Troubleshooter achieves record $7bn deal for start-up

 

Mr Carl Russo is the walking, talking Silicon Valley dream. In June 1998, he stepped in as chief executive of a troubled information technology outfit called Fiberlane Communications. Last week he sold the business, renamed Cerent Corporation, to Cisco Systems for almost $7 billion (£6.7 billion).

Mr Russo's 5 per cent stake in Cerent is now worth close to $350 million in Cisco stock. Not bad for a year's work, and not bad for a man who was flat broke seven years ago.

The Cerent deal marks the largest sum ever paid for a technology start-up. The valuation is astonishing. Seven billion dollars seems a lot to pay for a company with one product - a device that can route large amounts of voice and data traffic along fibre-optic cables - and 287 people. Set up less than three years ago, Cerent is projecting sales of $100 million this year and made a loss in the last six months.

Mr Russo admits there is a sense of unreality about the whole thing. "It's nuts, it's stunning," he says. "I was walking to my car this morning, sneakers untied, and it just felt like another day."

Forty-two years old, with short black hair and a fiendish black moustache, Mr Russo would not look out of place tying a woman to a railway track in a silent film. But there is little of the villain in him in real life. When he talks he is intensely personable, scattering his conversation with jokes and asides.

Does he deserve $350 million? Mr Josh Green, general counsel to Cerent and a partner at Venture Law Partners, a Menlo Park law firm, seems to think so. When Mr Russo joined Cerent, he says, "the business was about to hit a mountainside at 150 m.p.h.".

"The first day he arrived I thought, thank God, we are saved. Carl deserves everything he has got. He created about $6.85 billion of the $6.9 billion value in that company."

Mr Russo says he arrived to find a "discordant" company in which three scientists were arguing over how to proceed. Mr Vinod Khosla, a partner at venture capitalists Kleiner Perkins Caufield & Buyers, was acting chief executive at the time but could not give the company the attention it needed.

"You know VCs [venture capitalists]. They are usually talking on three cellphones," Mr Russo says.

Mr Russo's solution was to break the company in two. One half became Siara Systems, which raised $25 million in May and is still pursuing its own vision. The other became Cerent. Both businesses had good ideas, but as Mr Russo says: "Good businesses are not about good ideas, they are about good execution."

Colleagues describe Mr Russo as a charismatic leader. Ms Renee Bader, who worked with Mr Russo at Xircom, a computer networking business, recalls her first meeting with him. He called the department together, sat cross-legged on the table, and asked: "What is this meeting about?" The next meeting, she says, everyone had to sit on the floor.

These things sound like the sort of embarrassing stuff textbooks tell managers to do. But Mr Russo had the personality to be able to pull it off, Ms Bader says.

Mr Russo's curriculum is as unusual as his management style. He never finished high school, but went to Swarthmore College in Pennsylvania, aged 16, to study maths and computer science. He never finished college.

"I was a bit of a propeller-head," he admits. When his mother died, he went home to work with his father, a components salesman. "I love my dad a lot but we are very different people," he says. So he left and began his career, moving to Paradyne, then part of AT&T.

In his early twenties, he spent his weekends racing cars. He considered professional racing but concluded that he was merely competent, and "competent just does not cut it".

Ten years later he nearly ruined himself by joining a professional racing team as manager and throwing everything he had into the business. Full Time Racing, as it was called, was a disaster. Mr Russo's net worth went "straight through zero and kept falling".

But he avoided bankruptcy, paid off the debts and now says the experience was one of the best in his life. "There is a difference between being rich and being wealthy. Being wealthy is about life experience," Mr Russo the philosopher says.

He faces a dilemma that troubles many of the jackpot winners of the technology industry: what to do about his children. He has an 11-year-old girl and a 17-month-old son by different mothers. "I have seen second-generation wealth and I have never been that impressed," he says. "If I had had a million when I was 21, I would be dead now."

His suspicion of inherited wealth is not unusual in Silicon Valley, where the workaholic rich outnumber the idle rich, and where money is the principal measure of your achievement in life.

So Mr Russo is devising schemes to make sure his money does not drain his children of incentive. One possibility, he says, would be to stop the children drawing on their inheritance while they are in their early twenties, unless they are earning a living or paying for education. He also says he wants to use his money to promote good causes - education and gun control are at the top of his list.

The one thing that he is not doing is retiring. He will be joining Cisco Systems and making sure it gets value from its investment.

"If painters make a lot of money selling paintings, people do not expect them to stop painting," he says. "I am not saying what I do is art, but this is my craft."

Mr Russo certainly puts as much of his life into his craft as any artist. He starts work before seven each day. He tries to get in an hour's reading on something not related to work before going to bed. He looks through papers while working out in the gym. His family lives in Santa Barbara but he rents a place in San Francisco near Cerent's offices and only gets home to his family every other weekend.

He laughs when asked how often he gets together with friends, say, for a drink in the evenings. Mr Russo insists his devotion to work is not about money - after all he still drives an Acura.

But it is about winning, and money is the clearest indicator of who has won and who has lost out.

Mr Russo may have just set a new world speed record for generating wealth. But the race is not over and he has no intention of letting his lead slip.