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Chiaro Gets $100M for "Optical Router"

Light Reading
News Analysis
Light Reading
9/25/2000

Chiaro Networks scored $100 million in a third round of funding today.

How did it negotiate the nine-figure number? The answer lies in the internal architecture of its product, a Layer 3 switch designed for the core of the Internet.

Essentially, Chiaro has turned conventional wisdom on how to build a Layer 3 device on its head. While almost all other vendors are still building their IP switches and routers using an electrical switching fabric, Chiaro claims to have developed an all-optical fabric that allows it to switch data packets in light. That doesn’t mean that the device handles traffic completely in the optical domain, however. Packets are still shunted from the optical network onto and off the optical switch fabric using electrical processor cards. Still, the vendor claims that having an optical core makes its device far more scalable than existing electrically based switch/routing approaches, allowing it to grow to support “hundreds of ports.”

If that’s true, it will give Chiaro a significant advantage over router players like Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7), Cisco Systems Inc. (Nasdaq: CSCO), Foundry Networks Inc. (Nasdaq: FDRY), and Juniper Networks Inc. (Nasdaq: JNPR). Currently, the size of these companies’ Layer 3 switches and routers is gated by their electrical innards.

“Rather than build a small system with a promise to scale up, we’re building a large system from day one, which can be scaled down,” says Ken Lewis, president and CEO of Chiaro.

Lewis says his product does not compete with all-optical transport switches from companies like Calient Networks and Lucent Technologies Inc. (NYSE: LU). It also doesn't compete with optical switches with electrical cores from the likes of Ciena Corp. (Nasdaq: CIEN), Nortel Networks Corp. (NYSE/Toronto: NT), Sycamore Networks Inc. (Nasdaq: SCMR), and Tellium Inc. “We’re building a packet switch, not a lambda switch. While we compete with the routers from Cisco and Juniper, our product would complement a Sycamore or Tellium switch,” he says.

Exciting stuff? No doubt. But Chiaro’s is also a risky stratagem, given that all-optical switch fabrics are still an unproven, bleeding-edge technology. Nortel, for instance, spent $3.25 billion to buy Xros, which was working on an all-optical system based on MEMs (micro-electro-mechanical systems) tilting mirror technology, but there’s no sign of the Xros product yet (see Nortel: Xros Isn't in Trouble). A whole bunch of other startups are developing subsystems to build large-scale, all-optical switches. Right now, however, they're a long way from delivering on their promises (see OMM Files for an IPO).

Venture capital firms don’t seem worried. Chiaro’s latest cash injection comes from thirteen companies: Polaris Venture Capital, Koor Corporate Venture Capital, Charter Growth Capital, Mustang Ventures, Robertson Stephens’ Bayview 2000 Fund, Vitesse Venture Fund, CenterPoint Ventures, Crown Advisors, Intel Capital, InterWest Partners, Rho Management, Sevin Rosen, and Star Ventures. It brings the total raised by Chiaro to date to $130 million.

Still, Chiaro faces stiff competition -- not only from incumbent equipment vendors, but also from other startup ventures. Most recently, Caspian Networks announced that it too has developed a new kind of core Internet switching technology (see Internet Pioneer Plots IP Revolution). And, while both companies are officially in stealth mode, it appears that they are taking different approaches. It is believed that Caspian will use smarter signaling to speed traffic, rather than using all-optical switching.

In fact, Chiaro’s closest competitor is probably Luxcore Networks Inc. (previously knows as Synchordia), which is working on an equivalent product that uses MEMs mirrors, tunable lasers, and packet processors to route traffic (see Startup Touts "First Optical Router").

The size of Chiaro’s third round is symptomatic of the burning interest in optical technologies, which is generating unprecedented levels of funding (see VCs Boost Optical Investments ). Caspian has received $55 million in two rounds of funding from seven backers. It is set to close a third round soon and could even exceed Chiaro’s total. Kestrel Solutions, another optical player, although in a different market, also had a $100 million round (see Kestrel Raises $100m ).

Chiaro’s Lewis says he won’t have any trouble spending the loot. “We’re building a very large system, and we also have to invest a lot in developing and building test beds,” he says. Then there’s the matter of the lawsuit it’s fighting against Alcatel SA (NYSE: ALA) (see Chiaro Networks Ltd.). “It’s going to go to a jury trial unless Alcatel backs off. It’s been very expensive. That’s another reason you need a hundred million dollars,” Lewis says.

-- Stephen Saunders, US Editor, Light Reading http://www.lightreading.com

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