Wu-Fu Chen Startups Hit the Skids

Geyser closed its doors yesterday; Cinta cut jobs on Wednesday. Is Optimight next?

September 21, 2001

5 Min Read
Wu-Fu Chen Startups Hit the Skids

Has Wu-Fu Chen, the man who once said "We make money the new-fashioned way -- we print it!", lost his touch?

At one time, the serial entrepreneur could do no wrong. His homeruns included: Cascade Communications (sold to Ascend for $2.6 billion), Arris Networks, (sold to Cascade for $145 million), Ardent Communications, (sold to Cisco Systems Inc. (Nasdaq: CSCO) for $232 million) and Shasta Networks, which went to Nortel Networks Corp. (NYSE/Toronto: NT), for $340 million.

Now, almost the reverse is happening. Many of Wu-Fu Chen ’s current crop of startups appear to be running into trouble.

Just yesterday, Geyser Networks Inc., which was developing a multiservice provisioning platform, closed the doors of its Sunnyvale, CA headquarters. On Wednesday, another Wu-Fu Chen startup, Cinta Networks Corp., which makes a combination optical switch and optical transport product, laid off employees (see Startups Suffer Setbacks). OptiMight Communications Inc., which is working on a long haul transport product that uses coarse WDM, also is expected to feel the fallout of the capital spending crunch.

Certainly, the biggest strike against Wu-Fu Chen recently is Geyser. The company raised $44.5 million in funding and had been valued at between $80 million and $100 million after its second round in August of last year (see Geyser Spouts Off ). According to a source at the company, product testing had already begun in at least one beta site with three more contracts signed for trials beginning in the next couple of months.

But the company was unable to secure a third round of funding, even after its valuation had been dropped down to $33 million.

”We couldn’t close the third round and we ran out of money. It’s that simple,” says a former Geyser employee, who wanted to remain anonymous. “This just shows you the sign of the times. Eighteen months or 12 months ago we would have been acquired for top dollar, and today, we go out business.”

All along, the company seemingly struggled to assemble the right management team. CEOs shuffled in and out of the line up, with Wu-Fu Chen stepping in during the second round of funding (see Former Geyser CEO Finds New Home). In the end, though, Geyser’s failure didn’t surprise others in the industry. “I had heard that Geyser always had a sub-par management team,” says one source who didn’t want his name used. “And there were always questions about whether the product actually worked. It was never one of Wu-Fu’s strongest plays.”

But Geyser isn’t the only Wu-Fu Chen startup that has been hit recently. Cinta laid off 17 of its 130 employees earlier this week. Not an earthshattering reduction, but certainly a sign of hard times. The company is currently looking to raise about $50 million in a third round of funding, says its CEO.

”I don’t think anyone in their right mind wouldn’t say this is a tough market right now,” says John Vaughn, president and CEO of Cinta. “But we are making good solid progress.”

Then there is Optimight, which is focused on long haul transport. The company, which has raised $37.5 million to date, and currently has 145 employees, is also looking for a third round of funding. Karl Ma, director of product marketing for Optimight says the OMX 1600 platform is already in lab trials and expects general availability by the end of the year. But industry watchers speculate that Optimight’s days are numbered given the slump in its target market.

Over a year ago, Wu fu Chen took center stage at the Opticon tradeshow in Burlingame, CA to tell attendees that long haul transport was the hottest technology around (see Wu-Fu Chen: In It for the Long Haul). What a difference a year makes.

As service providers like Qwest Communications International Corp. (NYSE: Q) and WorldCom Inc. (Nasdaq: WCOM) slash capital spending, every public company in the long haul market has felt the impact, reporting poor visibility and disappointing earnings. Ciena Corp. (Nasdaq: CIEN), Sycamore Networks Inc. (Nasdaq: SCMR) and Corvis Corp. (Nasdaq: CORV), all of whom had built up huge market capitalizations based on the promising long haul market a year ago, are all suffering with share prices falling dramatically. Nortel Networks Corp. (NYSE/Toronto: NT) and Lucent Technologies Inc. (NYSE: LU), the two largest players, are also struggling.

But Ma, of Optimight, says that the company is working to close two big deals that will almost guarantee a next round of funding. He won’t say what the deal is exactly, but he alluded to a customer contract, trial, or investment opportunity from two large inter-exchange carriers.

“We are waiting for a couple of triggers from customers that will make investment in Optimight very attractive,” he says.

What happens if these “triggers” fall through?“We go on with life and figure out how to negotiate the troubled waters. Markets are tough, but we are moving forward and we are carefully controlling our cash.”

Wu-Fu Chen has plenty of other startups in the pipeline (see his write-up in the most recent Light Reading Top 10 Movers and Shakers. Right now, most of them are at early stages of development. The only mature one that appears to be reasonably healthy is Zettacom Inc. (see ZettaCom Advances With ZEST (& ZEN).

- Marguerite Reardon, Senior Editor, Light Reading

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