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Optical/IP

2003 Top Ten: Startup Flameouts

In 2003, everything old was new again, and new things had become old. This wasn't good for startups, especially flashy, pie-in-the-sky startups promising "revolutionary" products.

Elaborate new technologies that required ripping out and replacing old equipment were rejected outright. Carriers' interest was limited to anything that would enable them to sweat the old network for another 12 months.

As if that weren't bad enough, venture capitalists continued to hide in caves, so even those startups that had promising developments had trouble finding the cash to continue.

Combine hesitant operators with coy VCs, and you get a miserable environment for startups. It's easy to see why network equipment startups selling flashy new kit in 2003 had such a tough year.

Here's a rundown of some of the startup burnouts we reported this year:

No. 10 Crescent Networks Three months after it declared that it absolutely wasn't closing its doors, this edge router company did indeed cease operations (see Crescent is Waning).

Crescent's routers fared well in tests with BTexact Technologies, the testing arm of BT plc (London: BGC), but it was unable to turn these early trials into revenue-generating sales and shut its doors in January.

After raising $66 million, the assets of the company were sold to British network equipment manufacturer Marconi Corp. plc (Nasdaq: MRCIY; London: MONI) for "tens of thousands of pounds," according to a source familiar with the deal. Did somebody say FIRE SALE?

No. 9 Silicon Access Networks This network processor company's chips were up sometime in October, but it was hard to tell exactly when Silicon Access shut its doors, as it disconnected the phone lines before Light Reading had the chance to report a proper postmortem (see For the Masses).

Nevertheless, our stories leading up to its disappearance shed some light on what happened.

Silicon Access made a big fuss about a deal it claimed to have signed with Huawei Technologies Co. Ltd. in February. The Chinese router company was said to be using its network processor, address processor, classifier, and accounting device for 10-Gbit/s port speeds (see Silicon Access Nabs Huawei).

But for months after this announcement, Silicon Access's competitors insisted the deal never materialized (see Huawei Chip Deal: Who's Got It?).

Silicon Access officials stood by their story. Chief operating officer Rex Naden wouldn't elaborate much, citing Huawei's reluctance to publicly disclose its plans, but at the time he said Silicon Access "absolutely" did sign a contract with Huawei, claiming revenues were on the way.

These revenues never amounted to much, clearly, as Silicon Access has not been heard from since. The company had raised a total of $124 million in funding.

No. 8 Corona Networks IP edge router startup Corona was in business for six years before it eventually kicked the bucket in August (see Corona Networks Disappears).

Corona's end came as a bit of a surprise, as just a few months earlier it had squeezed $8 million in extra funding out of its VCs and clinched a deal with Alcatel SA (NYSE: ALA; Paris: CGEP:PA). The French equipment maker signed a contract with Corona to produce a broadband remote access server (B-RAS) for its 7301 DSLAM (see Corona Gets a Boost).

Then, mysteriously, Corona was spotted in talks with Zhone Technologies Inc. (Nasdaq: ZHNE) around the same time, but this conversation cooled, and Zhone went off looking at other IP edge router/subscriber management services companies.

Did Corona blow it by hedging its bets on both of these deals? Whatever happened, it's time was up. It had raised a total of $78 million in funding.

No. 7 Tenor Networks Tenor Networks raised $120 million to build a giant IP/MPLS switch for service provider core networks. The problem? Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR) had already started building MPLS functionality into their existing routers – thus rendering Tenor's box obsolete before it even hit the shelves. Bummer!

In addition, carriers were looking for equipment that could help them gradually migrate existing ATM services onto an MPLS backbone. The Tenor box required carriers to rip out old kit, which really doesn't go over well in hard times when no one has two beans to rub together.

Tenor tried to change with the times, but it ended up being behind the market with its next product and eventually pulled the plug in February (see Tenor Goes Silent).

No. 6 Metro-Optix Metro-Optix, one of a bunch of startups targeting the next-gen metro-optical networking sector, built and sold its multiservice provisioning system to 15 customers but still failed to keep its head above water (see More Cuts Coming).

As the need for capacity continued to wane, so did many of the startups that were the heroes of optical networking a couple of years ago.

Metro-Optix, which raised a whopping $136 million, ended up auctioning off its assets to Xtera Communications Inc. in a fire sale deal in August, the details of which were never disclosed. One Light Reading reader had this to say about the achievement:

    "I just don't get how the shareholders (ie: VCs) and board could have approved this deal. This is akin to Xtera going out and buying a MacDonald's franchise until the market for its core products (re-)appears. It is inconceivable that the board has allowed the company to continue despite a lack of market for its products, and/or a lack of competitive differentiation." -- Zettabit.

Oddly enough, Xtera, flush with $30 million in funding in August, is still hanging in there (see Xtera Scores Surprise $30M).

No. 5 CeyYa! Ceyba Alas, the same fate did not await Ceyba (formally Solinet Systems Inc.), another optical long-haul startup like Xtera (see Ceyba Shuts Down).

In August Ceyba was abandoned by one of its VCs, which pulled out of a round that was expected to happen later this year. The move set the cat among the pigeons as the rest of board also bailed on the plan, deciding that it was too risky to keep Ceyba going. [Ed. note: And a thousand lemmings can't be wrong!].

Ceyba had at least two U.S. carrier customers and a war chest of $93 million in funding, but this still wasn't enough (see Ceyba Rattling in Ottawa).

Startups like Ceyba were hit hardest by the downturn, because they specialized in products for core network capacity, where the most extravagant excesses of the boom era were focused. What's more, most next-gen equipment for core deployment calls for carriers to commit to a new network architecture that's different from their current, Sonet-based gear. For the majority of 2003, carriers balked at any such changes, as they drop all but the most urgently needed network upgrades.

No. 4 Innovance Networks Another long-haul letdown, Innovance shut its doors in December after failing to secure additional funding, according to several Canadian news reports (see Innovance CEO: Layoff a 'Rebalance', Company Makeover).

Innovance's plan was to provide end-to-end optical transport for carriers, incorporating a kind of "wavelength-on-demand" style of provisioning. With capex spending still frozen and excess capacity still a major problem, Innovance went in-a-trance and never came out again.

The company employed more than 310 employees in February 2002 and had raised more than $130 million in funding since it opened for business in May 2000.

No. 3 Network Photonics Fancy all-optical switching gear featuring tilting mirrors and prisms that split light were all the rage in 2000 when Network Photonics raised a staggering $106.5 million to build some.

Unfortunately, these prisms are now tripping the light fantastic on eBay for $10.99 a pop, as such experimental technology got dropped like a lead balloon during the downturn.

Seriously, though, if you're talking about splitting the atom, or whatever Network Photonics was doing, when everyone else is talking about maintaining the tin cans and string, what do you expect?

The company did attempt to regroup and do something else, but it failed abysmally and eventually shut its doors in April (see Network Photonics Scales Back, Network Photonics Shuts Down).

No. 2 OMM OMM, once the leader of the pack in the all-optical switching game, faced the same gloomy fate as Network Photonics – only its demise dragged on even longer, as most folk expected the company to pull through (see OMM: The End Is Near). The all-optical subsystem vendor had been trying to land more funding since mid 2002, and given that it was shipping product and had paying customers, this didn't seem impossible.

OMM counted Ciena Corp. (Nasdaq: CIEN) and Siemens AG (NYSE: SI; Frankfurt: SIE) among its customers, but it turned out that most of its work was still going into lab trials rather than live networks, which doesn't pay the bills (see OMM-inous News).

OMM decided to take a stab at 3-D MEMS (more light-splitting prisms and tilting mirrors), which no doubt gave the VCs the willies and contributed to their eventual decision to pull out. OMM closed its doors in March, laying off 85 employees. It had raised close to $100 million (see OMM Closes Its Doors).

OMM's demise spelled the end of all-optical switching in 2003. The question now is: Will this sector ever come back?

No. 1 PhotonEx At the top of the pile of companies that hit bottom in 2003 is PhotonEx, which filed for Chapter 11 bankruptcy protection in November (see PhotonEx Falls Into 40Gig Hole).

PhotonEx, founded in 1999, claimed to be selling "the world's only commercially-available, field-proven," 40-Gbit/s, long-haul DWDM systems. To do so, it raised an astounding $178 million in three financing rounds.

"It was a classic case of a company with technology too advanced for what carriers wanted," says Scott Clavenna, chief analyst at Heavy Reading.

Unfortunately for PhotonEx, carrier budgets didn't allow for 40-Gbit/s systems nearly as quickly as the company had hoped. Sources say shortly after the company failed to get any part of the U.S. government's Global Information Grid Bandwidth Expansion (GIG-BE) business, its managers decided to wind down operations.

For anyone who's counting, the total amount of funding raised by these 10 companies was $1.13 billion. Which would almost cover the Light Reading staff's Christmas bonus!

— The Staff, Light Reading

cyber_techy 12/4/2012 | 11:07:21 PM
re: 2003 Top Ten: Startup Flameouts http://www.networkmagazine.com...
Abby 12/4/2012 | 11:07:24 PM
re: 2003 Top Ten: Startup Flameouts nbwaite,

You say,

"You may be suggesting that the UBS $156 billion capex figure I gave does not contradict the melt-down theme of the article because nearly all of that spending might be just in the categories merely for keeping the existing business going. But, we cannot believe this because of the UBS $74 billion telecommunications equipment sales figure -- tough to believe that all of this $74 billion was just to keep existing operations going. Similarly for the "roughly" $4 billion the service providers appear to have spent with Cisco."

Wanna bet? Since there are, at the least, 500 telecommunications providers worldwide. Therefore, UBS's number ($74 Billion) would equate to about $150 million in telecommunications equipment purchases per provider. Sounds about right in order to maintain their voice, data, wireless, video, back office, and management system infrastructures.

nbwaite 12/4/2012 | 11:07:28 PM
re: 2003 Top Ten: Startup Flameouts Abby:

For planning a good future for telecommunications, we do need more good information. If you have some such information, terrific.

You are angry about something. I will set that aside and address your other remarks.

You have a reference. Okay. References are important but not sufficient.

The reference lists some categories of capex. Okay. Due to the last category, this list of categories can cover anything. So, this list of categories cannot be wrong.

But what you gave provides no information on fractions of capex in each category. Further, a text on business will likely not be able to provide such fractions for parts of the communications industry.

From this reference and from these categories, for spending in the communications industry, we are supposed to conclude what?

The main question in this thread has been the financial health of parts of the communications industry. Your quote contributes to this question how?

