Cinta Networks Corp. laid off about one third of its staff today, reducing the number from approximately 100 down to about 70 employees.

In a move that surprised many observers, the company, a startup networking company working on long-haul technology, blamed its declining fortunes on the September 11 terrorist attacks. The company cited those attacks, along with the softening carrier market, as reasons for tightening its belt.

“What we are doing is consistent with the market,” says John Vaughn, president and CEO of Cinta. “The softness in the economy, especially since September 11th, has made it difficult to raise money. We’re just taking steps to make sure that we remain strong when the market rebounds”

Some venture capitalists say that startups blaming their woes on September 11th may be overstating the issue.

"It's true that investors are a bit more wary, because they are afraid that carriers will push back purchases," says Fred Wang, general partner with Trinity Ventures. "But I think September 11th is a convenient excuse for a lot of folks. Even if September 11th didn't happen, the vast majority of them would still have the same struggles closing their financing."

Cinta raised about $64 million in its second round of funding back in October of last year, which was supposed to support the company through the first quarter of 2002. Vaughn says that the company is still on plan, but that recent economic conditions have forced them to be more conservative about their spending. He fears that further delays in securing another round of funding could put the company in jeopardy.

While cuts were made across the entire company, Vaughn says that the sales and sales support teams were the least affected. The company has already completed two lab trials and is about to enter a third, he claims. Essentially, with the product development complete, many of the workers that had been in product development aren’t needed anymore, he says.

This is the second round of layoffs at Cinta in the past two months (see Startups Suffer Setbacks and Wu-Fu Chen Startups Hit the Skids). The company let go of 17 employees back in September right after the September 11th attacks. Back then Vaughn denied that the recent tragedy had influenced the company’s decision to make cuts. But this time he cites the attacks as one of the reasons that the company is having trouble raising money in its third round of funding.

“Funding was tight before, but September 11th has exacerbated the challenge,” says Vaughn. “The name of the game now is to try and conserve cash, and that means lowering our burn rate.”

In some respects, it makes sense that Cinta would be struggling to close this round of funding, given the fact that it is targeting the long-haul market with its switching product. This is reportedly one of the weakest segments in the optical networking industry, as pundits claim that there has already been an overbuild of capacity in the long-haul networks.

But it seems that not every startup in the long-haul market is having trouble securing financing. PhotonEx Corp., which is developing a 40-Gbit/s transport product for the long haul, just announced a $90 million second round of funding this week (see Photonex Scores Huge 3rd Round).

"There are still some large fundings that are going on," says Trinity's Wang. "Cinta is in a very crowded and over-funded market. The ones that are getting money now tend to have a differentiated story. They also usually have customers that can talk to investors."— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com