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April 01, 2005

Why Aruba said no to Cisco

"You must always recognize that venture backed companies are not sold, they are bought. When the large company comes knocking on the door and offers a good deal, you should generally take it." - Fred Wilson of Union Square Ventures

Keerti Melkote, Merwyn Andrade and Pankaj Manglik co-founded Aruba Wireless Networks, a San Jose, CA-based provider of wireless LAN switching systems, did exactly the opposite when Cisco Systems made an offer to buy out the company.

In a nice PR move, the founders explain why in an interview to the New York Times:
Cisco, based in San Jose, Calif., first approached Aruba in early 2003, when it had just started selling its wireless systems. Leading the Cisco team was Dan Scheinman, the executive charged with keeping tabs on new rivals that might present a competitive challenge or an acquisition opportunity.

For Aruba's top executives, the disadvantages of life as a small unit of Cisco - constantly battling for resources and attention - outweighed the advantages of Cisco's brand and marketing muscle.

"I saw that it would have been impossible for us to fulfill our dream inside of Cisco," said Mr. Andrade, Aruba's chief technology officer. "I feel we're really on the cusp of this taking off, but know from my experiences inside Cisco how difficult it would have been to innovate."

Aruba's goal is not to beat Cisco so much as to carve out a sizable share of the corporate market for wireless networks, a market that Mr. Melkote estimates will be worth more than $10 billion in the next five years.

"Even if it's only a $5 billion market, and even if we only get a 20 to 40 percent share of that, we can go public on that," Mr. Melkote said.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.