You may be suggesting that the UBS $156 billion capex figure I gave does not contradict the melt-down  theme of the article because nearly all of that spending might be just in the categories merely for keeping the existing business going. But, we cannot believe this because of the UBS $74 billion telecommunications equipment sales figure -- tough to believe that all of this $74 billion was just to keep existing operations going. Similarly for the "roughly" $4 billion the service providers appear to have spent with Cisco.
Abby 12/4/2012 | 11:07:33 PM
re: 2003 Top Ten: Startup Flameouts nbwaite,

You need to understand CAPEX spending first, before you'll ever figure anything out!

Firms generally classify capital expenditure projects into 6 different categories: 1) Replacement: costs reduction, 2) Replacement: maintenance of business, 3) Expansion into new products or markets, 4) Expansion of existing products or markets, 5) Safety and/or environmental projects, 6) other.

Source: Essentials of Managerial Finance 10th Edition J. Fred Weston and Eugene F. Brigham

Start there and give us all a break!
nbwaite 12/4/2012 | 11:07:35 PM
re: 2003 Top Ten: Startup Flameouts tera:


There are some Enron stockholders who might disagree with you.

(I do not mean to imply anything about Cisco!)

There are also a large number of unemployed telecom engineers who might be a bit upset with your conclusions. I don't see how you can make a general conclusion about an entire industry by looking at one company's financial statements. Take a look at Lucent, Nortel, Alcatel, and just about every other telecom company's financial data and tell me that there has not been a major downturn in spending. That Cisco has been able to make money in this downturn says more about Cisco than it does about the industry in general.


Your remark about accounting reminds me of the remark about eating goat:

Goat is better than nothing; just ask anyone that has tried both.


On your other remarks, it should be clear that I would agree with you. The claims you are objecting to are not mine; you are misreading my claims.

I started with the article and its several remarks in the theme of down, down, down melt-down  for the whole industry. Then I claimed that the whole industry is more complicated than any one such simple characterization. For support, I gave data from Cisco and UBS Warburg. And I included a reference to an article from Light Reading  on some remarks of Cisco's CEO Chambers. With these references I was able to claim that, in 2003, "service providers" should be giving Cisco about $4 billion in revenue, that telecom equipment sales should be about $74 billion, and that telecom capex should be about $156 billion. My purpose with this data was to contradict some of the remarks in the article and the uniform theme of down, down, down melt-down  for the whole industry.

No way am I claiming that the entire industry is healthy. Instead, in effect the article was claiming that the whole industry was sick, and I was claiming that there is some significant activity in parts of the industry.

So, the industry is neither up, up, up forever up to infinity and beyond  nor down, down, down melt-down, and we can agree on that. So, the whole situation is not uniform, not simply one thing or another and, instead, is mixed. We are agreeing on this point.

routethus:

You continue to completely miss the point. You state that all you did was innocently repeat a quoted 20%. But you have done much more. You have treated it like fact, and you have treated as if it is credible despite the fact that there is **NO HARD DATA RELEASED TO SUPPORT THE CLAIM**. You have criticized LR for a lack of hard data, while at the same time taking the most flimzy data possible and built a case on it.

FYI, at the height of the boom, Cisco was selling over $8B / year to SPs. Even if we are to accept the now $4B you claim, to not consider that a significant decrease would be incredulous to me.

Are router sales going to pick up? Sure they are, the Internet continues to grow and eventually equipment capacity becomes exhausted; and eventually other equipment categories become exhausted and begin to grow as well. But for you to critcize LR and then do what you (place so much emphasis on one flimsy, unreliable, and unsubstantiated data point) is wholly without merit.


My main claim is that the article's uniform theme of down, down, down melt-down  for the whole communications industry is not correct and that, instead, there are some areas with significant activity.

For evidence of significant activity, I quoted Cisco's revenue and some UBS Warburg figures. To connect Cisco's revenue partly with service providers, I gave the reference to the "roughly 20 percent" figure.

So, from what I gave, I don't believe that the article's theme of down, down, down melt-down  is correct.

I made my point with references, primarily numeric ones, and I was pushing LR also to follow this recommendation from high school term paper writing.

That's about all I was claiming or doing, an it's not much to object to.

Is the figure of 20 percent really precise? Likely not. Maybe the real amount would be 10% or 5%, but even at 5% that would represent about $1 billion from SPs to Cisco in 2003, which still contradicts the theme of the article.

You are objecting to claims I didn't make and don't believe: For my main claim, I doubt that you disagree.

For your $8 billion from SPs to Cisco during one of the bubble years, maybe that is what happened. There was a blip of $22,293 million of Cisco revenue in their fiscal year that ended in 2001. But, a difference of $4 billion? The blip was not quite large enough for that; this point is not very persuasive because Cisco has many lines of business, at times does a lot of M&A, etc.

You are saying that Cisco suffered when the bubble burst. Okay. I didn't claim or believe otherwise.

Or, LR was claiming that the glass is empty. I was saying that it's not, there there is some water in there. I'm not claiming that the glass is full. And I agree that there is less in the glass now than in 2000. Not difficult concepts.

As an industry, we have to do better: That bubble stuff was nonsense, harmful wasteful nonsense.

We can begin to see part of the cause of bubbles rising and bursting: It's too easy for too many people to go for a simple uniform characterization of everything, either up, up, up forever up to infinity and beyond  or down, down, down melt-down, and there is little hope that either extreme will be correct. People that want to see charging herds of dumb animals can work together to encourage statements with such extremes. Some people did make money when the bubble rose and may have made more short selling when the bubble burst.

Your point with "Are router sales going to pick up?" I do believe is correct. Indeed, in some other contexts, I have used that same data from Cisco and UBS along with some data from A. Odlyzko to argue just that point; that is why I happened to have the data at hand and, in particular, just copied the data to LR.

But if there is to be a good future, then enough of us will have to get rid of these views of believing only simplistic characterizations.

In particular, just now, the bubble bursting and the down, down, down melt-down  characterization are hurting, are severely blocking progress.
opticalwatcher 12/4/2012 | 11:07:45 PM
re: 2003 Top Ten: Startup Flameouts "the numbers in audited financial statements
are much better than no numbers at all"

There are some Enron stockholders who might disagree with you.

(I do not mean to imply anything about Cisco!)

There are also a large number of unemployed telecom engineers who might be a bit upset with your conclusions. I don't see how you can make a general conclusion about an entire industry by looking at one company's financial statements. Take a look at Lucent, Nortel, Alcatel, and just about every other telecom company's financial data and tell me that there has not been a major downturn in spending. That Cisco has been able to make money in this downturn says more about Cisco than it does about the industry in general.
jim_smith 12/4/2012 | 11:07:45 PM
re: 2003 Top Ten: Startup Flameouts nbwaite:

We can go on like this forever. I'm going to try and close this one out...

More specifically, the article, like much of Light Reading, ...

I guess you are not satisfied with the current state of LR articles: you want LR to back their statements with references to hard data. I, on the other hand, am quite happy with the gossip, the general monkey business, and the stuff below my uvula - or whatever the heck it was that you were referring to :-)

We can regard the prices on Wall Street as stochastic processes...

I haven't figured out how to make money on Wall Street by using purely mathematical techniques. If you can figure it out, more power to you.

More specifically, the article, like much of Light Reading, in its several remarks I quoted, had a big theme of down, down, down, melt-down for the whole industry. This theme was not supported by references to primary sources.

There are layoff going on across the industry. People like me - who are in the midst of these things - don't really need references to primary sources to figure out the state of the industry. I don't know what your background is, but it obviously it doesn't involve working at a service provider or an equipment vendor.

But, you are making my main point: Some parts of the telecommunications industry are doing well, and the article's theme of down, down, down, melt-down does not apply to the whole industry.

I was not making that point at all. The theme of "down, down, down, melt-down" does apply to the whole service provider industry.

To be more sure, I'd like to see some solid numeric data.

And I don't want to see any more data. It is pretty obvious to me that the market is in a pretty bad shape and it will stay like that unless service providers figure out a way to increase their revenues and profits.

Case closed. OK?
routethus 12/4/2012 | 11:07:45 PM
re: 2003 Top Ten: Startup Flameouts nbwaite,

You continue to completely miss the point. You state that all you did was innocently repeat a quoted 20%. But you have done much more. You have treated it like fact, and you have treated as if it is credible despite the fact that there is **NO HARD DATA RELEASED TO SUPPORT THE CLAIM**. You have criticized LR for a lack of hard data, while at the same time taking the most flimzy data possible and built a case on it.

FYI, at the height of the boom, Cisco was selling over $8B / year to SPs. Even if we are to accept the now $4B you claim, to not consider that a significant decrease would be incredulous to me.

Are router sales going to pick up? Sure they are, the Internet continues to grow and eventually equipment capacity becomes exhausted; and eventually other equipment categories become exhausted and begin to grow as well. But for you to critcize LR and then do what you (place so much emphasis on one flimsy, unreliable, and unsubstantiated data point) is wholly without merit.
nbwaite 12/4/2012 | 11:07:47 PM
re: 2003 Top Ten: Startup Flameouts routethus:


The 20% number is a rounded up number that was worked out a long time and is repeatedly thrown out with out being updated on a quarter by quarter basis. Further more, it includes both equipment sold to serviced providers and equipment sold through to enterprises by service providers.

These numbers are not helpful for the following reasons:

1) Cisco does not provide the split between equipment sold to SPs for a) their own IT infrastructure, b) installation in a public network, c) resell to enterprises. Without the split, it is not possible to understand whether sales **TO** SPs is going up or down. So your assertion that Cisco numbers can be used to assert that Cisco revenue to SPs is going up, is simply wrong. They may be, but these numbers can not be used as the basis for that assertion.


I gave the quote and the reference. The quote I gave is that "roughly" 20% of Cisco's revenue was from "service providers" (SP). The reference didn't say "rounded up". If you have some references on "rounded up", then trot them out.

You are claiming that the SPs do not keep the equipment. Okay. If the SPs use the equipment, resell it, give it away, store it, burn it, junk it, toss it in the Pacific Ocean does not change this 20%.

To Cisco the 20% would be about $4 billion; if the SPs were reselling most of that, and putting on a mark-up, that would be a big chunk of money. Maybe there are some references on such resales by the SPs. For some of what is in the article, such references would be relevant; is you have some references, let's learn about them.

That the SPs are mostly just reselling the Cisco equipment they buy is curious. If you have some references and data on the fraction, then trot it out.

Else, it does appear that the SPs are mostly from their own operations finding "roughly" $4 billion a year (20% of $20 billion) to spend on growing their networks. This point, then, contradicts some of the remarks in the article.

