Optical/IP Networks

BBO Files for Bankruptcy Protection

Is Kleiner Perkins Caufield & Byers’s star venture capitalist Vinod Khosla losing his touch for catapulting companies into hot initial public offerings? BroadBand Office Inc., one of Khosla’s top picks, filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in the district of Delaware late yesterday afternoon.

The BLEC (building local exchange carrier) is currently in talks with potential buyers, says Rachelle Chong, general counsel for BBO. “We don’t know what is going to happen at this point,” she says. “There are several buyers we are talking with, and if it comes to fruition the buyer would take the existing BBO customer base.”

One source close to the company speculates that Qwest Communications International Corp. (NYSE: Q) has expressed interest in the company's assets, but Chong would neither confirm nor deny it. Qwest officials also declined to comment on the rumor.

In a letter distributed to employees, company executives said that nearly all of the 435 employees would be laid off effective Friday. Approximately 30 employees will remain for about a month to help maintain services until customers can transfer to a new provider or, if an acquisition ensues, move them over to the buyer, says Chong.

Employees were told they would receive paychecks through this Friday and they would not be getting any severance. “Unfortunately, we regret that due to BBO’s severe financial constraints there will be no severance pay,” reads the letter.

“I’ve seen this happen at smaller mom-and-pop type companies,” says one former BBO employee, who had worked for a large public software company before coming to BBO. “I certainly didn’t expect anything like this, especially from a Vinod Khosla company.

“We believed that the guys at Kleiner would have an ace up their sleeves and that they’d do something to turn the situation around,” he continues. “My wife worked for one of Vinod’s startups before, and she kept telling me that he was not the kind of person that would let the company totally fall apart. It was very surprising to both of us.”

Khosla, who is now on sabbatical from Kleiner Perkins, has cultivated a string of successful startups. Juniper Networks Inc. (Nasdaq: JNPR), Redback Networks Inc. (Nasdaq: RBAK), Qwest, Corvis Corp. (Nasdaq: CORV), CoSine Communications Inc. (Nasdaq: COSN), and ONI Systems Inc. (Nasdaq: ONIS) are just a few of the companies he has helped bring to profitable IPOs. He also helped bring the world Cerent and Siara, companies that were acquired by Cisco Systems Inc. (Nasdaq: CSCO) and Redback back in 1999. And he has had a successful hand in young service provider companies like XO Communications Inc. (Nasdaq: XOXO) (formerly Concentric) and Rhythms Netconnections (Nasdaq: RTHM).

At times he has been referred to as a guru -- a reputation which has placed him at the top of Light Reading’s Movers and Shaker’s list time and again (see Vinod Khosla and The Top Ten Movers and Shakers in Optical Networking). People have laid bets on companies just because his name has been associated with it. But times are different now, and Khosla’s golden touch has been tarnished by a tougher funding environment. BBO isn’t the only one of his startups struggling. Zaffire Inc. has also announced layoffs (see Zaffire Fires 20% of Sales Team), and rumors that the company is in trouble have been circulating for the past few months. Even some of the companies that had successful IPOs are starting to wane. Cosine and Corvis, two of his more recent IPOs, are both trading in the single digits.

BBO was already in trouble late last year when Kleiner Perkins started diverting funding and resources away from it and investing them in a new service provider called Zephion, say former employees (see Kleiner Readies BBO's Rebirth).

“Things started to look bad back in December when they split out Zephion,” says another former employee, who didn't want his name used. “We were missing product deadlines and changing deadlines. Kleiner never really had a handle on what was going on here. We were their Achilles heal.”

While the company's letter to employees blamed the situation on the current market conditions, those who worked there say the problems had more to do with a lack of leadership than anything else. Dan Chu, who co-founded the company when he was still an associate at Kleiner Perkins, has been running the day-to-day activities at BBO as president, while the company looked for a permanent chief executive officer. What’s more, the company was also without a chief financial officer until early this year, when Mike Shanahan was hired. As a result, spending got out of control, says one source, who claims that the company’s debt rang up to nearly $40 million. Chong would not comment on specifics.

“There was no control,” says the employee. “We had people on both coasts duplicating efforts, just burning money. And there was always someone else beating on the door to get paid.”

In March, the financial problems forced the company to lay off 69 employees, mostly out of its Virginia office. Back then company executives said they were just re-organizing (see BBO Says BBye to 69 Employees).

Kevin Compton, a BBO board member and general partner at Kleiner Perkins, says there is still hope. “We are not closing the doors yet,” he says. “We’re fighting for another day here, and at this point we’re not giving up.”

-- Marguerite Reardon, Senior Editor, Light Reading

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drone387 12/4/2012 | 8:26:59 PM
re: BBO Files for Bankruptcy Protection "BroadBand Office Chooses Tiara Networks for Nationwide Multi-Tenant Unit Deployment

Tiara's New Distributed Edge Networking Solutions Enable BBO to Offer MTU Customers Differentiated Services at Competitive Price Points

SAN JOSE, Calif., -- May 2, 2001 -- Tiara Networks, the leading provider of distributed edge networking solutions, today announced that BroadBand Office (BBOGńˇ) has selected its aggregation edge routers and multimegabit access routers for deployment in 30 markets across North America."

It was a "big" win, for about a week.
photonic314 12/4/2012 | 8:26:55 PM
re: BBO Files for Bankruptcy Protection Prior to the OFC in Baltimore, I was part of a start up that had approached Vinod and KP for funds. He smuggly turned us down along with thousands of other startups that didn't meet his criteria...we have since received non VC funding and are taking a slow and stealthy pace to bring novel (no hype) products to market...!

