LavaStorm was founded in 1993 by a group of MIT-trained engineers, and initially focused on developing high performance internet systems and applications. The company had some notable, high-profile successes involving the development of internet system architecture for Monster.com, the well-know career search Website; FamilySearch.org, the genealogical Website sponsored by the Church of Latter Day Saints; EdgarWatch, the first system to deliver real-time SEC documents over the Web; and Napster. In many ways, LavaStorm’s story embodied the ups and down of the fast-growth, high-tech economy of the late 1990s, but with one exception: unlike many “dot.coms”, LavaStorm was a survivor, and made a transition from a high-flying internet systems company to a successful provider of telecommunications software.
Grace Matthews served as a steady investment banking “partner” for LavaStorm through three rounds of venture capital funding, an acquisition, and the spin-off of its internet systems division to management. As the company expanded from 21 employees to over 150 in less than 18 months, Grace Matthews sourced venture capital funding in two rounds. The first, with Hummer Winblad Venture Partners as the lead investor, occurred in September 1999 and raised over $10 million. The second financing round; led by Oak Investment Partners and including Lehman Brothers, Reuters Venture Capital, Intel and Hummer Winblad; raised $45 million and occurred in June 2000. During this period, Grace Matthews also was instrumental in negotiating and structuring LavaStorm’s acquisition of Pixeldance Communications.
With the near shut-down in capital spending on new internet systems in the latter half of 2000 and 2001, LavaStorm shifted direction and made the decision to evolve into two companies: its internet engineering services based in Silicon Valley would be spun off, and its Boston-based operations would transition to a software company focused on telecommunications. Grace Matthews assisted with the spin-off, negotiating and structuring the sale to the California management group. To fund the transformation of the remaining operations into a telecommunications software firm, Grace Matthews coordinated a third round of venture capital financing. In a show of confidence for the way LavaStorm’s management handled the company’s transition, many of previous venture capital investors participated, including Oak Investment Partners, Hummer Winblad Venture Partners, and Lehman Brothers, as well as a new strategic investor, Telus, Canada’s second largest telecommunications carrier.