I'm drawing conclusions from the references I gave. Tough just to throw out the conclusions in favor of other conclusions without other references and data.

2) If there is a major shift from enterprises building their own networks to managed services, then what looks like Cisco doing better with SPs could be quite misleading, so as the number goes from 20% to 30% or 40% then how are we to know why and in what product categories. For the same reason, if service providers became a bigger channel to SPs the overall % as reported by Cisco might go up, but that would be grossly misleading.


SPs shipping routers through worm holes to distant parts of the universe would be misleading also. If you have some references and data on the possibilities you mention, then trot them out. Without such data, tough to assume that the data available is misleading.

3) It is impossible to add up individual product break downs given by Cisco and come to the same rounded up number as them. Please try and do it your self if you think it is.


Haven't tried; didn't suggest that I did; would believe that accurate detailed data on breakdowns would be tough to get. accurate detailed data on breakdowns would be tough to get.
whyiswhy 12/4/2012 | 11:07:48 PM
re: 2003 Top Ten: Startup Flameouts Waite:

Does the PhD stand for piled higher and deeper?

Sophist.

-Why
routethus 12/4/2012 | 11:07:48 PM
re: 2003 Top Ten: Startup Flameouts nbwaite,

"You are making my point for me: Without that 20% figure, we won't know how much Cisco gets from "service providers" and can entertain that Cisco gets revenue essentially only from government and enterprise customers. That the data is "out
there" alone is not much help; it is crucial to find the relevant data, quote it, and give references to it. Then, with those figures of 20%, 40%, and 50%, we have a better idea what the fraction from service providers is and where that
fraction is going soon. Moreover, this data conflicts with several of the remarks I quoted from the article's theme of down, down, down, melt-down for the whole industry. So, we're making progress and doing it with numbers."

The 20% number is a rounded up number that was worked out a long time and is repeatedly thrown out with out being updated on a quarter by quarter basis. Further more, it includes both equipment sold to serviced providers and equipment sold through to enterprises by service providers.

These numbers are not helpful for the following reasons:

1) Cisco does not provide the split between equipment sold to SPs for a) their own IT infrastructure, b) installation in a public network, c) resell to enterprises. Without the split, it is not possible to understand whether sales **TO** SPs is going up or down. So your assertion that Cisco numbers can be used to assert that Cisco revenue to SPs is going up, is simply wrong. They may be, but these numbers can not be used as the basis for that assertion.

2) If there is a major shift from enterprises building their own networks to managed services, then what looks like Cisco doing better with SPs could be quite misleading, so as the number goes from 20% to 30% or 40% then how are we to know why and in what product categories. For the same reason, if service providers became a bigger channel to SPs the overall % as reported by Cisco might go up, but that would be grossly misleading.

3) It is impossible to add up individual product break downs given by Cisco and come to the same rounded up number as them. Please try and do it your self if you think it is.
nbwaite 12/4/2012 | 11:07:49 PM
re: 2003 Top Ten: Startup Flameouts
jim_smith:



You missed my point. The data is out there. I don't see the
point in regurgitating the same data on LR.


There is a point, and it's covered in high school term paper
writing. The point is to support claims with references to
primary sources. For the numeric data, one of its main
purposes is to confirm hypotheses obtained by whatever means.
This use of numerical data provides crucial discipline.


If you seriously think that you will be able to gain insight
by staring at complex reports that are based on those numbers,
then put money where your mouth is: go to wall street and
become the next Warren Buffet. Once I see the 'hard numerical
data' in your bank account, I shall stand corrected. Until
then, I will not try to gain insight just by looking at the
numbers.


You keep mentioning Wall Street reports. There is much more
to relevant solid numeric data than such reports.

Buffett is not the only success in business.

But, if you want a connection between numbers and Wall Street,
here's one (not that I know anyone that made any money with
it): We can regard the prices on Wall Street as stochastic
processes.
Well, there is a theorem, the Doob
decomposition, that says that every stochastic process is the
sum of a Martingale part and a predicable part -- the
predictable part can be predicted exactly from the past.
There is another theorem, the Martingale convergence theorem,
that says that, essentially, a Martingale must either converge
to a constant (although possibly a different constant for each
sample path or 'trial') or run off to infinity (not be 'L1'
bounded). So, if we do not see the prices converging to a
constant or running off to infinity, then there must be a
non-trivial predictable part. For the Martingale part, that's
no problem because it is like a fair game of coin tossing.
So, a stochastic process cannot just keep wandering around,
not converging, and not running off to infinity and not have a
non-trivial predictable part. Flatly can't happen. The
'random walk' models of Wall Street being unpredictable are
flawed. Alas, the Martingale results are typically a little
deeper than the 'random walk' people usually fathom.

Solid numeric data is necessary for solid testing of
insight. The numbers are typically not very good for
getting insight to test, and the numbers alone commonly are
not sufficient for drawing conclusions.

More specifically, the article, like much of Light
Reading,
in its several remarks I quoted, had a big theme
of down, down, down, melt-down  for the whole
industry. This theme was not supported by references to
primary sources. Insisting on saying it with solid numeric
data can provide important discipline to throttle such
simplistic emotional characterizations.


On another note: how the hell do you think Cisco manages to
make 1 cent above analyst predictions every damn time? You
really think they are reporting 'hard numerical data'? Wall
street has always complained that they can't quite figure out
which business units make money and which don't...


For the 1 cent, that is the difference between two numbers. I
believe that you will find that both numbers come, or mostly
in the past did come, essentially from Cisco. The number
easier to control is the "predictions".

In making data from financial accounting solid, there are
challenges. But, the numbers in audited financial statements
are much better than no numbers at all.

For which business units make money, that's often a difficult
question because (1) companies often to not want to provide
enough data to determine such a breakdown and (2) there are
some fundamental problems about how to allocate brand equity,
marketing, general and administrative, office space, R&D,
economies of scale, etc. There is no law that says that just
everything must decompose into a sum of independent causes.
Instead, nonlinearities are real, at least in this universe.


Cisco makes money by selling to government and enterprise.
They don't make money by selling to service providers. We
are talking about service providers, aren't we?


You read what I wrote, didn't you? I gave the quote that
Cisco is getting roughly 20% of its revenue from "service
providers". Further the reference said that Cisco's CEO
Chambers was hoping that this fraction would grow to 40 to
50%. That's why I gave the quote and reference.

You are making my point for me: Without that 20% figure, we
won't know how much Cisco gets from "service providers" and
can entertain that Cisco gets revenue essentially only from
government and enterprise customers. That the data is "out
there" alone is not much help; it is crucial to find the
relevant data, quote it, and give references to it. Then,
with those figures of 20%, 40%, and 50%, we have a better idea
what the fraction from service providers is and where that
fraction is going soon. Moreover, this data conflicts with
several of the remarks I quoted from the article's theme of
down, down, down, melt-down  for the whole
industry. So, we're making progress and doing it with
numbers.

Such progress is important -- trust me on this one!


In my opinion, the one bright spot for Cisco in the service
provider market is VoIP. That is because VoIP products will
replace legacy voice equipment, which currently enjoys huge
profit margins. But again, from an industry point of view,
this means profit margins for voice equipment will go down.


Your point is a conjecture. My guess is that Cisco's VoIP
revenue is essentially only from their enterprise and
government customers, that nearly none of the Cisco revenue
from service providers is for VoIP, and, instead, nearly all
of the revenue from service providers is for edge boxes, core
routers, and switches. To test these conjectures, we would
like to see some solid numeric data.

Moreover, my guess is that VoIP equipment will essentially
always be only for individuals and business and government
organizations and essentially never for service providers,
that the service providers will just carry the packets without
regard for their contents, data, voice, or video. That is,
CU-See-Me, Vonage, etc. are too easy for the end users to do
without involvement of the service providers.

But, you are making my main point: Some parts of the
telecommunications industry are doing well, and the article's
theme of down, down, down, melt-down  does not
apply to the whole industry. Moreover, you are explaining
some of where and why parts of the industry might be doing
poorly: Due to packets and VoIP, traditional voice equipment
may be going the way of buggy whips.

To be more sure, I'd like to see some solid numeric data.


jim_smith 12/4/2012 | 11:07:51 PM
re: 2003 Top Ten: Startup Flameouts I quoted the annual revenue figures of Cisco.
You believe that that data is just a "myth"?


You missed my point. The data is out there. I don't see the point in regurgitating the same data on LR.

If you seriously think that you will be able to gain insight by staring at complex reports that are based on those numbers, then put money where your mouth is: go to wall street and become the next Warren Buffet. Once I see the 'hard numerical data' in your bank account, I shall stand corrected. Until then, I will not try to gain insight just by looking at the numbers.

On another note: how the hell do you think Cisco manages to make 1 cent above analyst predictions every damn time? You really think they are reporting 'hard numerical data'? Wall street has always complained that they can't quite figure out which business units make money and which don't...

For what parts of the industry? For Cisco? Doesn't look that way from the data I gave.

Cisco makes money by selling to government and enterprise. They don't make money by selling to service providers. We are talking about service providers, aren't we?

In my opinion, the one bright spot for Cisco in the service provider market is VoIP. That is because VoIP products will replace legacy voice equipment, which currently enjoys huge profit margins. But again, from an industry point of view, this means profit margins for voice equipment will go down.
juvenal 12/4/2012 | 11:07:51 PM
re: 2003 Top Ten: Startup Flameouts I'm all in favor of stealing money from VC's. Long Live Photonex!
nbwaite 12/4/2012 | 11:07:53 PM
re: 2003 Top Ten: Startup Flameouts
Scott:



Yes, and we've been biggest proponents of chronicling the
shifts in technology

Yes, Light Reading  has done this. So, you caught
my intended irony. Good. So, telecom is not all just
one thing so that the down, down, down melt-down 
theme in the article cannot apply to all the industry.
Thus it is ironic that Light Reading  would apply
one simple brush to all parts of such a large industry where
the variety has been covered so well by Light
Reading 
.


Why, and why not? Here is a possible answer: From its strong
roots in literature, the media strongly pursues
communication, interpretation of human experience, emotion
based on effects in the heart, the gut, and lower still, all
of these below the shoulders, none of them between the ears.
If the goal is to entertain an audience by creating a
vicarious experience, then these literature techniques have a
long history of success and dominate TV now.


