Steelbox Networks foreclosed upon by Square 1

Thursday, January 1, 2009

ATLANTA--Creditors of Steelbox Networks received notice Nov. 11 that Square 1 Bank had foreclosed on the video-switching technology manufacturer and that all employees have been let go and all operations ceased. Square 1 Bank, according to the notice, now owns Steelbox’s intellectual property, but did not respond to a request for comment regarding what its plans were for the technology.

That intellectual property should have considerable value, said Steve Hunt, who covers the security market as CEO of Hunt Business Intelligence, based in Evanston, Ill. Steelbox essentially went out of business, he said, because “their product was too damn good. It was the freakin’ Lamborghini of video switching equipment. Even the biggest, most demanding video user, like a huge metropolitan transit authority, could only possibly use one or two of those boxes, and they’d never buy another one. And so how many boxes can you sell?”

Brian Cohen, the CEO who took over Steelbox roughly a year ago, recently reshaped the company to get away from a channel-based sales focus and toward more OEM relationships, but the new strategy apparently didn’t have time to turn the company’s fortunes around.

“What we do phenomenally well,” Cohen said in an interview with Security Systems News in October, “is that we can process and switch video faster than anybody else.”

“We were spending too much time trying to build a complete solution, rather than working through third parties as a piece of a solution,” Cohen said.

Hunt agreed with that assesment: “What the investors did wrong was try to sell this as a standalone product. This technology should have been built into the solutions of the big DVR companies, the companies that are selling 90, 200, 500 video connections and routing it to storage and display consoles, remotely and locally. They could use this technology.”

Does Hunt think this is a sign of things to come for other video manufacturers in security? Not really. “It’s not that they couldn’t sell their product,” he said, “it’s that it was difficult to find customers and manage the sales cycle with such a unique box. But at the end of the day, it comes down to getting money out of the prospects, and that’s hard for everybody these days.”

Sierra Ventures, a venture capital firm in California, invested $10 million in Steelbox in July of 2006.