Restructuring for Success

Cognio, Inc. started its life in 2000 as a wireless chip maker. While the idea initially demonstrated promise, the company soon discovered that their real potential was in the software side of the business where it had a unique capability for helping customers eliminate WLAN performance problems. Yet transforming Cognio from a semi-conductor company to a software company was a huge undertaking - not only for Cognio, but for its investors as well.

The company had already raised two venture rounds from North Bridge Venture Partners and ABS Ventures as well as obtained a growth capital line from Lighthouse Capital Partners. The majority of those funds had been depleted in the company's quest to launch its semi-conductor business. Still Cognio executives and its investors knew the new software approach held promise. The question was how to fund it.

“We had nearly run out of our venture funds and we were in no position to actually pay down our venture debt loan. In fact, we needed a reprieve from making payments while we sorted out our new business plan,” said Paul Hallee, CFO at Cognio. “We knew that was asking a lot, but without restructuring the debt, Cognio would not be able to go on.”

Recognizing the power of the new idea and the strength of the company's management team, Lighthouse worked with Cognio and its VC investors to restructure the loan terms. “We had faith in Cognio, so we did our best to offer them several flexible options that would enable them to extend their timetable for re-launching the company,” said Gwill York, co-founder and managing director, Lighthouse Capital Partners.

Those options enabled Cognio to take the time it needed to sell off their existing IP assets. Although the proceeds from that sale would have made it possible for Cognio to pay back its venture loan in full, Lighthouse allowed Cognio to keep the majority of those proceeds and leverage them in the rebuilding of the company.

“By allowing Cognio to hold on to those funds, Lighthouse enabled the company to go on - and even obviate the need for raising another VC round within the year. Now Cognio can focus their attention on their business, rather than be distracted by the need to fundraise,” said Goldstein. “As usual, Lighthouse proved a valuable partner who takes a thoughtful, flexible approach to working with its companies. With their help, Cognio is now positioned to take the market by storm.”