Such communications can be an accurate expression of how
things feel, but such feelings are rarely an accurate
description of objective external reality. If we want to
understand external reality well enough to predict, hopefully
control, the future, then we need to work between the ears and
for this the literature techniques are from the wrong side of
C. P. Snow's Two Cultures. On the other side, in
mathematics, physical science, and engineering, we try hard to
say it with numbers, and that discipline tends to give more
accurate descriptions even if they conflict with feelings.


Some parts of the telecommunications industry have done poorly
in the last few years. As a result, many people are hurting.
They know this between their ears, and they feel it below
their shoulders. These people can use some sympathy and
empathy, and the theme down, down, down,
melt-down 
can connect, at least below the shoulders.


Fine. But when the tears dry up and the sun comes up, it's a
new day, and now, with high motivation from the pains of the
past, we very much want to understand and control the future.
For this we need to understand not just our own feelings but
also external reality. To be successful and avoid future
tears, we want to use the scientific side of Snow's book. We
are very highly motivated.


It is such people with such goals that come to Light
Reading 
Such readers can see that both we and our
country and civilization all very much need to move to more
progress. For this progress, much more in digital
communications is crucial. We need to make this future real.
We need to concentrate now on what we will do for this future
in 2004. For this, we need to understand what's going on.
Here, it isn't all just down, down, down, melt-down.
Instead, from the data I quoted, there is spending, apparently
in 2003, and about the same in 2004, $4 billion from "service
providers" to Cisco, $74 billion in equipment sales, and $156
billion in capex. If we believe A. Odlyzko's data, then
Internet data rates (bytes per day) continue to grow at
roughly 100% a year. Using packets for voice, video, and
enterprise data should be able to let packet data rates
continue to grow.


Those traditional media techniques are good at feeling the
pains but nearly hopeless at doing anything about them -- good
bedside manner with foul snake oil. We know about the pains.
Now we need to get on with real solutions. For that, just to
get started, we need the solid numeric data.

nbwaite 12/4/2012 | 11:07:55 PM
re: 2003 Top Ten: Startup Flameouts
jim_smith:





'Solid numeric data' is a myth. It can only further confuse the
issue at hand. The dot.com business plans got funded because
of the 'solid numeric data' regarding eyeballs and mindshare.
If you really want 'solid numeric data' then just go spend a
few bucks and buy a report from your favorite wall street
analyst - that will keep you busy for a decade.





I quoted the annual revenue figures of Cisco.
You believe that that data is just a "myth"?




Numeric data is rarely perfect, but concluding that "It can
only further confuse the issue at hand." is being far too
negative. Usually the better numeric data is necessary for
solid conclusions.




Your "The dot.com business plans got funded because of the
'solid numeric data' regarding eyeballs and mindshare." shows
that numeric data alone is not sufficient. We need good data
about important things. "Eyeballs and mindshare" can help a
business, but they are not nearly sufficient.




For "The real answer - when we find it - will be simple."
Possibly to some questions but not to describe the whole
communications industry. The whole industry is too big to be
described by anything simple.





Here's what I think is going on. The industry is experiencing
a strong downward pressure on profit margins. The
downward pressure will most probably continue for some
more time - 5 years? 10 years? I don't know. People will lose
jobs and/or will have to take pay cuts. The
Telecommunications industry has been too fat for too long.
Now, it is time for a heart attack. This should have happened
right after the telecom act, but it didn't because of the
Internet. Time to catch up with reality. That's all.





For what parts of the industry? For Cisco? Doesn't
look that way from the data I gave.

jim_smith 12/4/2012 | 11:07:55 PM
re: 2003 Top Ten: Startup Flameouts The point myself and others are trying to make that the report pointed out only the down side. With little effort, it could have been well balanced.

I think the report was fair. Maybe the title should have been "2003 Top Ten: Biggest Startup Stories". I don't think a startup that is barely ekeing out a living should be chronicled in a top ten stories report.

It is not easy to skim out useful information from all the weeds out there.

That is exactly the point. For a startup to make the top ten list, it has to stand out of the weeds on its own.
Kris_Shankar 12/4/2012 | 11:07:56 PM
re: 2003 Top Ten: Startup Flameouts BobbyMax,
Take a look at RHK's Dec-2002 market share report on ONNA (Optical Networking North America). In order of revenue in the OED (Optical Edge Device) space, Metro-OptiX was the first startup listed, right behind public companies with competing products.

Your posts are thoughtful, albeit in a random sense. I guess if you are left alone with a typewriter long enough, you will eventually rival Shakespeare.

Kris Shankar
Nortel_engineer 12/4/2012 | 11:07:56 PM
re: 2003 Top Ten: Startup Flameouts BOBBYMAX: ..."Why VCs funded OMM is still a mystery and then chose CEO from outside this are to run the company. A first level manager from H-P was hired as VP of Marketing. The fall of this company is directly attributable to the VCs who should have known better...."

MR.BOBBYMAX IS INCORRECT. OMM NEVER HIRED ANYONE FROM HP INTO ANY MANAGEMENT POSITION IN THEIR ENTIRE COMPANY LIFE OF 6 YEARS. YOU ARE MIXING OMM UP WITH ONIX MICROSYSTEMS. THEIR (ONIX) VP OF MARKETING (CARLA FELDMAN) WAS FROM HP. THEIR (ONIX) VP OF SALES WAS FROM HP ALSO. GET THE FACTS RIGHT.
OMM'S CEO WAS FROM MICROCHIP, A VERY SUCCESSFUL IPO'd COMPANY -- AND STILL VERY SUCCESSFUL TODAY.
OMM HAD FIRST CLASS INVESTORS (SEVIN ROSEN FUNDS, ATLAS VENTURE, SOLECTRON, NORTEL NETWORKS, ALCATEL, SIEMENS, FAIRCHILD SEMICONDUCTOR, SYCAMORE NETWORKS, BESSEMER VENTURES, CORVIS CORPORATION).
Scott Raynovich 12/4/2012 | 11:07:57 PM
re: 2003 Top Ten: Startup Flameouts

"And it isn't all just traditional voice network ATM/Sonet rings and cross connects; now IP, MPLS, and Ethernet are
important. Or, as we know, even just first-cut, each of the
first three OSI levels are important."

Yes, and we've been biggest proponents of chronicling the shifts in technology
ATMRules 12/4/2012 | 11:07:57 PM
re: 2003 Top Ten: Startup Flameouts Enough already BobbyMax .....like you're somekind of expert...hey what do you think of Lucent's future?

ATM>>>>>>>RULES>>>>>>>>>>>>>>
dwdm2 12/4/2012 | 11:07:58 PM
re: 2003 Top Ten: Startup Flameouts "I guess the massive bursting of the bubble was just in our lively imaginations ..."

Scott, bubble was real, and so was the burst. But that's beyond the point. 2003 startups, be it their birth or demise, are not part of the bubble anomaly. The point myself and others are trying to make that the report pointed out only the down side. With little effort, it could have been well balanced.

At this information age, there is already a glut of them. It is not easy to skim out useful information from all the weeds out there. That said, I appreciate all the good work LR is doing. Feel a bit envious though that LR Staff is getting such a huge bonus... Is it real? Is the bubble back again at the LR?

Cheers and Happy New Year to All.
BobbyMax 12/4/2012 | 11:07:59 PM
re: 2003 Top Ten: Startup Flameouts Most of the start-ups that went belly up from the had no product vision. The management was not qualified to manage the development of technology or manage the people. These guys cheated the VCs and workers. In order to have access to the capital for their own richment, they klaif off people and started something in India. But India was not ready to handle any kind of the state=of-the-art technology.

Companies like Metro-optix and Corona Networks (and possibly others) were indian companies with no experience in technology or management. Both of these companies wasted the VC money. It is hard to figure out why BVCs made such a poor choice.

Why VCs funded OMM is still a mystery and then chose CEO from outside this are to run the company. A first level manager from H-P was hired as VP of Marketing. The fall of this company is directly attributable to the VCs who should have known better.
Xiang_Qi 12/4/2012 | 11:08:01 PM
re: 2003 Top Ten: Startup Flameouts /XQ
jim_smith 12/4/2012 | 11:08:01 PM
re: 2003 Top Ten: Startup Flameouts ... For these important issues, please concentrate on the real situation supported by solid numeric data to the greatest extent possible.

'Solid numeric data' is a myth. It can only further confuse the issue at hand. The dot.com business plans got funded because of the 'solid numeric data' regarding eyeballs and mindshare. If you really want 'solid numeric data' then just go spend a few bucks and buy a report from your favorite wall street analyst - that will keep you busy for a decade.

... For the industry to move forward effectively, we need to understand the real situation, and it can't all be just one simple answer such as 'melt-down'.

The real answer - when we find it - will be simple.

Here's what I think is going on. The industry is experiencing a strong downward pressure on profit margins. The downward pressure will most probably continue for some more time - 5 years? 10 years? I don't know. People will lose jobs and/or will have to take pay cuts. The Telecommunications industry has been too fat for too long. Now, it is time for a heart attack. This should have happened right after the telecom act, but it didn't because of the Internet. Time to catch up with reality. That's all.
lightfantastic 12/4/2012 | 11:08:03 PM
re: 2003 Top Ten: Startup Flameouts You know - at this point, I think that the companies that are still around deserve a bit of credit as well. A lot of them have had modest sales, reduced burn rates and kept the hope alive.

So we are not going to see another Juniper for a while.. I'll take what we have today over a June 2000-era Corvis or Avici!

-l
boston beans 12/4/2012 | 11:08:03 PM
re: 2003 Top Ten: Startup Flameouts To balance the Schadenfreude going on here, it would be an epiphany of sorts to mention a few sucesses:

1. Lightreading - profitable, iconoclastic media firm, in spite of the shameful joy expressed at their advertizers failings.
2. China - from materials to services, a job hungry populous is making full use of China's growth potential while marketing itself overseas. Note: "Greater China" represents about 25% of OFCs exhibitors for '04 show.
3. Avanex - on its own, questionable to survive, but pulling off Optronics and Corning Photonics acquisitions (now 70% of rev) was commendable.
4. Bookham - even more impressive here with NT & Marconi components acqs due to ASOC plant closure recently.
5. Storage solutions
6. Out of Ch11 club: Global Crossings, NEON, MCI, Acterna, etc. live to see another day.
7. Siemens - leveraging brand strength across the globe and in particular China; smart use of OEM via ADVA.
8. Various - equity investment/OEM agreements with deep pocketed JDSU reached just before the unknown Kennedy era began.
9. End users - more communications choices, better QoS, lower cost
10. Anyone not among the 20+ companies selling transceivers...

fancypants 12/4/2012 | 11:08:04 PM
re: 2003 Top Ten: Startup Flameouts Anyone? Opinions?

