Cisco and Others Fund Ayla’s Effort in ‘Things’ Software

David Friedman and Thomas Lee learned that the ‘things’ part of the Internet of Things is very difficult for a startup. So they are taking on other aspects of connecting the world’s devices together, a plan that is attracting investors.

Ayla Networks, the company they founded, is announcing a second funding round that includes money from Cisco SystemsCSCO -0.22%–one of the biggest cheerleaders for the Internet of Things movement–as well as other investors with an eye toward China and other international markets.

The $14.5 million Series B round–one of the topics being discussed at an event Wednesday being hosted by Cisco’s venture capital arm–brings the total raised to date by Ayla to $20 million.

Friedman, Ayla’s chief executive, and Lee, a Stanford University professor of electrical engineering since 1994, aren’t shy about talking about the failings of their prior startup. ZeroG Wireless, as it was called, tried to develop low-power Wi-Fi chips that would go in various kinds of products to help them connect to the Internet and to each other.

The thing is, there are many chip makers already that have been tackling wireless communications and other aspects now associated with the Internet of Things. And designing chips takes a lot of time and money.

“One of the big learnings back then,” Friedman said during a gathering with reporters Monday night, is that “chip companies are kind of hard to do.”

So ZeroG was sold to Microchip Technology, for what some publications called a “fire-sale” price, and the two men ultimately came up with another line of attack.

Instead of competing with all those semiconductor companies, Ayla styled itself as an ally; it developed a kind of platform that includes software and a Web service to help to help other companies connect and coordinate with many different kinds of chips. Ayla also developed circuitry that it has convinced some chip makers to incorporate to help manage networks of connected things.

In other words, a bit like how Microsoft Windows became a unifying standard in PCs, Ayla wants to become a platform so all kinds of companies can jump on the Internet of Things bandwagen without specialized semiconductor or software expertise. And Ayla hopes to get a small royalty for each of the things connected.

Another one of Ayla’s founders, Phillip Chang, has deep connections in China, Friedman said. So the company has been putting a lot of its early efforts into cracking into the nascent Internet of Things market there.

Also for that reason, one of the investors in Ayla’s latest funding round is SAIF Partners, one of China’s largest venture-capital firms.

Ayla can only drop some names of customers, which so far have mainly desired to keep a low profile. But Friedman said one is a major maker of classic-style thermostats, one of the sectors facing competition from new-wave companies like Nest Labs, recently acquired by Google.

Friedman said Ayla felt like “sending out flowers” to Nest every time it announces a product, because its moves tend to prompt action on the parts of other companies that turn to Ayla.

Another key player at Ayla is Adrian Caceres, a vice president of engineering who formerly spent time at Amazon’s Silicon Valley Lab126, where he worked on Kindles.