There were 5 company's he pointed to as examples of the type of investments they make...4 of the 5 have declared chapter 11.

At the time I considered getting turned down by KP as an encouraging prospect...afterall VC's absolutely have NO CLUE! They invest in hype not substance...in acedemic management not real technology, and do not have the patience to endure small failures for large successes!

He has walked away with millions, and have placed good people in perilous positions. He was not amazing. He was not remarkable. He is not an entrepreneur. He is a manipulator of fortunes and could care less for those whom pay the price!

Take a sabatical...and don't come back!

flanker 12/4/2012 | 8:26:54 PM
re: BBO Files for Bankruptcy Protection Yeah, makes you wonder whether the morons are the entrepreneurs or the VCs.

The truth has come out that VCs back friends 70% of the time, competent management teams 20% of the time and good business plans 10% of the time.
flanker 12/4/2012 | 8:26:54 PM
re: BBO Files for Bankruptcy Protection Yeah, makes you wonder whether the morons are the entrepreneurs or the VCs.

The truth has come out that VCs back friends 70% of the time, competent management teams 20% of the time and good business plans 10% of the time.
BBENT Over by BBO 12/4/2012 | 8:26:53 PM
re: BBO Files for Bankruptcy Protection It seems to me that if the people within BBO's top management saw the situation and the fact that BBO was in dire straights then they could have set aside a little "Slush Money" in order to take care of the people that were dedicated to making this company survive. Specifically the sales force that was nearly doubling the quota that was set in front of them. But yet there seems to be nothing except a halfhearted "Sorry" from the top....

Not only was there poor management accompanied by worse communication until the end but there was overspending on everything. What about all of the people that have spent money out of their own pockets on expenses?

I do not accept the fact that nobody in upper management saw this coming. If only there was a way to let everyone know....... Or at least suspend travel for people so they were not screwed out of more money than they are now.

I hope that when the upper unmanagement goes home tonight and goes to bed in their huge houses that they remember the people that they have screwed financially by not at least forewarning them.

At least BBO is offering to sell the employees their computers for a great price (aside from the fact that they owe tens of thousands of dollars to many many people on their own staff.
alglin 12/4/2012 | 8:26:53 PM
re: BBO Files for Bankruptcy Protection
Well said!

When times are good, VC's made ridiculous
claims as if they were true visionaries. The
truth is they are opportunistic blood-suckers.
VC's don't back up friends - they back up
accomplices. If you have true talent and real
technology, why should you hand it over to
scammers in 3-piece suits who basically
gambles with other people's money?

Fred Snarff 12/4/2012 | 8:26:52 PM
re: BBO Files for Bankruptcy Protection Sad story but does not surprise me one bit. Everyone knew there had to be a shakeout. Yes the VCs overfunded the hell out of everything in the last 2 yrs. Yes Vinod and KP have gotten lucky a couple of times during the explosion. But you'd have to be an idiot not to have gotten lucky at least once in that environment. Well the times have changed and guess what? Vinod doesn't have it anymore. Vinod and KP were in the right place at the right time, and that time is over.

besides, who is calling Cosine, Redback, and Corvis successful? I'd say those guys are in a world of hurt right now. how about amazon, ryhthms? Zaffire?? KP's track record is not quite as stellar as it once seemed.

'Keiretsu' is a huge pile of BS. Ask some of the people that have had to deal with him and his 'Keiretsu'. there will be a lot more carnage with KP, as well as other VCs, before this is all over.

kupfi 12/4/2012 | 8:26:50 PM
re: BBO Files for Bankruptcy Protection VC's primary business is to make money. Forget the other BS.
Vinod did pretty good at making money. In the current environment some of his companies are not doing good. Why is it all his fault?

Companies like cisco are also not doing too good. It is no one persons fault.

It is the peoples mentality, when people are making money they are happy. When they start losing money, they start to look for somebody to blame.

Last year Greenspan was ranked somewhere in power between God and Clinton. Today he is being called Satan by some people?
flanker 12/4/2012 | 8:26:49 PM
re: BBO Files for Bankruptcy Protection ""It is the peoples mentality, when people are making money they are happy. When they start losing money, they start to look for somebody to blame.""

That is simplistic. The question is whether KPCB was monetizing garbage or building great companies.

They seem to have passed all the risk to the public shareholder and then exited the house before the roof fell in.

photonic314 12/4/2012 | 8:26:48 PM
re: BBO Files for Bankruptcy Protection Sorry Kupfi...I agree with the fact there may not be just one individual to blame...but, the attitude Khosla had was arrogant, and absolute...banking on his "so called" success he was critical of those individuals that had good ideas and in some cases great ideas. If it didn't meet his formula...which he himself claimed was infallibleGă¬he would rip new arses into the very talent that will make this economy turn around. Lets face it, he not only began to believe his own press, he was perpetuating it!

From an inside experience, the great press he got, was by the herd media, looking to be the first to get the best cover for their magazineGă¬

We, within our internal marketing group were stating back in late 99, that the market explosion will be short livedGă¬but also, the slow down will also be short lived, afterall there was too much hype and not enough substance

Over the next ten years there will be a peak and valley market never seen beforeGă¬demand will outpace supply, then catch up, then outpace, then catch up, and so onGă¬its simple economicsGă¬as the bandwidth constraints slowly move further and further to the edge (end user) the telecom market (optical) will find nitch and large market opportunities for significant success.

Back to KhoslaGă¬I donGăÍt mind it when someone is successful at being at the right place at the right timeGă¬its when they start claiming that if it wasnGăÍt for them the time and place would not existGă¬Vinod Khosla believed he was the baron of bandwidthGă¬he is more a buffoon !!!
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