No. 11 Photuris?
technonerd 12/4/2012 | 11:08:04 PM
re: 2003 Top Ten: Startup Flameouts oops ... $50 a month ... I think I was overcome by the vapors there ;-)
technonerd 12/4/2012 | 11:08:05 PM
re: 2003 Top Ten: Startup Flameouts And what do you think is the best way for investors to capitalize on the trend we were discussing?
I think you'd want to have ownership in a company that makes wireless NIDs and can sustain a lead in the business. Maybe own shares of a cellular provider that stands to benefit from the increased wireless traffic? Maybe short-sell shares of the RBOCs and the long-distance companies?

I don't really know, because share ownership these days is entirely speculative and the game is rigged against small investors. I think the best way to take advantage of the trend is to wait about six months or so. Then buy a second-generation wireless NID, dump your wireline phone service and save $500 a month.
speedy1 12/4/2012 | 11:08:05 PM
re: 2003 Top Ten: Startup Flameouts In the router edge market, a couple successes have been Laurel and Timetra (the latter having been acquired) balancing off the failures of Crescent, Corona, and Allegro Networks.

In the core market, none seem to be very successful. I know that some people will argue that Procket is a "success", but I would state that the jury is still out on that matter.

Also, are Tahoe or Polaris still around?

-speedy1

======================================
As amusing as it is to read the responses generated by this article, I was wondering if there has been a 2003 Top Ten: Startup Successes article. The dialogue may not be as interesting, but it would be kind of refreshing to have some positive news.
nbwaite 12/4/2012 | 11:08:05 PM
re: 2003 Top Ten: Startup Flameouts routethus:

"Speaking of solid data........more like $1B in sales **to**
SPs and $1B in resell revenues (CPE sold through by SPs)."

More detail, data, and references are very welcome.

I'm just combining from the two quotes I gave: Cisco's
revenue during CY 2003 should be about $20 billion, and about
20% of that should be from "service providers". That's what
the sources said. Multiply these two and get $4 billion.

What the "service providers" did with the equipment the
sources didn't explain. If you have some additional
information, GREAT. Trot it out!

It's just a few days over 100 years since the Wright Brothers
got their plane off the ground under its own power. Much of
how they did this was being quite careful about strength,
weight, lift, drag, thrust, power, and three axis control.
For the future of digital communications, we should be able to
be at least equally careful.
routethus 12/4/2012 | 11:08:06 PM
re: 2003 Top Ten: Startup Flameouts nbwaite,

"We can combine the data I gave to conclude that in 2003 Cisco likely sold about $4 billion in equipment to "service providers"

Speaking of solid data........more like $1B in sales **to** SPs and $1B in resell revenues (CPE sold through by SPs).
nbwaite 12/4/2012 | 11:08:06 PM
re: 2003 Top Ten: Startup Flameouts Scott Raynovich:

"I guess the massive bursting of the bubble was just in our
lively imaginations ..."

Scott, that's much of the point: The whole situation in the
communications industry is much more complicated than the
sudden fall on the NASDAQ.

We have good reasons to be critical of some really sloppy
thinking, writing, analysis, planning, and investing during
the 'bubble' years, but much of the solution now is being much
more careful about these things. An airplane designed with
such sloppy work would never get off the ground, and that is a
very good thing for the people standing where that thing would
come down and make a smoking hole. With care, we really can
design good airplanes. Similarly, we really can do good work
for the future of digital communications.

We can combine the data I gave to conclude that in 2003 Cisco
likely sold about $4 billion in equipment to "service
providers". That's a lot of spending, and we need to
understand it. That $74 billion in equipment UBS reported is
much more, and we need to understand that, too. And we should
also understand that $156 billion UBS capex figure.

The data I gave mostly had to do with spending on
telecommunications equipment, but there are more categories of
numbers with units US$. So, there are stock prices, earnings,
service provider revenues, VC investments, IPO funds, and
more. We can't expect all of these US$ quantities to rise and
fall together, either 'up, up, up, forever up to the infinity
and beyond' or 'down, down, down, meltdown' or anything
simple. And even if some of the CLECs got too little revenue,
that does not mean that all their competitors got too little
revenue. Yes, a lot of stock prices fell when the NASDAQ did,
but that didn't mean that all the quantities in US$ fell.

And the 'service providers' are not all just the RBOCS --
there is more variety than that.

And it isn't all just traditional voice network ATM/Sonet
rings and cross connects; now IP, MPLS, and Ethernet are
important. Or, as we know, even just first-cut, each of the
first three OSI levels are important.

And 'long haul' is not just one thing: There's the right of
way, the conduit (when it is used), the cables with fiber, the
amplifier sheds, fiber that is lit with one or more
wavelengths at one of a few data rates, such wavelengths
carrying data, on various routes -- along railroad tracks,
highways, pipelines, electric power distribution routes,
across the bottoms of rivers, lakes, and oceans (fewer
sheds!). Even if there is a 'glut' of capacity in some of
these categories on some routes, that does not mean that there
is a uniform 'glut' everywhere. E.g., I don't know about you,
but if I had use of a fiber, then I would be reluctant to
light more wavelengths than I needed for the data I had to
move now or fairly soon -- even if you found me with a cable
with 144 fibers with only two lit, you wouldn't find me with a
'glut' of real capacity.

For the industry to move forward effectively, we need to
understand the real situation, and it can't all be just one
simple answer such as 'melt-down'.

Norman B. Waite, Ph.D.
Founder
Network Architectonics
9 Fox Run
Wappingers Falls, NY 12590
[email protected]
845-227-7821
PO 12/4/2012 | 11:08:06 PM
re: 2003 Top Ten: Startup Flameouts The current issue of Canadian Business magazine includes a list of a few Canadian VC investments ...

http://www.canadianbusiness.co...

or select "Commentary", then "Stars and Strikes" from the magazine's homepage.

realdeal 12/4/2012 | 11:08:07 PM
re: 2003 Top Ten: Startup Flameouts Where have the CEO's gone who once guided these dismal failures to the lowest depths on the LR scale?

Did the fact that they burned through millions of dollars help them land their next assignment or did it hurt them?
cypress737 12/4/2012 | 11:08:07 PM
re: 2003 Top Ten: Startup Flameouts Technonerd: Thanks for the all the information you provided over on the FTTP board (or the FTTP thread, whatever it is). If it isn't kosher to discuss it over there, where is the best forum? And what do you think is the best way for investors to capitalize on the trend we were discussing? Buying shares in Telular?
dwdm2 12/4/2012 | 11:08:08 PM
re: 2003 Top Ten: Startup Flameouts Thanks Norman for the details. And LR said:
"For anyone who's counting, the total amount of funding raised by these 10 companies was $1.13 billion. Which would almost cover the Light Reading staff's Christmas bonus!"

My advise: Guys, try to do a better job. Do your homework, please.
Scott Raynovich 12/4/2012 | 11:08:08 PM
re: 2003 Top Ten: Startup Flameouts I guess the massive bursting of the bubble was just in our lively imaginations ...
nbwaite 12/4/2012 | 11:08:08 PM
re: 2003 Top Ten: Startup Flameouts 'Lively' writing can help, but being correct about important
topics is just crucial.

At

_____http://www.lightreading.c...

I saw your

_____DECEMBER 29, 2003

_____2003 Top Ten: Startup Flameouts

Your publication seems to have a single conclusion -- down,
down, down, melt-down -- but without needed supporting solid
numeric detail. Your conclusion conflicts with the solid
numeric data I do have. I do not know if your conclusion is
partly correct in some parts of the communications industry or
not correct at all. I cannot believe your conclusion for the
whole industry, and without more detail I have little solid
data for where your conclusion applies.

In your article, you have several relevant remarks. These
remarks are just tossed out as if either of trivial importance
or obviously true, and neither is the case. Here are some of
the remarks:

_____The Tenor box required carriers to rip out old kit, which
_____really doesn't go over well in hard times when no one has
_____two beans to rub together.

Here we have "hard times" and "no one has two beans to rub
together".

_____As the need for capacity continued to wane, so did many
_____of the startups that were the heroes of optical
_____networking a couple of years ago.

Here we have "the need for capacity continued to wane".

_____Startups like Ceyba were hit hardest by the downturn,
_____because they specialized in products for core network
_____capacity, where the most extravagant excesses of the boom
_____era were focused.

Here we have "the downturn" and "the most extravagant excesses
of the boom era".

_____For the majority of 2003, carriers balked at any such
_____changes, as they drop all but the most urgently needed
_____network upgrades.

Here we have "as they drop all but the most urgently needed
network upgrades".

_____With capex spending still frozen and excess capacity
_____still a major problem, Innovance went in-a-trance and
_____never came out again.

Here we have "capex spending still frozen and excess capacity
still a major problem".

_____Unfortunately, these prisms are now tripping the light
_____fantastic on eBay for $10.99 a pop, as such experimental
_____technology got dropped like a lead balloon during the
_____downturn.

Here we have "dropped like a lead balloon during the
downturn".

_____Seriously, though, if you're talking about splitting the
_____atom, or whatever Network Photonics was doing, when
_____everyone else is talking about maintaining the tin cans
_____and string, what do you expect?

Here we have "everyone else is talking about maintaining the
tin cans and string".

These remarks are just one broad brush, unsupported and
painted over everything. You have an 'extravagant excess' of
unsupported simplicity.

Here is some contrasting solid numeric data: First for
Cisco's revenue, from the SEC Edgar Web site, in Cisco 10-K
report of September 18th, 2002 and in their 8-K report of
August 5th, 2003 we can see:

____________As_of_Date_______Revenue_(Millions)
_________-------------_______------------------
_________July_26,_2003__________________$18,878
_________July_27,_2002__________________$18,915
_________July_28,_2001__________________$22,293
_________July_29,_2000__________________$18,928
_________July_31,_1999__________________$12,173
_________July_25,_1998___________________$8,489

Each dollar of Cisco revenue represents in effect an increase
in capacity of digital communications in the world. Their
revenue has been quite stable. Thus, spending on more
capacity has been quite stable.

For more detail on this Cisco revenue, there is

_____Chambers also mentioned that the company will focus on
_____several technology areas to boost its presence in the
_____service provider market. The company now generates
_____roughly 20 percent of its business from service providers
_____but would like to see this proportion grow to 40 percent
_____or 50 percent over the next five years. Core switching
_____and routing will certainly be areas of growth for service
_____providers, particularly in when it comes to helping
_____carriers migrate from Asynchronous Transfer Mode (ATM) to
_____Multiprotocol Label Switching (MPLS) infrastructures.

from your

_____"Chambers Fires Up Market", 'Light Reading', November
_____12th, 2002.

available at

_____http://www.lightreading.c...

as of November 13th, 2002.

