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Ka-Ching for Catena Networks

Light Reading
News Analysis
Light Reading
1/24/2002

Catena Networks scooped up $75 million in venture funding yesterday, promising a pragmatic fix for the access bandwidth bottleneck.

Big deal? Certainly. Interesting technology? Very much so.

The company is developing a single chip and related systems, which, if successful, could dramatically change carrier economics for deploying broadband digital subscriber line (DSL) systems.

DSL deployments have been limited by many economic and political factors, among them the cost of deploying technicians and providing support for the services (see Last Mile Political Battle Heats Up and Whatever Happened to Sprint’s ION?). But another factor has been the distance limitations of DSLAM (DSL access multiplexer) devices, the equipment that enables DSL services and sits in a telecom central office. In many cases, DSL services remain out of reach for many customers if their homes or businesses are too far from the central office.

Catena is building a set of products that would combine the DSLAM function with that of the digital loop carrier (DLC) -- a smaller device that concentrates plain-old telephone service (POTS) lines and sits at curbsides in residential areas. The Catena products concentrate both POTS lines and DSL services in one line card, which would allow carriers to upgrade the DLC boxes and deploy DSL in one move.

The promise of a game-changing technology in the access space drew the interest of a whole gang of VCs, including J&W Seligman & Co., Munder Capital Management, and WestAM, and previous investors Morgenthaler Ventures, Menlo Ventures, Berkeley International Capital, WorldView Technology Partners, Goldman Sachs & Co., Bessemer Venture Partners, BCE Capital, and Silicon Valley BancVentures.

James Wei, a partner at Worldview who was involved in the deal, said the technology could solve several problems at once for telcos, and thus speed up the deployment of DSL. The technology is especially appealing in suburban areas where many homes are spaced farther apart and would rely on access to DSL through a DLC box.

”Catena allows you to build a card that can upgrade most of the DLCs and offer DSL with increased POTS density,” says Wei. “There are 17 million phone lines [in the United States] sitting out there that are hanging off of remote terminals, and most of them are in wealthy areas that are too far away from the central office to get DSL.” The company has 375 employees and is already shipping product in limited quantity for revenue, according to Wei.

Competitors include existing public players such as ADC Telecommunications Inc. (Nasdaq: ADCT) and Alcatel SA (NYSE: ALA; Paris: CGEP:PA), as well as startups such as Calix Networks and Zhone Technologies Inc.

— R. Scott Raynovich, US Editor, Light Reading
http://www.lightreading.com

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2cents
2cents
12/4/2012 | 11:02:08 PM
re: Ka-Ching for Catena Networks
I had heard that VC's are forcing startups to cut costs (translation: layoffs) in order to get further rounds of funding. It seems true in the case of Catena. They laid off 20% (about 65 people) just about a month ago, and now they close a big funding round. That would really suck to get laid off in December and then the company gets 75M in January. I wonder if they'll hire any of those people back now that they have the cash?
dietaryfiber
dietaryfiber
12/4/2012 | 11:02:07 PM
re: Ka-Ching for Catena Networks
I doubt it. A company with 375 people needs somewhere north of $125M in annual revenue to break even.

dietary fiber
Stagecoach
Stagecoach
12/4/2012 | 11:02:06 PM
re: Ka-Ching for Catena Networks
I think cutting employees before VCs will invest in another round is common in this market. I was layed-off and hired as a consultant for 3 months so I winessed the closing of a $30+ million round. They certainly were not rushing to hire anyone back. They stuck to hiring a few "key" engineers. If you reduce headcount as the VCs wish, then you get the funding and immediately start hiring, they will flame you at the next BoD meeting. VCs are in control of alot of these startups, let there be no doubt about it. And they are structuring the financing rounds to their advantage, that is, $30 million in 2002 and late 2001 is not nearly the same as $30 million in 2000! The VCs now setup hoops for the company to jump through (e.g., rev and earnings), and if they miss, oops, the VCs just took more control of your company...and yes your options just got further diluted. It's tough out there, but the VCs won't take the risk without certain "paybacks" if the company stumbles.
Pseudopersonality
Pseudopersonality
12/4/2012 | 11:02:03 PM
re: Ka-Ching for Catena Networks
This is very good news for all the struggling start ups out there and gives us some hope for the industry.

Survival is the game!

Options are worthless if the company goes down making the endless dilution argument a moot point.

Good luck

xnt
xxxx1455
xxxx1455
12/4/2012 | 11:02:03 PM
re: Ka-Ching for Catena Networks
A more accurate statement would be that if the board of directors has any sense they will be forcing the startup to cut costs and preserve cash. ItG«÷s just coincidences that many board members happen to be VCs. In the last few years there were lots of people trying to run startups who failed to realize that spending lots of cash while you have no income would cause your business to die. Many VCG«÷s probably werenG«÷t to worried about this, and many other things, since big companies were in a buying frenzy. This meant that the VCG«÷s had a good chance of selling the company and cashing out before the money ran out or it became obvious that the company couldnG«÷t execute or didnG«÷t have a viable product. Now that this is no longer the case, its back to business 101 which is donG«÷t throw away cash, and donG«÷t keep loafers on the payroll. Some companies are trimming beyond this because their market windows are sliding and they need to make the cash last. If you are at a startup with no revenue, and you are got a raise this year, and didnG«÷t see any deadbeats layed off then you are in the wrong startup and the best you can hope for is massive dilution
PhotonGolf
PhotonGolf
12/4/2012 | 11:02:02 PM
re: Ka-Ching for Catena Networks

You don't have to be a VC to force a layoff. I'm a board member, not a VC, but have simalar motivation (and recently pushed for a successful layoff). I think you'll find that the VC are just interested in increasing share holder value - like everyone else. But they might approach it differently than some (timeframe).

HarveyMudd
HarveyMudd
12/4/2012 | 11:01:59 PM
re: Ka-Ching for Catena Networks
Start-up hire a lot of people, more people than they actually need to increase the company valuation. Once this purpose is achieved, they start laying off. There is no morality behind the layoffs except the survival of founders and VCs. By preserving cash the founders manage to stay on the payroll a lot longer.

Given the fact about 90% start-up fails, Vc do not all the wisdom in the world. But remember money reigns supreme.
fgoldstein
fgoldstein
12/4/2012 | 11:01:59 PM
re: Ka-Ching for Catena Networks
I hate to distract the discussion back to the company at hand ;-) but I wonder if anybody knows more about Catena's product set. DSLAMs have fallen in price, so having a DSLAM next to the DLC isn't such a huge deal, but an integrated box like Catena's could still be useful *if* the price is right. So around how much per box/line are they hoping to get?
CMS213
CMS213
12/4/2012 | 11:01:58 PM
re: Ka-Ching for Catena Networks
What about in a new installation? Why buy 2 pieces of equipment to offer DSL when you can do it all on one?

Catena claims to have DSL capability on every line on the BLC and handle all provisioning via software. If true, operations and maintenance costs would be lower - not even looking at cap ex.
crossconnect
crossconnect
12/4/2012 | 11:01:57 PM
re: Ka-Ching for Catena Networks
"You don't have to be a VC to force a layoff. I'm a board member, not a VC, but have simalar motivation (and recently pushed for a successful layoff)."
PhotonGolf,I assume a "successful layoff" is one that brings the burn rate down. Is a layoff evaluated strictly on the numbers? Are board members generally active in selecting functions and/or people to be layed off? Or is this generally left to management to decide?
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