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Caspian Starts Fresh With $120M

Light Reading
News Analysis
Light Reading
2/27/2002
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Caspian Networks’ washout round is now official.

Today the company announced that it has closed its fourth round of funding for $120 million. This brings the total amount raised to $262 million since the company was started in February 1999.

Previously, Light Reading reported that the company was working to close a $50 million round, based on a $5 million pre-funding valuation (see Washed Out in the Valley). Dallas Kachan, director of communications for Caspian, says these numbers were off. Although he wouldn’t specifically discuss the company’s valuation, others have indicated that the pre-funding valuation was closer to $20 to $50 million.

"All I can say is that it is many multiples of five," is all he can say.

Kachan did admit that this was a washout round, meaning the company’s capital structure has been reorganized, heavily diluting the previous equity investor stakes as the company prints up massive amounts of new stock.

"Previous investment was squished down and the important players will be given new equity in the company," he says.

The company confirmed that previous investors New Enterprise Associates (NEA), Lucent Venture Partners Inc., U.S. Venture Partners, and Merrill Lynch & Co. Inc. were involved in this round, along with new investors Oak Investment Partners and Morgenthaler.

Kachan admits that some of the company’s previous investors did not participate in this round, but he would not name names. Former investors not listed in the company’s announcement include WorldCom Inc. (Nasdaq: WCOM), Vulcan Ventures, Alloy Ventures, Applied Materials Ventures, H&W Asia Pacific, Salomon Smith Barney, ABN AMRO, Global Technology Group Ventures, Acute Communications, and i100 Optical Asia (see Caspian Closes $85 Million 3rd Round).

While previous investors not contributing to this round will get next to nothing for their investment, Kachan emphasizes that current employees, including upper management and the company’s founders, will be reissued shares in the company based on a formula that takes into account their position and length of time with the company.

The company also says this is the last round of private equity funding it expects to receive. Kachan claims the company has already been in customer trials for at least a year with its core IP router. Sources close to the company say it will likely start generating revenue by mid-year. Steve Kamman, a CIBC World Markets equities analyst following the core router space, says he has talked to at least one of the company’s potential customers.

"I can’t say who it is," says Kamman. "But it is definitely a contract they’d want to win. And the person I talked to at the carrier says they are taking Caspian seriously."

Details about Caspian’s new Apeiro IP Superswitch haven’t been released publicly. Kamman, who says he has been briefed on the product, seems to think that what differentiates Caspian from other new core routing companies is its software: "It is a creative approach and I think in this market, from a customer perspective, creativity isn’t necessarily a bad thing."

But Caspian will be fighting plenty of competition, including routing giants Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR). It will also have to contend with several other startups, some of which, like Caspian, have recently received new funding. For example, Pluris Inc., which has been working on its core router for five years, just got $53 million in funding earlier this month (see Washout Rains $53M on Pluris). Its latest round was also a washout. Chiaro Networks, another possible contender, just announced $80 million two days ago (see Chiaro Lands an $80 Million Round). And Hyperchip Inc. recently announced that it received $43 million in funding back in January (see Hyperchip Lands $43M in Financing).

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com

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fiber_r_us
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fiber_r_us,
User Rank: Light Beer
12/4/2012 | 10:51:08 PM
re: Caspian Starts Fresh With $120M
Ooops.. nevermind... Got to watch those titles more carefully... Minor difference between "Caspian starts fresh with $127M" and "Caspian closes with $120M"; the later being a far more interesting thread...
fiber_r_us
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fiber_r_us,
User Rank: Light Beer
12/4/2012 | 10:51:08 PM
re: Caspian Starts Fresh With $120M
Peter/Steven:

What happened to all of the great discussion on this thread? It was one of the best thread LR has had in a while. I can't believe they were all "edited" away!
vapa
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vapa,
User Rank: Light Beer
12/4/2012 | 10:51:11 PM
re: Caspian Starts Fresh With $120M
What happened to all other discussions?
Kevin Mitchell
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Kevin Mitchell,
User Rank: Light Beer
12/4/2012 | 10:51:19 PM
re: Caspian Starts Fresh With $120M
I'd really like to understand why these VCs didn't just send their money to Las Vegas and let a card counting black jack player handle their "investment".
Pierre
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Pierre,
User Rank: Light Beer
12/4/2012 | 10:52:16 PM
re: Caspian Starts Fresh With $120M
Skeptic,

They received their first ASICs during the third week of April 2001. Whether there were issues with them that caused the batch to be reissued is something that I was not made aware of. However, considering that they had a "functional" PBR-1280 in Atlanta, the window of opportunity is in the April/May timeframe.