So, Chambers was saying that the fraction of Cisco's revenue
from service providers has been "roughly 20 percent" and that
Cisco "would like to see this proportion grow to 40 percent or
50 percent over the next five years".

Second there is

_____Table 4: Global Carrier Capital Spending and Telecom
_____Equipment Sales ($ millions)

__________________________2000_____2001____2002E____2003E____2004E
_____Global_Capex_____$252,387_$240,639_$167,181_$156,130_$153,867
_____Y/Y_Growth_____________________-5%_____-31%______-7%______-1%

_____Global_Telecom____146.423__119,246___83,012___74,436___73,819
_____Equipment_Sales______________________________________________
_____Y/Y_Growth____________________-19%_____-31%_____-10%______-1%

_____Note:_Includes_UBS_Warburg_coverage_companies_only.__________

from Table 4 on page 10 of

_____'Broadband Moving to the Front Burner', UBS Warburg, June
_____3rd, 2003.

So, in 2003 we see $156 billion in capex and $74 billion in
telecom equipment sales. Either number is a lot of money on
any scale in this solar system.

In this solid numeric data, there is no evidence here of "hard
times", "no one has two beans to rub together", "the need for
capacity continued to wane", "they drop all but the most
urgently needed network upgrades", "capex spending still
frozen and excess capacity still a major problem", or
"everyone else is talking about maintaining the tin cans and
string".

To justify your conclusions in part, I can make some guesses:
Perhaps there is a 'glut' of unlit optical fiber between some
geographic points. Perhaps revenue from sales of traditional
voice telephone equipment has slowed. But even for these
conclusions, we are lacking solid numeric data.

For these important issues, please concentrate on the real
situation supported by solid numeric data to the greatest
extent possible.

Norman B. Waite, Ph.D.
Founder
Network Architectonics
9 Fox Run
Wappingers Falls, NY 12590
[email protected]
845-227-7821

firstmile 12/4/2012 | 11:08:09 PM
re: 2003 Top Ten: Startup Flameouts Pretty tough to get visability, no?
...first
firstmile 12/4/2012 | 11:08:09 PM
re: 2003 Top Ten: Startup Flameouts Wasn't David House's flameout in 2003?
Allegro Networks?
...first
technonerd 12/4/2012 | 11:08:09 PM
re: 2003 Top Ten: Startup Flameouts The same tends to be true of VC-backed companies. They have high monthly burns when there is a lot of cash in the bank.
Yeah, that was another brilliant aspect of the VC-fed idiot mania. I know of a whole bunch of telecom companies who were essentially ordered by their VCs (who had board seats -- truly the kiss of death) to buy stuff like crazy. Most of it went into storage.

I even know of one startup that was giving great business DSL service until their VCs (who got in only a few months before the intended IPO) ordered them to switch from Paradyne to Cisco DSLAMs. That meant changing line code, and Cisco's line code didn't work nearly as well in the same cable binders.

Not that any of the VCs knew what a cable binder or a line code was, or even that they gave a rat's ass whether the stuff worked or not. They just wanted to be able to put "Cisco-Powered Network" in the prospectus. Immediately after the Cisco DSLAMs were installed, service began failing and customers began to disconnect.

But that was no problem, because the VCs had also replaced the original managers with people who they thought would give better road show. Turned out the startup missed the IPO window (by a about week, having come planned to come public in mid- to late March 2000), and was bankrupt by the end of the year.

When the closeout merchants came to the offices, they found tens of thousands of dollars worth of Cisco routers unopened in packing crates. As for the DSLAMs, they were taken out of the CLEC collo cages and thrown away because they didn't work.
dljvjbsl 12/4/2012 | 11:08:09 PM
re: 2003 Top Ten: Startup Flameouts What about internal projects that wasted massive amounts of money?

I know that this is not relavent to the current topic but it would make an interesting article. What would be interesting is to see the fates of the executives who authorized and ran these failures. I have seen the authors of complete disasters get fancy titles and salaries as a a result of demonstrating a complete lack of knowedge of both the market and the technology. Afterall if they start firing executives, where will it end? The CEO might get the push.
technonerd 12/4/2012 | 11:08:10 PM
re: 2003 Top Ten: Startup Flameouts I am in marketing and everything amuses us marketers.
One of the key decision makers in a major VC fund that lost billions in telecom was an ex-marketing guy. I used to leave meetings with him just shaking my head at how this guy could have gotten that job when it was so obvious that he knew exactly nothing about telecom networks or how the generate profits.

It finally dawned on me that no one at his outfit knew anything, and that their whole game was to spread money onto every telecom deal they saw, figuring that a few of them would go public and make up for all the other losses.

Their "process" was about trying to figure out which firms had the ability to fling plausible-sounding b.s. long enough to get to the starting line. And for that, there's nothing better than a marketing guy. Cynical, yes. But also true.
firstmile 12/4/2012 | 11:08:10 PM
re: 2003 Top Ten: Startup Flameouts Sometimes I think it can be like earning a higher salary...you tend to spend what you earn. The same tends to be true of VC-backed companies. They have high monthly burns when there is a lot of cash in the bank. It's human nature. Remember when you were in college (university) and you couldn't imagine what it would be like to make $30k/year?
...first
goodnews 12/4/2012 | 11:08:10 PM
re: 2003 Top Ten: Startup Flameouts As amusing as it is to read the responses generated by this article, I was wondering if there has been a 2003 Top Ten: Startup Successes article. The dialogue may not be as interesting, but it would be kind of refreshing to have some positive news.
zillionaire 12/4/2012 | 11:08:10 PM
re: 2003 Top Ten: Startup Flameouts this is fun - please keep posting your wisdom filled advice.
NightTrain 12/4/2012 | 11:08:11 PM
re: 2003 Top Ten: Startup Flameouts Ah, I've hit a nerve with you. Right now, you're in your cube, repeatedly hitting "refresh" because you're all incensced and worked up.

I'm in your head. This is fun. Let's keep going.
zillionaire 12/4/2012 | 11:08:11 PM
re: 2003 Top Ten: Startup Flameouts well - if your intent was that an ex STL employee who had their company STOLEN from them amuses you, then you had to be celox upper management....or work in marketing in SBO. Not far from where I used to sit.
zillionaire 12/4/2012 | 11:08:11 PM
re: 2003 Top Ten: Startup Flameouts if you worked at Celox, you were not a survivor. Does that mean that you don't matter?
NightTrain 12/4/2012 | 11:08:11 PM
re: 2003 Top Ten: Startup Flameouts Ah, no. Never worked at Celox. But I am in marketing and everything amuses us marketers. Most of all, these types of back-n-forth battles on message boards that hone our trash talking skills. However, this is wasting the time of everyone else, so I will quit while I'm ahead.

Zillionaire...consider yourself...my biatch.
NightTrain 12/4/2012 | 11:08:12 PM
re: 2003 Top Ten: Startup Flameouts Sorry Zillionaire, guess again.
zillionaire 12/4/2012 | 11:08:12 PM
re: 2003 Top Ten: Startup Flameouts Technonerd - don't feel like you have to go to great lengths to validate your point with NightStain. As an obvious ex-Celox exec, he knows everything and has keen insights into all matters except for how to build and run a company that can stand on its own from customer revenues. He is amused by former employees left in his wake of inexperience. Blames all others for his own failures. I'm just pathetic.
RouterOttawa 12/4/2012 | 11:08:13 PM
re: 2003 Top Ten: Startup Flameouts Gee (or is that gea...), you mention In-a-trance and CeYaLatuh, but neglected the other big optical startup based in Ottawa, Excelight.

http://www.lightreading.com/do...

They blew a big wad of money too.
zillionaire 12/4/2012 | 11:08:13 PM
re: 2003 Top Ten: Startup Flameouts At least be big enough to acknowledge why I brought up Photonex. That seemed to be the thorn in your side.
zillionaire 12/4/2012 | 11:08:13 PM
re: 2003 Top Ten: Startup Flameouts guess again SBO
NightTrain 12/4/2012 | 11:08:13 PM
re: 2003 Top Ten: Startup Flameouts My original post to Jack which was sent in order to answer the question why Celox wasn't listed:

"Old news dude. Celox essentially went out of business in 2002."

Your reply to me which had nothing to do with the 2003 list and why Celox wasn't on it:

"night train - they raised $185 million. They had a 4th round of 30 million...Photonex were a "frugal" bunch compared to Celox."

Your comment was irrelevant to my conversation.

Additionally, I don't know anything about Photonex, who they were, what they did, etc...and I don't care to be honest.

At the end of the day, it's the survivors who matter.




technonerd 12/4/2012 | 11:08:13 PM
re: 2003 Top Ten: Startup Flameouts SEED INVESTORS AND ANGEL INVESTORS GET IN FAR EARLIER THAN FRIENDS AND FAMILY. IF A COMPANY SUCCEEDS AND IT'S VALUATION INCREASES THEN THESE EARLY INVESTORS MAKE THE MOST MONEY BECAUSE THEY TAKE THE MOST RISK.
Not so. What typically happens is that the enterprise reaches a point where its rapid growth causes it to need cash quickly. The VCs wait until the enterprise is at a particularly desperate point, and squeeze the initial investors out at rock-bottom valuations. I have seen it a million times.


SOME VCs I KNOW USED TO BE TELECOM DESIGNERS.
I spent more time than I'd like to admit with VCs from very small to very large. The level of ignorance was stunning, and I'm not talking about people out in the sticks, either. The proof is in the CLECs and their equipment suppliers. These investments were technically unsound from the get-go, but none of the VCs (and a lot of the managers) didn't know a transmission line code from their left elbow.

It was never about building businesses, it was all about teeing-up hot IPOs.


THE ENTERPRISES SPENT IT? WHAT? THE START-UPS SPEND IT
Yes, the start-up enterprises spent the money. I ate some wonderful meals in the Bay Area courtesy of VC money.
NightTrain 12/4/2012 | 11:08:14 PM
re: 2003 Top Ten: Startup Flameouts What? Technonerd, please don't post if you don't know what you're talking about. Please see my comments in all caps.

[2. They are not investors. VCs don't get in early. They actually get in fairly late in the game, maybe a couple of years before a company goes public. VCs are pre-IPO speculators. The ones who get in early are the "friends and family" investors, and they almost always get screwed as a result of VC involvement.]

