Boston Area Startups Slash Jobs

Ellacoya Networks and Quantum Bridge announce a second round of job cuts to keep burn rates down

November 1, 2001

4 Min Read
Boston Area Startups Slash Jobs

As evidence that things are getting more and more dire for startups trying to conserve cash in the slowdown, Ellacoya Networks Inc. and Quantum Bridge Communications Inc. each announced a second round of layoffs this morning.

The startup layoff story has become a familiar one these days. Companies once flying high on the hopes of lucrative public offerings are now finding themselves scrambling to close third and fourth rounds of funding with wary venture capitalists. And as customers become harder and harder to find, companies are being forced to sacrifice jobs to cut burn rates.

Ellacoya's layoffs began in May, when the company laid off 50 people, 20 percent of its 250 employees (see Telecom Woes Prompt More Layoffs). Today it announced that it would be cutting another 35 jobs from its roster, bringing its current head count down to about 105, says Matt Burke, a company spokesperson.

“We didn’t think we’d have to do it again,” he says. “It’s a really tough thing to do. It makes me sick to my stomach to think about, but from a business standpoint our board of directors and executive team did what they had to do.”

Ron Sege, the company’s CEO was unavailable for comment, as he was handling issues related to the layoffs, says Burke.

Cuts were made across the entire company, but Burke says that the bulk of jobs were lost in administration. He also says that the company tried to spare as many engineering spots as possible, even though it has completed development of its carrier-class IP services platform, the SGS 44000.

The job cuts were directly related to the company’s ongoing fundraising efforts, according to Burke. Investors in the current round demanded that the company cut its burn rate significantly as a condition for the next round of funding. And reducing head count was one of the most immediate ways to address that issue, he says.

This seems to add up, given Ellacoya’s current product situation. While the company claims to have shipped its flagship product to at least six trial customers, it has not realized revenue on any of these deployments. And with its last round of funding closing back in December of last year, the company should be in need of more cash (see Ellacoya Gets a Blue-Chip Backer). In total, the company had raised over $84 million. Back then, it was pegged as a hot IPO prospect with backing from big names like Goldman Sachs & Co. If and when the company closes this next round of funding, it should have enough cash to get it through another year, says Burke.

“With the current head count, this should sustain us until 2003,” he says. “Raising money is a lot different now. You have to make sure to keep the burn rate down, and we have to meet certain milestones in 2002.”

Ellacoya wasn’t the only New England startup to announce job cuts this morning. One of its neighbors in the metropolitan Boston area, Quantum Bridge, also announced its second round of layoffs. While the company confirmed that there was a workforce reduction, it refused to give details on the number of employees who had been cut -- even declining to specify the current headcount. But sources say that the company has laid off as much as 40 percent of its staff.

"We did have a reduction here today," says Charlie Guyer, oddly uncommunicative director of corporate communications. "But that is all I can really say. We are still doing good things with customers, and we expect to have some good news out about new customers soon."

Quantum Bridge had already laid off a smaller number of employees earlier in the year, says Guyer. But he surprisingly declined to give additional details.

“We’re going through the same thing as everyone else in the industry right now,” he says. “One of the biggest costs is salaries. It’s a matter of being smart in an uncertain economic climate.”

Quantum Bridge, a developer of passive optical networking technology, also had its eye on a big IPO. The company had raised more than $124 million of venture money from big backers like New Enterprise Associates (NEA), Morgan Stanley Dean Witter & Co., and Dain Rauscher Wessels.

It had even filed an S-1 with the Securities and Exchange Commission last year (see Quantum Bridge Aims for IPO). But as the Nasdaq plunged to new lows last spring, the company finally pulled its filing in May (see Quantum Bridge Withdraws IPO). Its executives said the company would refile when the market conditions improved. But so far that hasn’t happened.

Unlike Ellacoya, Quantum Bridge says it is shipping and collecting revenue from six customers, only three of which have been communicated: Comcast Corp. (Nasdaq: CMCSA, CMCSK), a cable operator; Advanced TelCom Group Inc., a California-based competitive local exchange carrier (CLEC); and Sigecom LLC, a utility company (see Quantum Bridge Wins Over Utility). It also claims to have trials going on with several other customers.

— Marguerite Reardon, Senior Editor, Light Reading

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