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Funding for startups

Capella Cashes In

Iolon Inc. co-founder Joseph Davis is back in the hunt, this time with a system-level product that claims to accomplish the dream of point-and-click provisioning.

Davis is CEO of Capella Photonics Inc., which announced its $7 million Series B financing yesterday, following up a $15 million round from June 2001 (see Capella Photonics Raises $7M).

One new investor, BCE Capital joins Capella's board with this round. Other investors participating include Bay Partners, Vanguard Venture Partners, and Capella management.

As for what Capella is building -- well, Davis is being characteristically coy. Capella bills its product as an optical networking subsystem that integrates the functions of multiple boxes and promises remote point-and-click provisioning within milliseconds.

Sound familiar? Of course it does -- dozens of other startups have had the same pitch, as Davis concedes: "We were very aware of each of those [other startups] and what they had -- and what they didn't have. Because we have a working system, that sets us apart."

Davis's journey from disk drives to optical networks makes sense when you break it down step by step. Having started his career with disk-drive companies such as Maxtor Corp. (NYSE: MXO), Davis launched his first startup, a plain old data storage company called Iota Memories, in 1990. That was followed in 1996 by Quinta Corp., a company that added some optical components to the standard magnetic disk drive as an aid to increasing density. Disk-drive giant Seagate Technology Inc. (NYSE: STX) acquired Quinta in August 1997 for $345 million, bringing Davis along.

Iolon began as a project inside Seagate. Having gotten a taste for the optical world, Davis had begun looking for ways to break into the lucrative telecom market. Iolon was spun out of Seagate and incorporated in mid-2000, but Davis didn't stick around for the ride.

"I learned a hard lesson. When you spin out a company from a larger company -- let's say the reward system isn't the same as when you start a company and have it venture-funded."

Hoping to rediscover the entrepreneurial spark, Davis joined up with a team that included Quinta co-founder Jeffrey Wilde to find another project, incorporating Capella in December 2000 after they'd settled on a technology to pursue. But it took until the following summer to close a venture financing deal.

"Now is more like it was in 1990. Financing was difficult then," Davis says. "You have to be very frugal. Frugal is the first commandment."

Contrast that with Quinta, which was sold before it even had a working prototype. "Quinta was unbelievably different. It was like money was falling from the trees -- in 1996 a bubble was just beginning. Iolon was the same thing -- that was during the bubble."

Capella's San Jose, Calif., office is headquarters to a staff of 18, with executives including William O'Hollaren, another ex-Quintite, as vice president of operations.

The alpha version of Capella's box is done, and it's gone through trials in North America and Europe, Davis says. He claims customers were impressed enough to testify to investors on Capella's behalf as the Series B round was floated.

Aside from the remote provisioning, the advantage to this type of box lies in its compactness, which saves space, power, and cost. Capella's alpha customers say the box is one-half to one-third the cost of "what you could build with what's out there," according to Davis.

That's where the team's storage experience has come in handy. Storage devices have to be compact and sturdy, but they also have to be cheap, thanks to the price wars that kept erupting in the 80s and 90s.

Further details about the product won't surface until the second half of this year, when Capella expects to hit general availability. The system mostly comprises established technologies, plus a few "technical risks" that the company ironed out early on, Davis says.

— Craig Matsumoto, Senior Editor, Light Reading

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