The Deal
Saturday, October 25, 
5:08 pm

by Clifford Carlsen
[Posted on December 19, 2007 - 4:58 PM]

Intel Corp. spinoff GainSpan Corp. landed $20 million in a second round of venture capital to move into volume production of extremely low power WiFi chips the company recently launched in the fast-growing industrial sensor market.

Opus Capital of Menlo Park, Calif., led the deal, which includes previous investors Intel Capital of Santa Clara, Calif., New Venture Partners of Murray Hill, N.J., OVP Venture Partners of Portland, Ore., and Sigma Partners of Menlo Park, which initially invested $1.5 million to spin the company out of Intel in September 2006.
 
The new investment is positioned to fully fund the company to positive cash flow as it expands marketing of chipsets and software for a wide range of commercial and industrial applications.

GainSpan CEO Vijay Parmar said the company has its roots in VxTel Inc., a Fremont, Calif., digital signal processing chip company that Santa Clara-based Intel acquired for $550 million in 2001, but that the seeds of its current focus product began in Intel's New Business Initiatives incubator in 2004. A development team began looking at the market for sensor network technology, initially focusing on the esoteric ZigBee platform that promised low power requirements, but shifted to WiFi development in mid-2005.

Parmar said the maturity and ubiquity of WiFi and continuing strong investment in the sector by large equipment companies including Intel and San Jose, Calif.-based Cisco Systems Corp. dictated the strategy.

"Once we had settled on WiFi over ZigBee, the key problem to solve was battery life, because WiFi is considered to be too power hungry," Parmar said. "By late 2005 we were funded within Intel, and by the time we were spun off, we were well into development, with about 80% of the work done."

Stephen Socoloff, managing general partner of New Ventures, said that as Intel began restructuring some of its communications business that do not share the same sales channels as is core processor business, GainSpan became attractive as an independent company. Socoloff said the company was spun off with its core team intact, with technology development led by current CTO Lou Adams, and had a clear path to completing a product.
"The Intel team had very smart solutions to this problem and had worked closely with a number of leading customers in the sensor marketplace," Socoloff said.
 
GainSpan's products are chipsets that reside at each sensor point in the network to send and receive WiFi signals to relay a wide range of information on industrial and commercial processes. The products allow customers to use ubiquitous WiFi infrastructure and can run up to 10 years on a single AA battery.

John Hull, a managing director with OVP and a former Intel Corp. and Intel Capital director, said the company's deep roots within Intel positioned it well in the market and that it has been able to make quick progress as an independent company. Hull has followed the team since Intel Capital's communications fund first invested in VxTel before acquiring the company, and he said the latest round is a strong endorsement of its accomplishments.

"Anytime you have a substantial funding like this in a semiconductor company, things must be going pretty well," Hull said. "The sensor market is a very large one, and while it may not be the most glamorous one, the move to wireless is happening, and the ability to do low power WiFi is real achievement."

Parmar said the company will sell chipsets for $15 a unit, with additional software development tools, and that customers will develop their own applications. He said that leaves GainSpan's marketing opportunities wide open, adding that while the company is focused on core industrial and commercial markets, he has been surprised at some of the interest in the product for applications such as data center temperature monitoring, supply chain management and food industry tracking.

Parmar said the company began fundraising about three months ago and focused on firms familiar with the industrial market, narrowing interest from several groups to negotiate directly with Opus on a term sheet. He would not disclose a valuation for the deal but said it came at an increase to the Series A round.

GainSpan used no outside financial adviser for the deal and worked with Mark Ratliffe and Ben Griebe of DLA Piper US LLP in East Palo Alto, Calif. Jason Altieri of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC in Palo Alto, Calif., represented investors.


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