It’s sometimes said that the easiest way of assessing a startup’s potential is to look at the quality of its investors.

By that reckoning, Iolon Inc. is hot. The backers behind its $53 million second round, announced today, include Corning Inc. (NYSE: GLW), Goldman Sachs & Co. (NYSE: GS) and Kalkhoven, Petit and Levin Ventures, the VC firm set up by Kevin Kalkhoven, the former CEO of JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU).

Additional investment also came from Iolon's first round backers, Kleiner Perkins Caufield & Byersand Optical Capital Group, the venture firm founded by David Huber, president and CEO of Corvis Corp. (Nasdaq: CORV).

And that's just for starters. A whole bunch of other heavyweights participated in this latest round, which was led by Bowman Capital (see Iolon Secures $53M Second Round).

Corning "did very extensive due diligence" on Iolon before committing its cash according to John Clark, Iolon's CEO (see John H. Clark).

So, what proved to be the big attraction?

Two things.

First, Iolon is developing a range of tunable components that promise to deliver much more flexible, cost effective networks -- and also promise to seed a multi-billion dollar market for tunable components.

Iolon's initial product is one of the first widely tunable lasers to be powerful enough to be used on long haul networks. Note the words “one of the first”. Right now, it looks as though it’s in a race with New Focus Inc. (Nasdaq: NUFO), which announced a similar product a couple of weeks ago (see New Focus, New Laser).

Both Iolon and New Focus are making external cavity lasers and both claim their products will deliver 20 milliwatts of power and will be widely tunable – over 40 nanometers in Iolon’s case. 20 milliwatts is an order of magnitude more than other tunable lasers, which typically target shorter distance transmissions in metro networks (see Tune In!).

While both lasers are high power, Iolon's is continuously tunable while New Focus’s jumps between the wavelengths defined by the International Telecommunication Union (ITU) - in the same way that some radios automatically tune to preset stations.

Iolon and New Focus use different technologies to make their external cavity lasers. In Iolon’s case, the tuning is done by turning a mirror to direct light onto different parts of a diffraction grating. The mirror is turned using a tiny actuator made using MEMS (micro-electro-mechanical system) technology.

These MEMS actuators can be used with other externally fabricated optics to create a wide range of components, according to Cindana A. Turkatte, Iolon’s VP of marketing.

Iolon showed a small optical switch based on its actuator at the NFOEC show last year (see Corvis's Secret Sauce?). Since then, however, work on the switch has been put on hold so that Iolon can focus its efforts on tunable lasers, says Turkatte. "Everyone wants our tunable laser," she adds.

The second reason why Iolon is hot is that manufacturing automation has been designed into its developments from the ground up. Clark is expecting this to help drive down costs so that Iolon's tunable components become affordable for more than just long haul transmission equipment.

A lot of Iolon's expertise in this area comes from the mass production of disc-drive components, which have similar requirements to Iolon's actuators in terms of precision, speed and reliability. Iolon got its start in life as a research project at Seagate Technology Inc., a major vendor of data storage equipment and another Iolon shareholder.

Although New Focus announced its laser first, Iolon reckons that it's further ahead. It started shipping samples for evaluation late last year and expects to get approvals from Telcordia Technologies Inc. by mid summer so that commercial shipments can start soon afterwards. "We're four months ahead," says Clark. The corresponding times for New Focus are April for samples and the end of 2001 for commercial shipments, according to its recent announcement.

-- Peter Heywood, international editor, Light Reading http://www.lightreading.com