale up.” Because the state of the education system is so poor, the best and brightest go abroad and very few actually come back causing a severe hemorrhaging of skilled manpower. “What’s really ironic is the same people who came to the Valley and achieved great success might have made a difference if they found an ecosystem in Pakistan. But they’re gone and most aren’t coming back because they have settled into a life. And security is a big concern for anyone to consider moving back or even visiting.”
When South Koreans were returning back from the US in the 1960s, one of the first things their government did was build apartment complexes, just like one in the US along with an American school. “The point is, in order to bring people back, governments need to make the effort to make the transition easy to encourage the brain gain.
In the mid 2000’s, he worked very aggressively with organizations like TiE to take people back to Pakistan for speaking, mentoring and collaborating with companies there, but eventually gave up. “It was frustrating to see people were more interested in putting on shows, than doing something that would last the long-haul.”
The future of the world, not just the US or Pakistan, sits in where communication technologies will go. “There will be greater bandwidth demands and Pakistan needs to build up its infrastructure. We were dreaming of how to shape infrastructure back before people even knew what high speed was. Pakistan still struggles with redundant connectivity and a 3G auction in the mobile space only now.”
Entrepreneurship isn’t easy anywhere until you have crazy belief in yourself and your team to innovate and keep dreaming. If you envision something that is the first of its kind, be sure and find the right people to help you grow it. You become an entrepreneur because you want to create your own destiny and according to Rafat, there’s no greater satisfaction.
This profile was originally published in the book, A Greener Valley, authored by Rabia Garib and Talea Zafar, published by InfoTech (Pvt) Ltd.