Zeugma Systems Inc. builds on seed financing and roster of seasoned executives from Sierra Wireless

Glenn Drexhage

A ramped-up engineering team and a chunk of venture capital are on the menu for a local start-up that's backed by some reputable telecom talent.

Richmond's Zeugma Systems Inc. is keen to move forward following a seed financing that closed at the end of September.

The amount of the investment, made by local firms Ventures West Management Inc. and Yaletown Venture Partners Inc., was undisclosed.

The young company is also remaining tight-lipped about its technology. Andrew Harries, Zeugma's president and CEO, did reveal that his company's product is a combination of hardware and software.

And this product, which features a lengthy development schedule, will target emerging services in the telecom market.

The potential of these services for voice, video and data are coming to the fore as telecom companies look to capitalize on their broadband networks.

"There's a tremendous opportunity coming up in the broadband telecoms industry," Harries said.

As he explained, major telcos are seeing their core voice business eroded by the increasing popularity of wireless telephony and encroaching cable firms offering VoIP - or Voice over Internet Protocol - services.

"The telcos have to respond," Harries said. "And the response of choice is to leverage their existing broadband infrastructure to introduce value-added services" - such as video-on-demand, voice communications via the Internet, Web access and interactive gaming.

"The market has been so under-serviced for four years or so that there are a number of problems that have emerged as the telcos have started to pursue new networks," said Siegfried Luft, Zeugma's chief technology officer.

"So it's a juncture point where there's a need that's not being serviced - and therein lies the opportunity for a start-up to come in and fill that need."

Corporate wallets are finally opening up to pay for network deployments. For example, Harries highlighted recent billion-dollar-plus broadband investment plans from giants such as Bell Canada and SBC Communications Inc.

For years, the telecom market has been hamstrung by overcapacity, soft demand, anxious capital markets and a nasty hangover from the WorldCom Inc. collapse.

Little surprise, then, that Yaletown partner Mike Satterfield acknowledged that his firm was wary of investing in the telco space.

Yet he maintains that Zeugma presents a compelling business case.

"I would say fundamentally we like the team and we like the market," Satterfield said.

Certainly, Zeugma boasts an experienced squad. Harries, 42, is a co-founder of Richmond's Sierra Wireless Inc., most recently serving as its senior vice-president of marketing.

Luft's technical prowess and vision led to the founding of Zeugma at the beginning of 2004. He was previously with Redback Networks Inc., which bought local firm Abatis Systems Corp. for US$676 million in shares in 2000.

Luft, 37, was also a co-founder of Siara Systems (which merged with Redback) and worked at Fiberlane Communications, a Siara precursor.

Meanwhile, Thomas Meehan is Zeugma's vice-president of marketing and Marty McConnell is its acting chief financial officer.

Meehan has had stints with Redback, Siara and Bay Networks, which ended up being bought by Nortel Networks Ltd. And McConnell was formerly with Burnaby's Spectrum Signal Processing Inc.

The company aims to boost its engineering roster, and Harries predicts Zeugma will have about 15 employees by the end of January.

Satterfield said the company would spend the next 18 months working on a "challenging" technical product, and said Zeugma would be a great environment for engineering talent. "It should be one of the really happening shops in town."

Now that it's raised a seed round of financing, Zeugma's other near-term goal is to close a full-fledged venture deal.

"We're now laying the groundwork for a major financing round, which we plan for the spring," Harries said.

Indeed, the company was recently pursuing that mission in San Francisco, and Harries predicted that the financing would ideally include both U.S. and local investors.

Satterfield said Yaletown will "absolutely" participate in a future venture round.