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Ellacoya Snags Third Round

For those who thought that recent layoffs at Ellacoya Networks Inc. spelled doom for the startup, a $25 million third round of funding should quiet those grumbles for the time being (see Ellacoya Gets More Funding).

”I don’t know why anybody would think that we were at death’s door,” says Ron Sege, CEO of Ellacoya. “It’s not like we stopped paying the light bills. We have plenty of cash.” The latest round of funding announced this morning brings the company’s total to $111 million and included contributions from its previous investors, Bessemer Venture Partners, Centennial Ventures, Goldman Sachs & Co., and Lightspeed Venture Partners. No new investors contributed to this round.

It seems almost ironic that the company would snag more funding just after it cut its head count for the second time in six months (see Boston Area Startups Slash Jobs). But CEO Sege says that the company had to make cuts to ensure it was accurately sized for the current market potential. And this meant reducing its total staff by about 50 percent from what it was before its first layoffs last spring. While he would not comment on whether or not reducing headcount was part of the deal for securing this new round of funding, he did say that keeping the company’s burn rate down was very important to investors.

”We need to make our cash last,” he says. “The prudent thing to do in times like these is to reduce burn rate. As far as the timing goes, I wanted to make sure that we had the money in the bank, so that I could reassure those remaining that we were going to be okay going forward.”

The company’s previous round of funding closed in December of 2000 when these same investors poured in some $52 million (see Ellacoya Gets a Blue-Chip Backer). Sege says that unlike many other startups in today’s market, Ellacoya went out early in search of capital before it actually needed the money. With the previous round expected to last through the calendar year, Sege says that he hit the funding trail early, starting back in August just to make sure that he would have plenty of time to raise what would be needed to sustain the company over the next year and a half.

This round of funding is expected to take the company through the middle of 2003. Sege says that shipments of the company’s carrier-class product, the SGS 44000, should be trickling in during the first quarter of 2001, with three of its six current beta customers expected to contribute.

While Sege says that the market opportunity has been cut by at least 45 percent to 50 percent over the last year, he is confident that service providers will still see value in the company’s product. But he admits that Ellacoya has had to adjust its sales and marketing pitch to get its foot into many carriers’ doors.

“It’s all about reducing costs for customers now,” says Sege. “We had to look at our product and say what can we do with this software to help our customers do that. So we’ve refined our basic implementation to provide self-provisioning.”

As a result, the company has changed its marketing message to reflect its customers’ needs and wants. Instead of emphasizing how the SGS 44000 will help service providers bundle new IP services like VPNs and video on demand, the company has been emphasizing the self-provisioning features of the software that allow service provider customers to turn up services on their own without the intervention of the service provider.

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com
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seen_the_light 12/4/2012 | 7:37:26 PM
re: Ellacoya Snags Third Round
The provision space is very crowded.

flanker 12/4/2012 | 7:37:23 PM
re: Ellacoya Snags Third Round "the company has been emphasizing the self-provisioning features of the software that allow service provider customers to turn up services on their own without the intervention of the service provider"

I wonder if their venture capital backers also leave milk and cookies out on the dining room table on Christmans Eve.
metrodude 12/4/2012 | 7:37:22 PM
re: Ellacoya Snags Third Round They should have just contracted the hole company out, would have been cheaper for them.
metrodude 12/4/2012 | 7:37:22 PM
re: Ellacoya Snags Third Round "the company has been emphasizing the self-provisioning features of the software that allow service provider customers to turn up services on their own without the intervention of the service provider"

If it's can not be easily integrated with the service providers OSS they don't want it.

Take that away and what do you have?
metrodude 12/4/2012 | 7:37:22 PM
re: Ellacoya Snags Third Round This is the same thing that happened in May.
A week later after receiving new funding,
managment decides to lay-off employees.

When asked what the qualifications for making
the list was ? "Anyone who is 90% complete with their deliverables was cut", Hmmm! Not the way you
would normally treat your stellar performers.

You can bet your A$$ that some of the people they let go may be in a position to recommend or not recommned their products to CLECS, RBOCS, Broadband Etc..

Several big boy's your products will never
see. It's a two way street.

From a business perspective:
Hire the top dogs, pay them the big bucks, give them large equity stakes, get what you want/need/can't figure out or know how to do, then lay them off, buy back there stock and show them the door.

So much for employer loyalty.
Or maybe they needed to pay for Ron's bonus.

MKTG_Hack 12/4/2012 | 7:37:20 PM
re: Ellacoya Snags Third Round Imagine going to the racetrack and betting on every single horse. That's what the VCs do. A psychologist might say that it isn't the joy of winning that drives these kinds of people but the fear of losing so they set it up to win and lose at the same time. Now that the VCs understand that betting on every horse makes every bet a loser, they are demanding that legs be broken to slow the race down. The technology business isn't like most other businesses and danger comes knocking when you try to treat it that way. Right now, the wrong jockeys are in the seats.

I'm no engineer but I can imagine that the last 10% is the toughest part of the engineering job.
fk 12/4/2012 | 7:37:18 PM
re: Ellacoya Snags Third Round I'm no engineer but I can imagine that the last 10% is the toughest part of the engineering job.

Only if you are interested in the sustainability of the product/company. If you are looking to flip the company as soon as things basically work, 90% complete is good enough. If you are trying to build a viable company, you have to do the whole job, and the last 10% can really be a PITA.
right_leading 12/4/2012 | 7:37:18 PM
re: Ellacoya Snags Third Round
That last 10% (whatever the hell we are talking about here) is a PITA only if you did the first 90% wrong.
plumpy 12/4/2012 | 7:37:16 PM
re: Ellacoya Snags Third Round These Ellacoya two quotes from press and LR sum it up.
This company is clueless about building a sustainable business. Attention: All Ellacoya beta sites (assuming there are any) ! read on !

Quote one from Friday May 18, Ellacoya mouthpiece spoketh: "The company no longer needs workers who can help develop the technology. it must focus on servicing the customers (!) it has very well and bringing in more customers, " Burke said.

Note that over 2/3 of spending is AFTER the product release on any real product. Is this just one clueless guy speaking or is he parroting the CEO ?

Quote two: "Cuts were made across the entire company, but Burke says that the bulk of jobs were lost in administration. He also says that the company tried to spare as many engineering spots as possible, even though it has completed development of its carrier-class IP services platform, the SGS 44000."

Completed delivery ! Names, customers, revenue please. Also quote from a customer who thinks your product is "complete".

The good news for existing IP vendors with real customers is that Ellacoya appears to be the Academy's choice for Clue Free Company, in the category of router wanna-be.

p
router_manus 12/4/2012 | 7:37:13 PM
re: Ellacoya Snags Third Round Whatever the ugliness, the bottom line is that around 100 people (including some of the management who probably has some blame) will have job for another year.
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