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September 10, 2003
Edge routing startup Laurel Networks Inc. today announced that it has raised $20 million in funding, most of which comes from Ciena Corp. (Nasdaq: CIEN) (see Laurel Banks $20M With Ciena's Help). Besides investing, Ciena will also sell, market, and support Laurel’s ST200 IP edge routing platform (see Ciena Resells Laurel).
This is the third deal of this kind that Ciena has brokered in the last 18 months. In March 2002, it helped Équipe Communications Corp. raise $40 million and also agreed to resell its core multiservice switch (see Équipe Partners With Ciena, Scores $40M). Then in October 2002, Ciena contributed to a $30 million round of funding for WaveSmith, and it began reselling the multiservice edge player’s gear (see WaveSmith Gets $30M, Signs With Ciena).
Seven months later, Ciena acquired WaveSmith in a stock deal valued at $158 million (see Ciena Nabs WaveSmith). Could Laurel be headed down the same path?
Neither company will say so. “If it makes sense strategically, an acquisition is a possibility,” says Denny Bilter, a Ciena spokesman. “We don’t have a set pattern in terms of buying companies. We don’t necessarily invest in every company we buy or buy every company we invest in.”
Laurel co-founder and VP of marketing Steve Vogelsang says there is nothing formal in the deal with Ciena that specifies an eventual acquisition, but Laurel's not ruling out the possibility.
Despite the reticence, it makes sense that Ciena would be courting the startup for an acquisition. Like WaveSmith, Laurel has already gotten some customer traction. It announced a deal with Level 3 Communications Inc. (Nasdaq: LVLT) last year and recently announced a win with Korean provider Dacom Corp. (see Laurel Scores at Level 3 and Laurel Dates Dacom). Rumors have floated around that the company is close to winning business with AT&T Corp. (NYSE: T).
If the AT&T rumors prove true, it could cinch a Ciena/Laurel buy. WaveSmith had also had some modest customer traction before Ciena invested in it (see WaveSmith Wins Twice and WaveSmith Wins Customer). But it was a looming contract with SBC Communications Inc. (NYSE: SBC) that sealed the deal for Ciena (see WaveSmith Wins at SBC).
Light Reading has long predicted a Laurel partnership or acquisition (see Laurel: Startup Holdout? ) and even a possible Ciena/Laurel match (see Is Ciena Eyeing Luminous & Laurel?).
Acquisition or no acquisition, Ciena and Laurel will each benefit from the reseller agreement. For Laurel, the relationship offers financial credibility. Like most startups these days, Laurel has struggled to crack big accounts, especially in the United States, where carriers have been hesitant about dealing with startups.
“We’ve been making headway with incumbent carriers,” says Vogelsang. “But at the end of the day, we need a bit more to win the large deals and get those contracts signed. We figured the sooner we could have a relationship with a big equipment provider the better.”
Even though Laurel’s ST200 overlaps with the WaveSmith multiservice product, Vogelsang and Bilter say the two products are actually complementary. The WaveSmith product is essentially a next-generation Layer 2 ATM switch with IP functionality. Carriers looking to migrate ATM networks to IP would likely use this box. On the other hand, Laurel is a Layer 3 IP router better suited for an IP-centric approach to network convergence.
The agreement with Ciena should have no impact at all on Laurel's other partnerships, says Vogelsang. The company will continue to sell its product through Marconi Corp. plc (OTC: MONIY), which has specifically been targeting federal government accounts (see Laurel & Marconi Make It Official).
But Laurel isn’t the only winner in this deal. Ciena also gets something out of it. For one, this agreement provides a low-cost and risk-free way for the company to expand its product portfolio. Laurel’s edge routing approach fits nicely into Ciena’s stated goal of providing more integrated products for the edge of the data network.
Ciena plans to integrate the Laurel gear into its existing LightWorks ON-Center Management Suite. But many of the products are already compatible, says Vogelsang. The ST200 has been working alongside Ciena CoreDirectors for more than a year in the Level 3 network.
Details of Ciena’s investment haven’t been disclosed, but Ciena is believed to have contributed a large part of the $20 million in funds that were raised. Laurel got roughly $11 million in cash from a separate deal it brokered with optical component startup, Optovation Inc.. In exchange for shares in Laurel, Optovation agreed to give up its excess cash to the company (see Optovation Parts Hit the Market). Neither Ciena nor the Optovation investors own more than 10 percent of the company, according to Vogelsang.
Ciena isn't the only optical player looking to expand its product line through partnerships and acquisitions. Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) has bought multiservice switch vendor Vivace (see Tellabs Snags Vivace for $135M); Alcatel SA (NYSE: ALA; Paris: CGEP:PA) has bought Timetra (see Alcatel & TiMetra Seal the Deal); and Lucent Technologies Inc. (NYSE: LU) has entered into a partnership with Juniper Networks Inc. (Nasdaq: JNPR) (see Lucent Partners With Juniper).
— Marguerite Reardon, Senior Editor, Light Reading
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