More bad news for startup service providers. A particularly innovative one, U.K.-based AduroNet Ltd., went into provisional liquidation yesterday, Feb 8. The 160-person company failed to secure a second round of funding, forcing its directors to file a petition to wind things up. Accountants Deloitte & Touche have been called in to find possible buyers for the business and its assets. AduroNet’s Website has been shut down.

The closure of the company is likely to hurt CoSine Communications Inc., (Nasdaq: COSN), which has a $20 million contract with AduroNet and helped AduroNet raise its $50 million first round. At one stage, AduroNet represented a big chunk of CoSine’s revenues (see Cosine Spreads the Wealth).

AduroNet’s other suppliers include Extreme Networks Inc. (Nasdaq: EXTR), Foundry Networks Inc. (Nasdaq: FDRY), and Juniper Networks Inc. (Nasdaq: JNPR).

AduroNet’s basic business idea was to build a dedicated IP backbone spanning Europe (with links to the U.S.) and then work with local service providers to offer small to medium-size enterprises IP-based VPNs (virtual private networks). By keeping traffic on its backbone, it was able to offer different grades of service for different types of traffic, unlike common-or-garden Internet service providers.

The idea was catching on with customers, according to an ex-member of AduroNet’s staff, who lost her job yesterday. ”We were just turning the corner. It looked as though we were about to win some contracts,” she told Light Reading.

It’s said that AduroNet provided a model for other efforts to roll out similar style networks and services, notably the Domino project conceived by Kleiner Perkins Caufield & Byers (see Kleiner Perkins Builds Backbone Carrier ). AduroNet's demise may have a domino effect on these projects' ability to raise money -- possibly leading other startups to suffer the same fate.

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