UM, WRONG. SEED INVESTORS AND ANGEL INVESTORS GET IN FAR EARLIER THAN FRIENDS AND FAMILY. IF A COMPANY SUCCEEDS AND IT'S VALUATION INCREASES THEN THESE EARLY INVESTORS MAKE THE MOST MONEY BECAUSE THEY TAKE THE MOST RISK. IF A COMPANY DOESN'T SUCCEED...WELL, WE ALL KNOW WHAT HAPPENS THEN...

3. They don't know much. I never met a telecom VC who knew even the basics about telecom networks. They don't do any meaningful technical due diligence and they have no business knowledge. It's all about "the deal." This is why so many frauds happened.

YOU'RE KILLING ME. SOME VCs

Where did the money go? The enterprises spent it. The VC firms rarely get anything back, but along the way the VCs themselves (especially the big names) used their positions to make huge speculative trading profits in new issues. This aspect of the late '90s corruption has never been explored, and because the media and the government are so completely bought off it never will be.
NightTrain 12/4/2012 | 11:08:14 PM
re: 2003 Top Ten: Startup Flameouts Ah Zillionaire, I know who you are. A disgruntled St. Louis Celox employee come back to bemone your misfortune. Pathetic. You amuse me.
NightTrain 12/4/2012 | 11:08:14 PM
re: 2003 Top Ten: Startup Flameouts Sorry, got so excited I hit send too quickly.

--------------------------
What? Technonerd, please don't post if you don't know what you're talking about. Please see my comments in all caps.

[2. They are not investors. VCs don't get in early. They actually get in fairly late in the game, maybe a couple of years before a company goes public. VCs are pre-IPO speculators. The ones who get in early are the "friends and family" investors, and they almost always get screwed as a result of VC involvement.]

UM, WRONG. SEED INVESTORS AND ANGEL INVESTORS GET IN FAR EARLIER THAN FRIENDS AND FAMILY. IF A COMPANY SUCCEEDS AND IT'S VALUATION INCREASES THEN THESE EARLY INVESTORS MAKE THE MOST MONEY BECAUSE THEY TAKE THE MOST RISK. IF A COMPANY DOESN'T SUCCEED...WELL, WE ALL KNOW WHAT HAPPENS THEN...

3. They don't know much. I never met a telecom VC who knew even the basics about telecom networks. They don't do any meaningful technical due diligence and they have no business knowledge. It's all about "the deal." This is why so many frauds happened.

YOU'RE KILLING ME. SOME VCs I KNOW USED TO BE TELECOM DESIGNERS. THAT'S NOT TO SAY THEY'RE QUALIFIED TO MAKE INVESTMENT DECISIONS THOUGH. HOWEVER, YOU'RE STATEMENT IS WRONG AGAIN.

Where did the money go? The enterprises spent it. The VC firms rarely get anything back, but along the way the VCs themselves (especially the big names) used their positions to make huge speculative trading profits in new issues. This aspect of the late '90s corruption has never been explored, and because the media and the government are so completely bought off it never will be.

THE ENTERPRISES SPENT IT? WHAT? THE START-UPS SPEND IT. THE FORTUNE 1000 ENTERPRISES HAD NOTHING TO DO WITH IT.
zillionaire 12/4/2012 | 11:08:14 PM
re: 2003 Top Ten: Startup Flameouts Jack - don't apologize to "Night Stain"

2 weeks....what kind of asshole asks people to pay attention over 2 weeks. The fact of the matter is that a group of people were there into the first qtr of 2003 shutting things down (in telecom talk, that means stealing computers, video conferencing equipment, furniture).
zillionaire 12/4/2012 | 11:08:15 PM
re: 2003 Top Ten: Startup Flameouts I brought up Photonex because they were the #1 flameout on the list that started this posting list, DUMMY.

please try to F.O.
JackRJ45 12/4/2012 | 11:08:15 PM
re: 2003 Top Ten: Startup Flameouts Night train.

My sincerest apologies.

Celox Networks ceased operations on December 18, 2002.

I was off by two weeks on it being a casualty of 2003.

I will try and pay attention in the future.


technonerd 12/4/2012 | 11:08:15 PM
re: 2003 Top Ten: Startup Flameouts Here is an article from the now-defunct Forbes ASAP that explains the VC mentality better than anything I ever read. I'm hoping that because Forbes ASAP is no longer in business, that Light Reading won't delete this posting. It's really a classic article.


Fear and Posing
Forbes ASAP, March 25, 2002

When no one admits ignorance--look out.

What rational person could look at sketchy crosshatches on a whiteboard, ease back in his leather boardroom swivel chair, and cautiously reason that selling anything, especially kitty litter, over a 56K modem, and at a loss, might define a new economy? Not a person, it seems at first, who was possessed of the slightest bit of self-doubt. Unless, perhaps, there were 15 other people in the room telling him that it was so. And yet the only truth, as it turns out, was that he didn't have the courage to argue. This is a scenario as likely as any, along with farcical business models, shoddy equity research, and a deliberate disregard of practical accounting, that led very sophisticated investors to place their money behind gizmos, strategies, and math that they did not understand.

They feared shame--specifically the kind of shame that comes from being perceived as dumb, uncool, or generally not "getting it," all of which foster scorn. Some psychologists refer to this phenomenon as the "Imposter Syndrome."

Just as in junior high math class, the discomfort of confessing ignorance is heightened in the company of others, particularly peers, says Mardi Horowitz, a professor of psychiatry at the University of California, San Francisco. Indeed, the larger the audience, the more threatening and stultifying the experience--and the more likely we are to avoid it. Between 1995 and 2001 the wildebeest-like migration of egos away from three little words--"I don't know"--fueled what might be described as a Moore's Law for dumbness: The crazier the ideas got, and the dumber we felt, the more quickly we acquiesced to them. This empirical scorn-avoidance--what psychologists call "groupthink"--contributed to a $3 trillion shell economy.

"Pride goeth before a fall," says Virginia Turezyn, managing director of Infinity Capital and general partner of Information Technology Ventures, both based in Silicon Valley. In the early years of the Internet boom Turezyn spurned dot-coms. Based as they were on consumer-marketing strategies rather than technology innovation, dot-coms didn't fit with Turezyn's investment strategy. Turezyn, who spent ten years in private equity at Morgan Stanley Dean Witter, is a traditionalist, favoring enterprise software and networking companies such as Aurum Software (acquired by Baan) and Exodus Communications.

Time and again, as business plans predicated on amassing eyeballs over loyal customers passed over her desk, Turezyn balked. "I kept saying, G«ˇThere is going to be a shitload of money lost on the Internet.' All these VCs who thought they were geniuses looked at me like I was a dinosaur. They said, G«ˇYeah, but in the interim there is going to be a lot of money made.'"

By the peak of the bubble in 1999, after others had made monstrous returns off such companies as DrKoop.com and eToys, Turezyn began to doubt herself. "I thought I'd missed it. I was worn down," she says. That year Turezyn made an ill-timed surrender. She invested millions in several dot-coms, including Egreetings Network, a Web greeting-card company; I-drive, a Web-based data storage provider; Great Entertaining, a site that hawked party supplies; and TheMan.com, a content portal for young men. She didn't do it comfortably. "I got consumery," Turezyn recalls woefully. "And I'm not consumery."

Turezyn was posing.

"If you'd asked me then, I could never have told you what the value proposition of TheMan.com was or explain how we were going to make a ton of money," she says. "I-drive gave storage away for free! I'd sit in these board meetings and say until I was blue in the face, G«ˇWe're spending way too much money!' But younger VCs who thought they knew the world said, G«ˇIf we charge, people will go somewhere else.' I started to think, G«ˇMaybe I'm just too old. Maybe I really don't get it.'"

Heidi Roizen had moments where she felt like a poser too, but not always because she lost money. An entrepreneur-turned-venture-capitalist who spent 13 years as the chief executive of software developer and publisher T/Maker Company, Roizen was also an early skeptic of dot-com economics. "In 1997 I was buying puts on Amazon.com shares," she says now, laughing. This means Roizen was betting the share price would drop. "I didn't understand how the business model justified the high valuation the market was giving it. I lost a lot of money doing that. I became convinced that there must be people out there who were smarter than I was."

When she joined Softbank Venture Capital in 1999 (which recently changed its name to Mobius Venture Capital), Roizen put money into several dot-coms. One company that Roizen declines to identify got $2 million from her. She thought it was a good bet, "until they came back to me four months later and said they wanted another round at a post-money valuation of $300 million. I told them they were out of their freaking minds! But damn if they didn't get a term sheet from another firm for a valuation close to $200 million." The new money wasn't dumb money, either, Roizen adds. "These were brand-name investors."

This, Roizen says, is when she felt the twinge of imposter shame most ardently. "I knew I was wrong when companies in my own portfolio were getting follow-on rounds at huge valuations that I couldn't justify. But when someone offers to pay you $2 a share for stock that you paid 10 cents for, are you going to say no?"

Roizen took the money. This was in early 2000. For a while the paper rate-of-return made her, and the rest of the investor group, look very smart indeed. But the company they funded went out of business last year. Does Roizen feel shame? "I came out of those kinds of investments okay. I don't want to say that I was rational and others were irrational. I sat on the board and put down real dollars for those companies. There is some survivor's guilt."

Not surprisingly, psychiatry closely associates feelings of guilt with posing or "imposterism," too. Guilt, after all, is merely an emotional by-product of shame.

Call it what you will, it also afflicts entrepreneurs. Steve Blank, a well-known Silicon Valley "serial entrepreneur," knows the feeling. In the past 24 years he has worked at eight startups and cofounded four others, including E.piphany, a CRM (customer relationship management) software company that made him a billionaire when it went public in September 1999.

"Was that a fluke?" Blank says of E.piphany's success. "Of course. I never finished college. For at least the first two years of my career, I was afraid some day someone was going to find that out and take my job away from me. But it is clear now that everything in the last two to three years was a fluke."

By early 2000, despite being a boom beneficiary, Blank began urging friends and colleagues to sell their Nasdaq stocks. He took seats on the advisory boards of several startups, including a Web-photo finisher, where he began evangelizing the principles of old economy business. "I went to those meetings and started saying things like G«ˇMaybe you should spend that $10 million you just raised on acquiring a customer base rather than building a brand.' The CEO, a really smart woman, told me, G«ˇSteve, you just don't get it--all the rules have changed.'"

