Polaris Networks, which develops optical transport switching systems for metro core networks, announced today that it has closed a $52 million funding round (see Polaris Pulls In $52M).

This round comes in addition to the $22 million Polaris raised when it was founded in June 2000, bringing its total funding to $74 million. The San Jose-based company says the funding will last it through initial product development, carrier trials, planned technical certification, and commercial delivery.

The funding round may seem healthy, but it is a modest one by optical switching standards. Experts say the company will likely require more funding to complete its mission.

“That’s probably enough to see it through product development and data trial,” says Scott Clavenna, president of PointEast Research LLC and director of research at Light Reading. “But it’s hard to build a box like that for less than $120 million. It can be done, but it’s certainly hard to do.”

Clavenna notes that Polaris's product is ambitious: It combines an optical transport platform with grooming and switching, all of which is managed through a GMPLS (generalized Multiprotocol Label Switching (MPLS))-based common control plane. The architecture is designed for native support of TDM, cell, and packet traffic using a single, software-defined switching fabric (see Polaris Builds a God Box). Next will come the hunt for a top-tier customer. Big IXCs have traditionally been reluctant to buy from startups without proven track records, and in today’s financially difficult environment they definitely won’t be any less cautious.

Polaris officials noted the difference between raising money the last time -- in August 2000 -- versus raising money today.

“The last round took us about three days,” says Ray Kao, Polaris CEO and CTO. “But with this round, every investor took at least 50 man-hours of our time. There was lots of due diligence.”

Despite the current caution of venture capital firms, Polaris received funding from both new and previous investors in this round, actually pulling in $17 million above its aim of $35 million.

A new investor, Advanced Technology Ventures (ATV), led the latest funding round. Firsthand Capital Management Inc., Granite Global Ventures, KTB Venture Capital, Pac-Link Management Corp., Presidio Venture Partners, Riverside Management Group Inc., Western Technology Investment, and WK Technology were also new investors in the round. Previous investors Redpoint Ventures, Venrock Associates, and Storm Ventures also participated in the round.

The company claims that with its optical network architecture, known as iMON (intelligent Multiservice Optical Network), it can groom down to the VT1.5 level. The only other companies that can reach this level are Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), with its Titan, and Alcatel SA (NYSE: ALA; Paris: CGEP:PA), with its 1631. But while they each need between 73 and 83 racks of equipment, Polaris is saying that it can do with only one box. This massive reduction in racks frees up space and promises to reduce operating costs enormously. Kao says that Polaris aims to provide four- to five-times reduced capital spending, and more than 10-times reduced operational spending.

“Polaris has much smaller granularity,” says Clavenna. “This is a phenomenal footprint story.”

Another thing that might have drawn investors to the startup is the fact that of the company’s mere 89 employees, more than 75 percent are engineers. With the recent rash of layoffs throughout the industry, investors are looking for companies with low burn rates that haven’t bloated up to an unmanageable size. Observers also say that the company’s management team is strong, with a good track record.

Polaris expects to start trials this summer and start shipping product by the fourth quarter. The company says it has four trial customers down for certain and claims to have a few more lined up. The trial customers are a mix of RBOCs, top-tier IXCs, and new-generation carriers.

— Eugénie Larson, Reporter, Light Reading
http://www.lightreading.com