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Optical/IP

BrightLink Is Fading Out

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
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Vixel 12/4/2012 | 10:35:50 PM
re: BrightLink Is Fading Out Uh...BrightLink is based in CA, not TX.

They have a very interesting product. I hope it makes it to market.
Scott Raynovich 12/4/2012 | 10:35:50 PM
re: BrightLink Is Fading Out Thanks. Temporary brain-lock on the editor side. We fixed.
bigdaddy 12/4/2012 | 10:35:47 PM
re: BrightLink Is Fading Out I still feel bad for the couple employees (ex-employees) that still worked in Texas. Let me get within arms reach of one economist that says there is no economic slow down. We are in the eye of the storm.

Bigdaddy
Opticalbreeze 12/4/2012 | 10:35:31 PM
re: BrightLink Is Fading Out This is a shame indeed. Real product with real grooming. Quite possibility the best product out there.

Bad mgt team in the beginning. Spending money like drunken sailors. But it that not the biggest reason for so many BK's? Bad Management and their failure to execute?
Why did'nt the VC's see this back then?
DoTheMath 12/4/2012 | 10:35:28 PM
re: BrightLink Is Fading Out . In respect to the current economic condition of this country ( worse than we all want to believe ) and the barriers maintained by the monopoly-reincarnate, there is no catalyst for change and demand.

--------------------------------

The worst part of the economy right now is telecom. Times are almost "normal" in auto, drugs, chemicals etc. and even in overall IT, things are a lot better than telecom. The airlines are almost back to normal after the Sep 11 traffic drop off.

The real estate industry went through this in the early 90s due to the Savings and Loan bust. It took the industry almost a decade to clear out the excess. In fact one reason why real estate survived this downturn well is that too many people there remembered the 91 recession, and stayed wise.
knave 12/4/2012 | 10:35:28 PM
re: BrightLink Is Fading Out
Dear Opticalbreeze,

No doubt tht bad management decisions exist everywhere, just like people make poor decisions constantly and regardless of education, religion, whatever..in any case, Brightlink's demise was not the fault of bad management. I deal with people on both the supplier side and manufacturer side everyday. What has happened in this industry could not have been prevented by any single individual anywhere.Even if the management had been more conservative, I believe that the same end result would have occurred. In respect to the current economic condition of this country ( worse than we all want to believe ) and the barriers maintained by the monopoly-reincarnate, there is no catalyst for change and demand. In other words the lack of competition has left us at a standstill.

I do not work for Brightlink, and am not , was not a member of the management team. And their product does really work well. That's the saddest irony of all......
knave 12/4/2012 | 10:35:26 PM
re: BrightLink Is Fading Out
So your portfolio is back to its 1999 value and the Dow is over 11K points ( as it was then )and energy costs are flat.....too!
opticalwatcher 12/4/2012 | 10:35:24 PM
re: BrightLink Is Fading Out Sir Knave,
My humble opinions:
Portfolio - if you invested in the tech sector, then that portion of your investments will most likely never return to the value it was in 1999. At least, not anytime soon.

Economy - this is a tough one to say to someone, and I do respect peoples feelings, however, people were becoming millionaires overnight selling air in a bottle. Young kids selling web pages for millions, start-ups coming to the stock market with no products and making millionaires, average joe's investing in company A just because its stock price skyrocketed yesterday by a bazillion percent. This wasnt true growth, and definitely was not sustainable. Fortunetly, the rest of the economy was holding true to form, and as a result is still chugging along, albiet a slow pace. But wasnt that the point of Greenspans interest rate hikes? Get growth under control to foster sustainability?

Dow - Dow over 11k? Whats your point? Its 10k now. So what?!

Energy costs? Yep, its changing. Goes up every time there's a skirmish in the middle east, or some dictator talks about pulling out of some meeting, or whatever. The energy market isnt squashing our economy, at least, not yet :)


My point: Our economy is not in a recession. The tech bubble has burst, thats for sure. The incumbent telecom carries are winning their battle, but they are poised to lose the war if they dont continue to invest at a breakneck pace. Why? Because cable companies and satellite companies will be chomping at their heels in a few years to provide the same service, and the incumbents cant litigate and politicize that away.

I sincerely hope that your financial position isnt so bad that your seriously hurting, but I do hope that you and people like you have learned to NOT put all your eggs in one basket.

good luck!
knave 12/4/2012 | 10:35:22 PM
re: BrightLink Is Fading Out
Dear Opticalwatcher,

thanks for your words. I did not put all the eggs in one basket but I do think that we teeter on the edge of recession right now.

My main concern is the RBOC's however. I really do hope that somebody really begins to put pressure on them and wish that FCC would help us out , a little anyway.

ny2wn 12/4/2012 | 10:35:19 PM
re: BrightLink Is Fading Out
What is the law with respect to furloughing workers in the state of california?

If you are furloughed, can you apply for unemployment when your sick time and unused vacation pay runs out? Presumably, the $330/wk
unemployment benefit should cover the cost
of Cobra health insurance (though, admittedly,
if you're on a family PPO plan, just barely).



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