Insieme: Cisco's Latest 'Spin-In'

Mario Mazzola may have the best gig in Silicon Valley. Other innovators pursue their dreams at the risk of failure; there are few safety nets for an entrepreneur. But Mazzola, who builds computer networking products, is the main beneficiary of a controversial model known as the spin-in. Not once, not twice, but three times, Cisco Systems has agreed to fund and buy companies founded by Mazzola and his longtime lieutenants, Prem Jain and Luca Cafiero, when the startups were little more than ideas. In each case, Cisco invested $50 million or more for a stake in the company, along with an option to buy the remaining shares at a certain date. The final price, while tied to how well the startup’s products sell, is generous. Cisco paid $750 million for Mazzola’s Andiamo Systems in 2004 and $678 million for Nuova Systems in 2009. On April 19, Cisco said it was prepared to spend as much as $750 million for the trio’s most recent effort, called Insieme.

Cisco Chief Executive Officer John Chambers insists the deals are good for his company. By all accounts, Mazzola, 65, and his colleagues are one of the great product teams in the enterprise technology world. They invented a corporate networking switch—which helps shuttle data from one place to another—while at Crescendo Communications in the early 1990s. Cisco bought the company in 1993 for $94 million and built it into a $13 billion business, its largest. The funding of Andiamo in 2002 helped Cisco expand into the storage-related switch market. Nuova enabled Cisco’s most daring strategic move in decades: taking on former partners Hewlett-Packard and IBM with its own line of computer servers, part of an effort to offer a full range of data-center hardware and services.