Innovance Scores $55M

The core networking startup has scored yet another hefty round. What's the hidden hope?

February 25, 2002

4 Min Read
Innovance Scores $55M

Core optical networking startup Innovance Networks has closed $55 million in Series B funding, making it one of the industry's best-funded new companies.

Advanced Technology Ventures led the round, which comes from the same group of backers that kicked in Innovance's hefty first round in December 2000 (see Innovance Scores $75M ). Corning Inc. (NYSE: GLW) and JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU), for instance, renewed as "strategic" investors. Ex-JDSU chief Kevin Kalkhoven's KPL Ventures joined in, along with Archery Capital, Azure Capital Partners, Banc of America Securities LLC, Morgenthaler, and Thomas Weisel Capital Partners.

The funding announcement was expected (see Iolon and Innovance Deal: Good Omen?). But, interestingly, the round wasn't kept open to admit new investors, as had been rumored. Indeed, one of the first-round investors, PCG Ventures, has dropped out.

But losing one investor may be only a drop in the proverbial bucket, sources say. That Innovance has been able to raise so much money in the midst of a record slowdown is not only good news for the company, but also bodes well for the industry.

Innovance plans to use the money to launch its first product next quarter, as well as to fund ongoing development of other wares. Innovance's ultimate plan is to provide end-to-end optical transport for carriers, incorporating a kind of "wavelength-on-demand" style of provisioning.

Innovance seems well on its way to rollout. Last week, it announced a procurement contract with Iolon Inc., which makes tunable lasers (see Iolon and Innovance Deal: Good Omen?). That's just one of many contracts, Innovance says.

The startup has also embarked on a manufacturing plan that incorporates a state-of-the-art testing arrangement with suppliers, which it says will eliminate the costly mistakes made by optical companies in the past. Specifically, Innovance has developed its own test equipment using third-party software that provides a direct link between outside manufacturers assembling Innovance's optical modules and the company's own printed circuit board (PCB) plant in Kanata, Ontario. In effect, it's a "just in time" setup for optical equipment.

"We worked up front with our suppliers to create standard interfaces between our PCB controls and their module control software," says Innovance COO James Frodsham. The result, he says, is that outside suppliers can automatically create wares that fit the exact specs of PCB's back in Kanata -- as they're needed. This eliminates waste by ensuring that components are assembled only as they're required. It also speeds up manufacturing and makes for a better fit between the kinds of modules required for specific products.

This kind of preparation seems to be one element that makes Innovance's value proposition believable. But hasn't there been talk that the core is the toughest market to be in right now?

Yes, say sources. But Innovance's claim to fame, like heavily funded rivals Ceyba Inc. and PhotonEx Corp., is that it's not just making a core product, but will furnish gear for the edge. The whole package is being billed as a considerable savings for carriers.

Innovance's big purse is a tipoff that the idea has found favor in at least one high place. "Generally, when startups repeatedly get lots of money, it's a sign that they've got the go-ahead from some large customer," says one Wall Street analyst, who asked not to be named.

So far, there's no word on which customer that may be, although one rumor has it that Qwest Communications International Inc. (NYSE: Q) has expressed interest. This could not be verified, however.

It's a sign of the times that Innovance is being applauded for having got this far on its way to market. But much remains to be proven. Nothing's guaranteed these days, not even a carrier contract that's been signed and announced (see Corvis: How Low Can It Go?).

Innovance execs are careful to express their awareness of this. "We're feeling confident, but cautious," Frodsham says.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.comWant to learn more about the impact of testing and measurement on the manufacture of optical equipment? Tune in to Light Reading’s upcoming Webinar: "Optical Test Equipment in Manufacturing: Automation is Key," set for February 28. Click the following link to register:

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