Cisco Shopped till It Nearly Dropped

It was an all-too-typical deal for Cisco Systems Inc. (CSCO ) Monterey Networks Inc., an optical-routing startup in which Cisco held a minority stake, was a quarry with no revenue, no products, and no customers--just millions in losses it had racked up since its founding in 1997. Despite those deficits, Cisco plunked down a half-billion dollars in stock to buy the rest of the company in 1999.

But within days of closing the deal, all three of Monterey's founders, including its engineering guru and chief systems architect, walked out the door, taking with them millions of dollars in gains from the sale. "I came to the realization I wasn't going to have any meaningful impact on the product by staying," says H. Michael Zadikian, a Monterey founder. Eighteen months later, Cisco shut down the business altogether, sacking the rest of the management team and taking a $108 million write-off.