John Chambers and a star team of ex-Cisco engineers have finally launched Pensando Systems, a startup with $278 million in funding, to take on Amazon — and Cisco (CSCO)


John Chambers

  • One of the most highly-watched startups in the enterprise tech world officially came out of stealth mode on Wednesday — a company called Pensando Systems.
  • Pensando has already secured three enormous rounds of venture funding, clocking in at $278 million total raised to date. Its venture backers are a who’s who in enterprise tech, and its chairman is former Cisco CEO John Chambers.
  • But none of that is the most interesting part of this company: The most interesting part is the history of the people involved — former star engineers from Cisco who publicly quit after Chuck Robbins took over from Chambers as CEO. 
  • Pensando believes its tech will take on the mighty Amazon Web Services, the leading cloud computing platform.
  • But the company is hinting that there’s another potential other competitor on the horizon too: Cisco, where it all began.
  • Visit Business Insider’s homepage for more stories.

One of the most highly watched startups in the enterprise tech world officially came out of stealth on Wednesday — a company called Pensando Systems.

Pensando has already secured three enormous rounds of venture funding, $278 million total to date. Its venture backers are a who’s who in enterprise tech including companies like Hewlett Packard Enterprise and Oracle, as well as institutional investors like Lightspeed. Its chairman is former Cisco CEO John Chambers, also an investor, and its stated chief rival is none other than the mighty Amazon Web Services.

But none of that is the most interesting part of this company.

The interesting part is the history of the people involved, and how Chambers told CNBC on Wednesday that the first casualties, should Pensando achieve the success he thinks it will, would be some of Cisco’s most prized product lines.

That’s interesting because Pensando’s founders are the renowned former Cisco engineers who were in many ways responsible for Cisco’s growth and success during the years Chambers was CEO: Mario Mazzola, Luca Cafiero, Prem Jain, and their top marketing exec, Soni Jiandani.

The team was so powerful, they had a nickname at the company, drawn from their initials: MPLS. That was also sort of an in-joke because MPLS is also a famous and important networking technology invented at Cisco.

The band is back together

MPLS originally teamed up with Chambers decades ago, when he bought their startup as his first acquisition for Cisco.

They had created a new form of networking called switching that threatened Cisco’s preferred method of routing. After the acquisition, routers became a giant business for Cisco. 

Chambers turned to the team repeated in the decades that followed to create new categories of products that got Cisco into storage, servers, and, most recently, software-defined networking, the latest new form of network  threatening Cisco’s lunch. Their products were mostly big commercial success: $8 billion a year annually for Cisco, Pensando says. 

But Chambers didn’t just ask them to run teams. He created what he called a “spin-in,” where Cisco poured billions of dollars into their ventures and, under a prearranged agreement, Cisco bought their companies once the product was complete. These spin-ins funneled millions of dollars to these engineers and kept them from leaving Cisco to create independent startups.

But the spin-ins created discontent at Cisco. Some employees were picked for the exciting new projects and wealth, while the rest never got such chances. The last spin-in, known as Insieme, was particularly provocative, sources told us at the time, because it involved working on Cisco’s new flagship networking product, not a fringe new area.

These engineers were so close to Chambers that they continued reporting to him even after he stepped down as CEO and became chairman, sources told us at the time.

In 2016, a year after taking over as CEO, Chuck Robbins reorganized the company and said he had no plans to do another spin-in. Three of the star MPLS engineers were relegated to advisory roles. Rather than leaving quietly, the whole team publicly quit. They said in their departure email that their decision was “based on a disconnect regarding roles, responsibilities and charter.” In his departing email to the troops, Mazzola, the leader of the MPLS team, defended the spin-in model and the lucrative bonuses it paid.

Almost immediately, the MPLS team went on to form a new startup, quickly won the support of their trusted champion Chambers and his new private venture fund, JC2 Ventures, and even reportedly pitched Microsoft — not Cisco — for backing. 

The band was back together outside of Cisco.

What Pensando does

Pensando hasn’t yet mentioned if Microsoft ever became a backer or customer but it has nabbed another one of Cisco’s main competitors, Hewlett Packard Enterprise, as an investor. Also making the roster of backers is Oracle, NetApp and data center giant Equinix.

One big name remains missing: Cisco. 

“We have just announced the first wave of Pensando partners. As we move forward we will add more and we are absolutely open to partnering with Cisco,” a spokesperson tells us.

Pensando has created a custom chip on a card that it says can plug into any computer server. The chip speeds up the processing of what’s known as “edge services.”

That encompasses anything that requires a ton of processing on the device, like self-driving cars or internet of things sensors — basically, tech that sends data to and from the cloud, but still needs some computing horsepower close to the source. Pensando also offers software that secures the data and tracks it as it flows between cloud and private data center.

Edge computing is the market widely expected to be the next big thing after cloud computing.  

Potential customers like HPE could add Pensando cards and to its servers and network equipment. Oracle could embed Pensando cards into its servers and cloud. NetApp could add it to its storage devices. And companies could use it their own private data centers. In fact, Goldman Sachs is an investor and user, the startup says.

Pensando’s execs say they are taking on cloud giant Amazon Web Services with this tech by helping AWS’s competitors make their clouds faster for the next wave of apps. But they also mentioned another type of competitor in their press release: “eliminating multiple legacy appliances.”

Chambers was a bit more specific when speaking on CNBC’s “Squawk Alley” on Wednesday. He described Pensando as a new category of product that will make a bunch of current products obsolete.

“Our total addressable market is about $40 billion a year,” he said. “The ones who get hit first are the appliance players, the siloed players, the firewalls, the VPNs, the load balancers because we’ll consolidate that,” he said.

And who is the $49 billion company who with leading market share of firewalls, VPNs, load balancers? 


A spokesman also said that the Pensando products are well suited to work with Cisco’s Unified Computing Systems (UCS) server product. “Imagine a UCS system that included centrally managed services such as firewalls, load balancing, encryption, end-to-end telemetry, east-west security, et cetera.”

So it views itself as “as complementary” to at least this Cisco product as well as similar servers from Cisco’s competitors. Note that the UCS is one of the products the MPLS team created for Cisco.

Join the conversation about this story »

NOW WATCH: Most hurricanes that hit the US and Caribbean islands come from the same exact spot in the world