Even a self-aware college-dropout-turned-Internet-guru like Blank wasn't immune to the seduction of groupthink. "In the end, I gave great advice, but guess what? I didn't take it," he says. In 2000 Blank wrote six- and seven-figure checks for at least ten startups, including some bizarre concepts such as EthnicGrocer.com, a Webvan-type shop that distributes ethnic food. It seduced other marquee investors from firms such as Kleiner Perkins Caufield & Byers, Benchmark Capital, and Merrill Lynch. Blank figures he's lost money on all but one of his deals from 2000. Design Within Reach, a catalog vendor of custom furniture that Blank funded--to the scorn of the same Sand Hill Road investors who had funded him in the past--has nothing to do with the Web and is growing like gangbusters.

In Silicon Valley, where IQs are lofty and r+¨sum+¨s thick with M.B.A.s and engineering degrees, there is ample opportunity to feel inadequate. Here creativity and brainpower are placed at such a premium that reason is often antonymous to genius. But sometimes the desire to "think outside the box" leads investors and entrepreneurs to endorse things that they know won't work.

"There is so much pressure in the Valley to do the next big thing that there is a natural disposition to find that thing that you are working on to be it," says Subrah Iyar, founder and chief executive of WebEx, a Web-conferencing provider. "Working at a [company in Silicon Valley] is like being in a cult. Nobody wants to be the unbeliever in the room. You learn fast that you can't raise objections. Critics just get left out of meetings."

Sometimes the way to avoid criticism was to lead the meetings. This happened at Quokka Sports, a San Francisco-based media startup that aimed to bring the experience of athletic endeavors such as Nascar racing, the Tour de France bicycle race, round-the-world yacht races, and mountain climbing in Asia to life for all sports enthusiasts--from avid athletes to couch potatoes--who were at home surfing the Web. In five years Quokka raised more than $300 million and issued a public offering of its stock underwritten by Merrill Lynch. The company went bankrupt last year. Michael Gough, Quokka's 25th employee and its chief creative officer and executive producer, explains why: "I was responsible for what the product was and how it would connect with the consumer. Talk about imposterism. I'm an architect--what the hell do I know about media?"

There were many times when Gough says he "was extremely uncomfortable" with his role and the overall strategy at Quokka. One particularly queasy experience came during a meeting with Dick Ebersol, the chairman of NBC Sports in New York City. This was in 1998, two years before the 2000 Sydney Summer Olympics. Quokka and NBC were discussing how the two companies could jointly broadcast the sporting events. NBC would handle the traditional television broadcasts; Quokka would slap cameras and sensors onto swimmers' bodies and then stream real-time underwater video of their laps over the Internet. Only trouble was, Gough didn't have the technology--or even the okay from the Olympic Committee--to do it yet.

"Here I am sitting toe-to-toe with Dick Ebersol, this hugely successful and incredibly admired figure in the sports and broadcasting industries, and my CEO is talking about how Quokka is going to buy ESPN or Disney--about how we would one day be bigger than NBC. I felt about one inch tall."

Gough was responsible for presenting Quokka's programming strategy for the games. "I had a vision. I'd brainstormed for about two weeks. It was very, very abstract. NBC's presentation was very specific. They'd been working on it for two years. They had interviews, time slots, everything mapped out,'' he recalls. "They looked at me like they knew what we were doing. This was supposed to be us G«ˇtaking them by storm.' I felt like a poser."

Never mind. Ebersol bought the Quokka "vision," and the two companies eventually broadcast the games together in August 2000. A year later Quokka was bankrupt, forfeiting, among its assets, the rights to Webcast future Olympic Games.
technonerd 12/4/2012 | 11:08:15 PM
re: 2003 Top Ten: Startup Flameouts It's hard to understand how some of these companies managed to get through these huge (nine-figure!) sums. Where does the money go? Did the VCs pull it back? Do the founders get to take it with them? Did they drop it on the way to the bank?
One of the most eye-opening experiences of my life was to hang out with leading venture captialists in the late '90s and early '00s and observe how they do their jobs. Some observations:

1. It's not their money. VCs are no different than mutual funds or banks. They collect money from someone else and take a rakeoff on the total assets managed. Sure, if they succeed they do much better than if they fail. But either way they make a very nice living.

2. They are not investors. VCs don't get in early. They actually get in fairly late in the game, maybe a couple of years before a company goes public. VCs are pre-IPO speculators. The ones who get in early are the "friends and family" investors, and they almost always get screwed as a result of VC involvement.

3. They don't know much. I never met a telecom VC who knew even the basics about telecom networks. They don't do any meaningful technical due diligence and they have no business knowledge. It's all about "the deal." This is why so many frauds happened.

Where did the money go? The enterprises spent it. The VC firms rarely get anything back, but along the way the VCs themselves (especially the big names) used their positions to make huge speculative trading profits in new issues. This aspect of the late '90s corruption has never been explored, and because the media and the government are so completely bought off it never will be.
NightTrain 12/4/2012 | 11:08:16 PM
re: 2003 Top Ten: Startup Flameouts Zillionaire...

I know how much they raised.

I was responding to JackRJ45 and could care less about Photonex, why did you bring them up?

Please try and pay attention.
dwdm2 12/4/2012 | 11:08:16 PM
re: 2003 Top Ten: Startup Flameouts Reporting demise of startups is good... but isn't it a bit one sided? 2003 has also produced many new startups, what about them? More importantly, a critical analysis of the failure is absent. Where did they go wrong? What could they do to survive?


snarfulent 12/4/2012 | 11:08:16 PM
re: 2003 Top Ten: Startup Flameouts In my (limited, perhaps) experience, the money went to excessive head-counts. Back in the olden days (late 90s), startups tried to keep headcount low, compensating by working their employees hard and by trying to keep their engineering goals "focused".

The bubble brought the availability of large investment dollars at high valuations, changing the priorities of a startup to "get to market fast", where "market" really means "liquidity event", and adopting a high headcount was seen as a way to make things happen quicker. Also, instead of producing a single "focused" product to get off the ground, the extra cash led to a tendency to attempt to produce multiple, complementary "line-ups" of products all at once in an attempt to boost valuation at liquidity event (e.g. everybody swinging for the fences).

I tend to suspect that some of these high burn-rate start-ups were also run by first-time start-up management teams lured from their big-company jobs by the promise of big paydays, and they brought with them big-company ideas of staffing requirements.

It's easy to point the finger at extravagance (e.g. Herman Miller Aeron chairs and conference rooms with plasma screen TVs), but it's actually hard to spend $100M that way. What was "new" in this era was the idea that a pre-revenue start-up could have a 250 person headcount.

mrcasual 12/4/2012 | 11:08:16 PM
re: 2003 Top Ten: Startup Flameouts Where does the money go? Lots of places. Most of the companies on the list were in operation during the bubble and as such they faced pretty high operating costs for salaries, rent (especially in the valley), etc.

Some of the listed companies also did silly things like extravagent buildings, etc.

Some simple math, fully loaded rate per head (averaged across execs and pee-ons) for a SJ based company is $175K+ per year. This includes salary, benefits, and infrastructure (rent, etc) costs. If you have a capital intensive business, i.e. full custom ASIC, then your tool costs can also be significant.

Add in extragant offices, lots of travel, SGA, and it's pretty easy to burn $100M in 3 or 4 years if you have a reasonable headcount.
WolfLarsen 12/4/2012 | 11:08:17 PM
re: 2003 Top Ten: Startup Flameouts
Steve, you are going to hear a whole lot of complaints about how executives took it, venture capitalists took it, bankers took it, etc etc...

In reality the money lost was primarily spent on the salaries for the engineers that peruse this board. (And some suppliers, some office space, etc...)

justvisiting 12/4/2012 | 11:08:17 PM
re: 2003 Top Ten: Startup Flameouts How soon we forget the small company with the big, arrogant EMC attitude. They burned through $160M without producing anything but hype, and well-paid former executives.
Steve Saunders 12/4/2012 | 11:08:18 PM
re: 2003 Top Ten: Startup Flameouts It's hard to understand how some of these companies managed to get through these huge (nine-figure!) sums. Where does the money go? Did the VCs pull it back? Do the founders get to take it with them? Did they drop it on the way to the bank?
NightTrain 12/4/2012 | 11:08:18 PM
re: 2003 Top Ten: Startup Flameouts Old news dude. Celox essentially went out of business in 2002.
zillionaire 12/4/2012 | 11:08:18 PM
re: 2003 Top Ten: Startup Flameouts night train - they raised $185 million. They had a 4th round of 30 million...Photonex were a "frugal" bunch compared to Celox.
JackRJ45 12/4/2012 | 11:08:19 PM
re: 2003 Top Ten: Startup Flameouts What about Celox Networks? They raised $155 million!

http://www.bizjournals.com/stl...

BlueWater66 12/4/2012 | 11:08:19 PM
re: 2003 Top Ten: Startup Flameouts Not as large as the ones above, but what ever happened to BLAZE NETWORK PRODUCTS ???

They were selling the multi-wavelength GBIC to Cisco (allowed Gigabit Ethernet over 2km multi-mode fiber installed for 100 MB ethernet).

I think they raised over $75M total.
Marmaduke 12/5/2012 | 2:44:56 AM
re: 2003 Top Ten: Startup Flameouts I think AcceLight should be in the Top 20 for 2003... 100+M$ of VC money, they went under early January.

Marm
BlueButtMonkey 12/5/2012 | 2:45:36 AM
re: 2003 Top Ten: Startup Flameouts as;dlkfja;ldskfn
nbwaite 12/5/2012 | 2:47:11 AM
re: 2003 Top Ten: Startup Flameouts Abby:
Wanna bet? Since there are, at the least, 500 telecommunications providers worldwide. Therefore, UBS's number ($74 Billion) would equate to about $150 million in telecommunications equipment purchases per provider. Sounds about right in order to maintain their voice, data, wireless, video, back office, and management system infrastructures.
I believe that the numbers I gave contradict the theme of the article, and apparently you don't. Okay. I agree we should have more information on what got added to get the "roughly" $4 billion to Cisco, the $74 billion in equipment, and the $156 billion in capex.

Maybe Light Reading  will dig up more data, enough solid data to explain clearly what is and is not going on with capex, equipment sales, and network growth, overall and in important sectors. And as mentioned in this thread, the parts should add reasonably accurately to the whole.

Such clear information stands to be crucial for good planning for the future of the industry.

I doubt that such information would support the theme of down, down, down, melt-down, uniformly, for all or nearly all of the whole industry, but I would be glad to have the information in any event.
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