Funding for startups

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
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LiteReeder 12/4/2012 | 7:37:11 PM
re: Ellacoya Snags Third Round Not to mention they appear to have difficulty keeping their headcount straight...

From the layoff article..."Ellacoya's layoffs began in May, when the company laid off 50 people, 20 percent of its 250 employees (see Telecom Woes Prompt More Layoffs ). Today it announced that it would be cutting another 35 jobs from its roster, bringing its current head count down to about 105, says Matt Burke, a company spokesperson."

Looks like 60 bodies are unaccounted for...what's that...a 30% attrition rate between May/October? 10 to 12 people leaving a month. In this market?

Things must be pretty bad over there.

There's a story for you Marguerite.

skeptikal 12/4/2012 | 7:37:04 PM
re: Ellacoya Snags Third Round LOTS of attrition here; if you go back you'll see the numbers add up pretty closely.

One thing that LR hasn't seemed to pick up is when the Financial guys bail, that's a BIG SIGN of BAD things.

LR is so buttered up on Ellacoya you've lost your jounalistic blinders. Marguarite, what they do, take your pencil and notebook?

Talk to the market base, where are these guys really? M.I.A.!!
hiddentiger 12/4/2012 | 7:37:00 PM
re: Ellacoya Snags Third Round "Talk to the market base, where are these guys really? M.I.A.!!"

Where are these guys.... They are on LRs Top Ten Private Companies list- they have been there for some time.
fk 12/4/2012 | 7:36:59 PM
re: Ellacoya Snags Third Round That gives me quite a chuckle. LR's inability to separate the wheat from the startup chaff is surely no secret at this point...
skeptikal 12/4/2012 | 7:36:45 PM
re: Ellacoya Snags Third Round "They are on LRs Top Ten Private Companies list- they have been there for some time."

Oh boy Hiddentiger, that's V.A.L.I.D.A.T.I.T.I.O.N. For what its worth they started out at #3, and slid very hard and barely stayed on at #10, like many things in print, you can't just stop at the list posting, here's the whole background LR wrote last June:

"Blair Witch Startup?

What's that screeching noise? It's the sound of Ellacoya Networks Inc.'s fingernails sliding down the list.

Ellacoya's tale is one of a wild, 12-month ride in the optical systems startup market: First, stealth mode, accompanied by hot buzz. Then, the ambitious product launch, accompanied by existential white papers. Then, promises of customers, accompanied by a monster funding round featuring blue-chip names. Then, the general fanfare, accompanied by eager endorsements from gullible trade journalists (Mirror mirror on the wall, who is the stoopidest of them all?).

Then the wait. The long, ugly wait (tick, tock, tick, tock.). The wait that embarrasses the gullible trade journalists and makes them mean."

I think LR was refering to themselves regarding Welts'awsome job spinning a story around a concept, one that can't be proven in the market. Since you love quotes, HT, "SHOW ME THE MONEY!!!". BTW, were is Welts today? Ah! Attrition!!
joker_1234 12/4/2012 | 7:36:43 PM
re: Ellacoya Snags Third Round I did a stint here, a year and left, for one reason. VALIDATITION... No customers to validate the technology, yes the product is inovative, but without the customer, there is no SHOW ME THE MONEY...

The attrition rate is the delta from a high of 250+, 85 lay offs, gives you about 70 that left, between may-oct (about 10 a month)

skeptikal 12/4/2012 | 7:36:40 PM
re: Ellacoya Snags Third Round EXACTLY MY POINT.

There's other ways to do it, cheaper, less complex, and, more importantly, solving service providers problems.

Oh, and by the way, when did Enterprise architects EVER deliver a CARRIER CLASS product?
tiadakola 12/4/2012 | 7:36:36 PM
re: Ellacoya Snags Third Round Where is Welts today? At a company with a product that works. A product that the market has indicated they need and will buy...not one that utilizes the 'WE know what YOU need' mentality. Truly an amazing concept. I think it is pure folly to blame a Welts when the engineering team didn't deliver.
tiadakola 12/4/2012 | 7:36:35 PM
re: Ellacoya Snags Third Round If you are saying that Welts is at Tenor, you are woefully uninformed. If you are saying that the organization that Welts went to is developing a similar product to Tenor's, you are equally uninformed as well.
_____ 12/4/2012 | 7:36:35 PM
re: Ellacoya Snags Third Round Where is he today: They'll be a shutting them doors down soon as well.

Enterprise guys making a carrier class product: www.tenornetworks.com

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