There were some management departures/changes at that time as well (Spring/Summer 2001), though, which may point to some potential problems. Then again, the startup game is not for the faint of heart - maybe the fact that the company was a few quarters from running out of cash made people long for safer opportunities...

Please share what you've heard. Also, what carriers have trials running on components of Hpyerchip's router/software?

P.
nole
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nole,
User Rank: Light Beer
12/4/2012 | 10:52:18 PM
re: Caspian Starts Fresh With $120M
Another point: in the last big rounds in the core routers companies, you can not find any corporate investment. Can the VCs run the game alone?
skeptic
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skeptic,
User Rank: Light Beer
12/4/2012 | 10:52:22 PM
re: Caspian Starts Fresh With $120M
If your hypotheses are correct, Hyperchip and Caspian are in a horse race, since Hyperchip's ASIC were shipped in April 2001. Only time will tell.
---------------
Are you sure that Hyperchip got all their
ASIC's back in april 2001. I hear conflicting
things about what came back when.

Pierre
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Pierre,
User Rank: Light Beer
12/4/2012 | 10:52:23 PM
re: Caspian Starts Fresh With $120M
Skeptic,

As I had previously hinted on another board, sometimes VC funding isn't always in the best interest of the firm, its present (and previous) employees, and its first investors. Hyperchip's funding was NOT a washout, but rather a fresh infusion of cash with few strings attached other than the warrants executable at IPO.

If your hypotheses are correct, Hyperchip and Caspian are in a horse race, since Hyperchip's ASIC were shipped in April 2001. Only time will tell.

Keep your great posts coming!

P.
skeptic
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skeptic,
User Rank: Light Beer
12/4/2012 | 10:52:26 PM
re: Caspian Starts Fresh With $120M
1 year customer trial and no shipping product. That sounds awful. Why would Caspian ever say something that indicates either
(1) problems with the box.
(2) customer does not like the box.
=============

(3) the box wasn't really in trial when
caspian claimed it was. Or (more likely)
the "trial" was on bits and pieces of the real
system glued together with FPGAs.

Why did they say it? Because you only get one
chance to say you are in trials and they already
did so long ago. These people (caspian) have
a history of pretending that the company is
much further along than it actually is.





xxxx1455
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xxxx1455,
User Rank: Light Beer
12/4/2012 | 10:52:26 PM
re: Caspian Starts Fresh With $120M
Amazing the level of investment and number of VC in private market with multiple core router vendors. Meanwhile public markets value Avici under the gound when it has actual products, share, and customers. And all of this on heels of 25% decline in size of core router market last quarter for Cisco and Juniper. Pouring a few hundred million into this space now, given market uncertainty and enormous execution hurdles seems reckless...

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Reoptic,

If you cant stand the heat, stay out of the kitchen.

Regarding Avici, instead of just simply taking their word for it that the market is to blame for their woes, stop for a second and consider another possibility:

Poor products, insignificant market share, alienated customers


vapa
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vapa,
User Rank: Light Beer
12/4/2012 | 10:52:26 PM
re: Caspian Starts Fresh With $120M
Like I said before, MBA with no experience = bad investment.

But you have to give it to the Caspian team. They were able to convince the investors to give them huge amount of money this late. These guys must be good at talking the talk. Can they walk the walk? We shall see.......
reoptic
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reoptic,
User Rank: Light Beer
12/4/2012 | 10:52:27 PM
re: Caspian Starts Fresh With $120M
Amazing the level of investment and number of VC in private market with multiple core router vendors. Meanwhile public markets value Avici under the gound when it has actual products, share, and customers. And all of this on heels of 25% decline in size of core router market last quarter for Cisco and Juniper. Pouring a few hundred million into this space now, given market uncertainty and enormous execution hurdles seems reckless...
raid
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raid,
User Rank: Light Beer
12/4/2012 | 10:52:27 PM
re: Caspian Starts Fresh With $120M
1 year customer trial and no shipping product. That sounds awful. Why would Caspian ever say something that indicates either
(1) problems with the box.
(2) customer does not like the box.

Must be a LR mis-quote.
Or maybe the marketing guy guy thinks that a customer trial is a "slide show".

-raid
skeptic
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skeptic,
User Rank: Light Beer
12/4/2012 | 10:52:29 PM
re: Caspian Starts Fresh With $120M
The company also says this is the last round of private equity funding it expects to receive. Kachan claims the company has already been in customer trials for at least a year with its core IP router.
----------

Thats a real great trick. They have been in
"customer trials" for at least a year, but maybe
you should ask them when they got their last
ASIC back? Hint - it sure wasn't a year ago.

And now they are predicting "revenue" in three
months?

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