The light is burning out at BrightLink Networks Inc.

Yesterday the company, which was working on an optical grooming switch that would potentially compete with Ciena Corp.'s (Nasdaq: CIEN) CoreDirector, put another 55 employees on furlough. This is in addition to the 25 that were furloughed last month (see BrightLink, White Rock Cut Jobs).

It's now apparent that the company is nearly out of cash. In March, the main investors, -- Draper Fisher Jurvetson, Goldman Sachs & Co., Menlo Ventures, and the Sprout Group -- stepped in and offered a bridge loan of about $2 million to cover about two months worth of expenses. BrightLink received the first half of the money last month and was supposed to get the second half this month.

But the second half of the loan hasn’t come yet. Paul Schaller, founder and CEO of the company, says the VCs reevaluated the investment as things continued to worsen in the telecom sector and have now decided to "postpone" their investment. Now the company must find more cash quickly or shut its doors for good.

Warren Packard, managing director at Draper Fisher Jurvetson, says the current investors are still evaluating the situation. But he says that their hestitation has nothing to do with the product and is based on the market conditions.

"BrightLink has gotten some good customer traction, but there is no fire under the butts of the carriers to actually do anything right now," he says. "We just don't know when they'll start buying again, which makes it difficult to strategize our financing."

The official headcount at the company has dwindled to about 20 employees, down from 100 this fall, when the company laid off about 20 employees (see BrightLink Cuts to the Bone).

Schaller, along with most of the senior management team, is part of the 55 that have been put on furlough. Jake Vigil, the company’s COO, is the only senior manager still getting a paycheck. As for the rest of the team, Schaller says the only people who remain are those who can help the company get into new customer accounts. In a nutshell, this amounts to a few sales people, some customer support individuals, and a handful of software and hardware engineers.

Schaller is careful to refer to this latest move as a furlough, not a layoff. The benefit, he claims, is that employees can still keep their medical benefits while on furlough. And although, employees will not continue to recieve their salaries, they will be paid out for their unused vacation and sick leave.

Schaller says the company's product has been ready to ship to customers since January and is actually in one lab trial right now. He says the problem isn’t with the product -- it's that carriers aren’t buying anything right now, especially from startups.

"The reduction in capex spending by carriers doesn’t bode well for new entrants like us,” he says. "Even if the product is uniquely differentiated from everyone else and has been proven to work, it doesn’t matter. Carriers aren’t buying.”

Indeed, Ciena, BrightLink’s key competitor, has been struggling in recent quarters (see Ciena Slashes Some More). The once hot-selling CoreDirector, against which BrightLink hopes to compete, has recently seen a significant slowdown in new orders.

According to sources in Silicon Valley, the term sheet sent to potential investors was to raise $2.5 million. Current investors were told that if they didn’t invest in this round, their shares would be diluted significantly, essentially wiping out their stakes. This means that if the company were acquired, only the investors in the latest round would get anything out of it. Schaller confirms that such a term sheet has been circulated.

"That’s common for a lot of the financings today,” says Schaller. "Any time you do a down round when the valuation is less than it was before, people who put additional money in the company want to gain the most in the end.”

Though it seems obvious that BrightLink is winding down into its final days, Schaller remains positive. He is hopeful that something will happen to save the company, but if nothing does, he says he will not harbor any bitterness.

"A lot of people look at this situation as the VCs turning their backs on us,” he says. "But their job is to make the next investment dollar for their limited partners, based upon the merits of the company today. Playing in startups is a high-risk game.”

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com