In the end, Diablo couldn’t keep defying the odds
Perhaps it was just a matter of time, given the huge risks. But when Diablo Technologies filed for bankruptcy earlier this month, it was still something of a surprise.
Just 16 months ago, the Ottawabased memory technology specialist had pocketed the second half of $37-million financing, bringing to nearly $90 million the total raised by this ambitious chip designer. (All figures U.S.)
For so many years, Diablo had seemed to defy the odds. It was launched during the depths of the 2002 technology recession by a group of engineering grads from Montreal’s Concordia University. Their leader, Riccardo Badalone, had just been sacked by Nortel Networks. They built in Ottawa because that’s where the engineering talent was.
Despite the industry’s malaise, the Concordia crew did not lack for ambition. They named their company after the version of the Lamborghini that can reach 100 km/h in less than four seconds.
Badalone, the son of Italian immigrants, picked a staggeringly difficult path to potential riches. Diablo simultaneously developed multiple technologies, including custom hardware, permanent software, integrated circuits and operating system software, with a simple goal in mind. Diablo aimed to make it simpler and less expensive for companies to move and store data.
All of this required a ton of money to feed the engineering effort and to market Diablo’s imaginative ideas for ultra-highperformance memory systems to industry leaders such as IBM and SanDisk.
It began with seed capital from Ottawa-based Celtic House Venture Capital and the venture arm of the federal Business Development Bank.
Diablo in stages managed to attract equity investments from international outfits such as Battery Ventures of Boston.
By 2013, Diablo had succeeded in capturing the attention of important customers and was selling millions of dollars’ worth of memory systems every quarter.
And that’s when it was hit with a patent infringement lawsuit by Netlist, a California-based rival. Worse, in January 2015, when Diablo’s head count had peaked at 120, a U.S. federal judge issued a preliminary injunction barring the sale of products that used certain Diablo chips.
Although the injunction would soon be lifted, the damage was done.
Such is the speed at which technologies move in the memory systems niche that it is very difficult to reacquire momentum after you lose it. This is especially true when the entire industry is in flux, as was the case here.
Diablo’s base of potential customers was narrowing, from dozens of hardware suppliers to a handful of giant producers of cloud services (third-party storage and data networks) such as Google and Amazon Web Services. The beginning of the end for Badalone came early in 2016, when new investors from Israel entered the picture and installed U.S. industry veteran Mark Stibitz as CEO. Badalone stayed on for a while as chief product officer, but returned to Montreal last May where he now serves as CEO for C2RO Cloud Robotics, a software company.
It’s not clear why Diablo filed on Dec. 8. The list of creditors provider by Ernst & Young, the trustee of Diablo’s estate, offers only a partial reading of the company’s final financial condition.
For instance, the list shows total claims of $14.3 million, including $4.9 million in claims unsecured against any assets.
Against this is just $40,000 in cash. But this is somewhat misleading because the finances as presented by Ernst & Young exclude the assets allocated to secured creditors in advance of Diablo’s Dec. 8 filing. This may have been a case where existing investors simply chose not to sink in more money. They abandoned the dream.
The balance of claims — secured or not — suggests Diablo’s demise was painful enough already.
The bankers and investors absorbed the biggest hit. And this doesn’t count the cost of tens of millions of dollars in venture financing that simply disappeared into Diablo’s 15-year-long effort to make go of it.
Other creditors suffered bad timing. The firm’s remaining employees, for instance, are owed $935,000 in severance pay while suppliers such as Lloyd Douglas Solutions — an eight-year-old specialty manufacturer based in Stittsville — lost hundreds of thousands of dollars.
Diablo had ambition and talent to burn. With that came risks that proved all too real.