Existing investors are stumping up a fourth round to keep the multiservice switch startup alive

August 8, 2002

4 Min Read
Maple on the Money Trail

Maple Optical Systems, a startup developing a multiservice switch, has managed to raise a fourth round of funding without generating any revenue yet.

Such a feat used to be commonplace in the optical networking industry, but over the last few months it seems the only startups still getting any money are those with revenues.

Maple has closed the first part of its D round, and sources familiar with the company say it has raised roughly $11 million already. The company is expected to close the round with as much as $25 million. Atul Kapadia, the company’s CEO, wouldn’t discuss specifics of the round, but he did say that the money raised should be enough to sustain the company until it begins generating revenue late this year or early next year.

“I’m planning for the worst,” says Kapadia. “So we are executing very conservatively.”

The company had already slashed is headcount in February (see Maple Continues to Shed). Bringing it down from a peak of 150 in the beginning of 2001 to about 77 employees today. With such a small staff already, Kapadia says he doesn’t anticipate any other cuts in the near term.

The only firms involved in the round so far are previous investors. Charter Venture Capital, which first invested in the company’s C round last August, has taken the lead (see Maple Nabs New Funding). While many of the investors are already on board, some have chosen to stay out of this round, says Kapadia. The only holdout he would name was Technology Crossover Ventures. “Late-stage investors who invest only after a company has revenuewill not participate in this round, as we are still a few months away from revenue,” he concedes.

In the past, the company has received funding from several venture firms, including Raza Foundries, which put up $9 million of seed money to start the company in 2000, Charter Ventures, Leapfrog Ventures, Firsthand Capital Management Inc., Siemens Venture Capital (SVC), Deutsche Bank AG, Texas Pacific Group, Aurora Technology Fund, McQuillan Ventures, RBC Dain Rauscher Inc., and Amerindo Investment Advisors Inc.

In previous rounds, these firms put in a total of over $100 million in capital. But firms that invested early and are pulling out now will likely see their stakes in the company significantly diluted.

Kapadia is confident that revenues are just around the corner and that this will spur some firms to pick up on their investments once again. The company, which is building an Asynchronous Transfer Mode (ATM) switch that also supports Multiprotocol Label Switching (MPLS), is already engaged with three major carriers, a U.S. regional Bell operating company, a European PTT, and an Asian incumbent local exchange carrier, says Kapadia.

He claims that what sets his company’s product apart from other ATM switches is the fact that it supports both PNNI signaling, used in ATM networks, and IP routing protocols used to support MPLS. He also says that all the product’s ASICs (application-specific integrated circuits) have come back from the foundry and are being tested for performance. The company is now working on software and hardware integration.

The experiences of other startups in this market suggest that Maple faces an uphill battle. Gotham Networks, which was developing a similar ATM-plus-MPLS switch, has been shut down (see Gotham Networks, MIA). And WaveSmith Networks Inc. has postponed adding MPLS to its ATM switch, saying carriers don't want it right now (see WaveSmith's Multiservice Surprise).

Whether this is true will become evident when Maple tries to turn its customer trials into actual revenues. Kapadia is confident that the company can make it happen, but he realizes that for Maple to survive in the long run, it will have to pair with a bigger vendor to provide a larger sales channel and customer support. The 77-person company, 69 of whom are engineers, does not have the infrastructure to support large customers and drive new sales.

“It’s expensive to build a sales channel,” he says. “It doesn’t make sense for us to do it ourselves. M&A is out of the question, but we will definitely have to partner.”

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.comWant to know more? The big cheeses of the optical networking industry will be discussing this very topic at Opticon 2002, Light Reading’s annual conference, being held in San Jose, California, August 19-22. Check it out at Opticon 2002.

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