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Innovance Scores $75M

Kevin Kalkhoven, former JDS Uniphase CEO, joins investors in backbone system startup

December 5, 2000

5 Min Read
Innovance Scores $75M

Like a crafty card player, startup Innovance Networks is letting everyone know that it has enough money to play in the long-haul optical networking systems game -- but it's not showing what's in its hand just yet.

With today's announcement of a $75 million second round of funding, the Piscataway, N.J.-based Innovance says it has enough cash on hand to get it to 2002, when it expects to introduce the first of its planned optical networking system products for the backbone market. What exactly those systems will do -- and how they will do it, and at what price -- are details the company isn't yet willing to divulge to the general populace.

But the insider-only details have convinced a number of high-powered investors to sign on to Innovance's plan, including former JDS Uniphase Inc. (Nasdaq: JDSU) CEO Kevin Kalkhoven, whose KPL Ventures is an investor in Innovance. The latest round was led by Morgenthaler Ventures and Thomas Weisel Partners, which were joined by Advanced Technology Ventures, Bank of America, and Azure Capital Partners, the lead investor in the company's previous seed round of $20 million.

"We're pretty pleased with the broad investor support, given the current status of the capital markets," said Peter Allen, Innovance's CEO. Though Innovance will probably require another funding round in the future, Allen said the current financing should see the company through to its initial product launches, which he hazily forecast for sometime in "early 2002."

Kalkhoven, whose VC career is taking off rather rapidly (see Blaze Networks Gets $40 Million), said both the people and the technology at Innovance are attractive from an investor's viewpoint.

"I've known Peter Allen for some time, and have a great deal of respect for him," said Kalkhoven. Allen was most recently the vice president of business development and general manager of the optoelectronics organization in Nortel Networks Corp.'s (NYSE/Toronto: NT) Optical Networks division, overseeing both systems and component businesses.

Innovance's COO James Frodsham also comes from Nortel, where he was vice president of optical networking product management. According to Allen, Innovance has hired 100 employees since its inception this past May and has offices both in Piscataway and Ottawa, Ontario, to tap into the optical networking talent resident in both communities.

"It's a world-class engineering team," said Kalkhoven of Innovance. "I like the ideas of the technology and the architecture. From an investor's viewpoint, it's the next generation of optical networks that they're aiming for."

According to Allen, whose own resume boasts some 20 years of industry experience, Innovance has "a large number" of employees with significant industry chops, which he said will help the company on both the sales and procurement sides of business.

"We have people who have delivered platforms into this market before, so we're already trusted by customers," Allen proclaimed. Other Innovance employees, he said, have prior relationships with components suppliers, which will come in handy when Innovance is ready to build products.

As to what exactly those products might do, Innovance won't say yet. "At this point, all we can say is it won't leverage off one single technology," said Frodsham. "We do see a significant opportunity in addressing scaleability challenges, as well as flexibility and provisioning issues. But creating value in a platform solution isn't something you can do at the turn of a hat."

A couple of clues about what Innovance is up to can be gleaned from the background of key staff. Alan Solheim, the startup's CTO, and David Nicholson, its senior VP of product development, led the development of Nortel's DWDM (dense wavelength-division multiplexing) and 10-Gbit/s transmission systems -- the foundation of Nortel's leading position in the optical networking market. Both men have experience in systems and components, as does Allen. Nicholson is also credited with pioneering work in gallium arsenide, a material used to make lasers.

Light Reading's best guess is that Innovance is developing equipment that will enable service providers to set up and tear down individual wavelengths between different user sites on demand. A bunch of other early-stage startups have similar ideas for metro networks, based on using a combination of optical switches, tunable lasers, and tunable receivers (see Metro DWDM: Another Leap Forward?). Innovance's plans appear to span long-haul as well.

Allen and his company's investors are taking a long-term view of the overall backbone market, calling the recent tightening of funding for infrastructure buildout (and subsequent stock pressure on some service providers) a "bump in the road" that should be passed by the time Innovance's products come to market.

"We believe very strongly that the role of the optical network is the key to future bandwidth," Kalkhoven said. "Markets can go up or down, but the demand for bandwidth is increasing steadily."

"Fiber optics is still the only technology that can answer the scaleable bandwidth needs of the future," Allen said. "Long-term, optical technology will be the bandwidth enabler, so we're very confident the industry we're operating in will continue to grow."

That said, Allen is also glad to already have his investors' chips on the table, instead of having to play in the networking game with empty pockets.

"I'm glad we have enough [cash] to get us through the development of the product," Allen said. "I wouldn't want to be a small player with only an idea right now."

-- Paul Kapustka, Editor at Large, and Peter Heywood, International Editor, Light Reading http://www.lightreading.com

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