Cratos Craters

Cratos Networks has closed its doors for good, say sources familiar with the company. After searching for more funding for over a year, the company finally came up dry. The last of its 50 or so employees were let go Tuesday, May 28th.

At the last minute, the company was close to closing a deal with a public optical networking company that would have ensured its survival; several sources say that company was Tellium Inc. (Nasdaq: TELM). According to one source, the deal would have provided about $1.5 million per month over the next four months to complete development of Cratos’s next-generation Sonet switch. If at the end of that time the project were completed, Cratos would have been purchased for a predetermined price. Previous equity in the company would likely have been wiped out.

Neither Cratos executives nor its venture capital backer, Comstellar Technologies Inc., returned calls by press time. Tellium declined to comment on this story. Emails sent to public relations contacts at Cratos bounced back.

While Tellium certainly could have benefited from Cratos’s technology, the fact that the startup had not yet completed the product could have been what killed the deal.

“I don’t think that anybody is willing to buy a company and fund its development right now,” says one Wall Street analyst, who asked not to be named. “They are looking for startups with traction in big carrier networks. And that means having a completed product.”

Even having a product ready doesn’t guarantee that a suitor will pull the trigger on an acquisition or that the company will get more funding. Take BrightLink Networks Inc., for example. Its switches were supposedly trialing in two interexchange carrier networks, and the company was rumored to be in talks with Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), but it was still unable to sell itself or nail down enough funding to stay alive (see BrightLink to Shut Down This Week). BrightLink finally shut its doors for good in April of this year.

Cratos has been in turmoil for over a year now (see Coup at Cratos). Back in May 2001, Sanjeev Newarikar, the company’s founder and CEO, left the company. Rumors floated around that he had been asked to step down and was escorted out of the building. Since then, former employees say the company has been struggling to raise additional funding.

“Comstellar provided enough money to keep us alive but not enough to sustain a reasonable development schedule,” says one former employee in an email to Light Reading. “Although, if we had received funding and the project was already complete, I have the sneaking suspicion that we'd be in the same boat as [other companies with a product and no customers].”

— Marguerite Reardon, Senior Editor, Light Reading

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