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Chiaro Lands an $80 Million Round

Light Reading
News Analysis
Light Reading
2/25/2002

Ever hear of a five-year-old stealth company?

We give you Chiaro Networks, which today secured $80 million in funding (see Chiaro Scores VC Funding). This is the company’s fourth round of funding since it was started in March 1997, bringing the total amount raised to roughly $210 million. But the company has still not revealed details about its product.

“We’re still in stealth mode,” says Ken Lewis, president and CEO of Chiaro. “We’re still not ready to talk about specifics.”

Previous investors, Center Point Venture Partners, InterWest Partners, Rho Ventures, Sevin Rosen Funds, and Star Ventures, led the round. New backers, Delta Ventures Ltd., LandHo Ventures, and Poalim Capital Markets, also came on board.

Lewis wouldn’t divulge details about the round. He did say that the company’s valuation was down from its last round but still in the triple-digit millions (pre-money). He emphasized that, unlike other startups, such as Pluris Inc. and Caspian Networks, this was not a "washout" or "cram-down" round (see Washout Rains $53M on Pluris and Washed Out in the Valley). [Ed. note: Nor, apparently, was it a cram-out or washdown round.]

What makes this funding noteworthy -- aside from its size -- is the fact that the company still has no publicly known product plans. In its earlier days, when the company was closing $100 million rounds, it was reported that it was building an optical convergence switch that would compete with the likes of Native Networks Ltd. and Luxcore Networks Inc. (see Chiaro Gets $100M for "Optical Router" ).

Now, two years later, the story seems to have changed. Lewis says the company is building a scaleable core IP router and not an optical convergence switch, as was first believed. This would put the company up against some heavy hitting incumbents, namely Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR), which together control more than 99 percent of the market (see Juniper Sinks in Market-Share Scare).

“I have no clue what [Chiaro] is doing,” says one equities analyst who covers both Cisco and Juniper. “I always thought they were an optical switch company -- but who knows?”

Has the company changed direction or has it simply been stuffed into the wrong pigeon-hole? Lewis says the industry is confused. He says the company started out, back in 1997, developing optical technology in Israel. But after a few quarters, the venture capitalists and founders decided it was a better idea to build an IP router using some of the optical technology it had developed. So the company began working on a scaleable IP router and moved its headquarters to Texas in 1999.

“There is a lot of misconception out there about who we are, because people haven’t seen much about our product,” says Lewis.

While he wouldn’t give out details about the product, Lewis did clear one thing up: “We are an IP infrastructure company. Our strategy is to leverage some breakthrough optical switching technology to build a highly reliable and scaleable IP router. The 'secret sauce' is in the optical hardware.”

Lewis claims the company has been working with several customers. But actual trials aren’t expected to begin until next month, with revenue expected late this year or early in 2003.

Will Chiaro be able to pull it off in the end? That is still to be determined. The market for scaleable routers is not expected to take off until at least 2003, so Chiaro’s timing could be right. But Steve Kamman, an analyst with CIBC World Markets, who recently published a report on core routing, warns that the company will need strong hardware and software to leap ahead of the rest of the pack.

“The core router business is about 25 percent hardware and 75 percent software,” he says. “It’s not enough to just have good hardware. Many companies have stumbled getting the software right.”

Lewis agrees that software is an important element and says the 216-person company has done all it can to recruit the best routing talent in the Richardson area.

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

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optical_man
optical_man
12/4/2012 | 10:53:16 PM
re: Chiaro Lands an $80 Million Round
Author: William F. Letcher Number: 1
Subject: 'routing talent' in Texas? Date: 2/25/2002 7:06:41 PM
"I didn't know there was an abundance of 'routing talent' in the Richardson area."

Yep. There sure is. Also, my 2350 sq. ft house (1 year old) cost us $157,500.
he-he, have fun in Silicon Valley!
William F. Letcher
William F. Letcher
12/4/2012 | 10:53:16 PM
re: Chiaro Lands an $80 Million Round
Lewis agrees that software is an important element and says the 216-person company has done all it can to recruit the best routing talent in the Richardson area.

I didn't know there was an abundance of 'routing talent' in the Richardson area. their funding history resembles IP traffic patterns at the major NAPs - extremely bursty and inconsistent. this would indicate changing/inconsistent business plan. and we all know what happens to companies with changing/inconsistent business plans.
skeptic
skeptic
12/4/2012 | 10:53:12 PM
re: Chiaro Lands an $80 Million Round
their funding history resembles IP traffic patterns at the major NAPs - extremely bursty and inconsistent. this would indicate changing/inconsistent business plan. and we all know what happens to companies with changing/inconsistent business plans.
---------------

Their last two rounds were $100 million (11/2000)
and $80 million (2/2002) respectively. There
are probably lots of people who want that sort
of inconsistancy.

The score-card for big core-router vendors
reads now as follows:

- Hyperchip $43 million
- Pluris $53 million
- Procket (supposedly out of the big-router
game and repositioned to the edge)
- Caspian (rumored to be out looking for
$100 million and soon to close)
- Chiaro $80 million
- Avici $164 million (based on the Q4 report)











optical_man
optical_man
12/4/2012 | 10:53:09 PM
re: Chiaro Lands an $80 Million Round
Author: reoptic Number: 4
Subject: rounds vs. reality Date: 2/25/2002 9:44:13 PM
These so called '50M' or '80M' rounds are nothing more than a series of potential payments if market conditions warrant and the company hits milestones. The actual checks cut are much, much smaller, funding gets doled out one quarter at a time. The numbers are made to sound big so that potential customers don't run away from companies on life support. But if the companies miss deliverables, don't get customers, or market doesn't recover, say goodbye to next check.

HarveyMudd,
Is that you w/ a new handle?
reoptic
reoptic
12/4/2012 | 10:53:09 PM
re: Chiaro Lands an $80 Million Round
These so called '50M' or '80M' rounds are nothing more than a series of potential payments if market conditions warrant and the company hits milestones. The actual checks cut are much, much smaller, funding gets doled out one quarter at a time. The numbers are made to sound big so that potential customers don't run away from companies on life support. But if the companies miss deliverables, don't get customers, or market doesn't recover, say goodbye to next check.
knave
knave
12/4/2012 | 10:53:08 PM
re: Chiaro Lands an $80 Million Round

Does anybody know what research exists to justify investments in more big routers? Are we still smokin the Moore's Law stuff or sippin on internet growth kool-aids?

skeptic
skeptic
12/4/2012 | 10:53:01 PM
re: Chiaro Lands an $80 Million Round
Does anybody know what research exists to justify investments in more big routers?
--------------
Traffic on the backbones is growing at
a high rate and several of the larger carriers
need/want a long-term solution to the problem
that doesn't involve throwing out routers every
18 months.

The other thing driving it is that lots of
savings can be realized through consolidation.

Now does "bigger router" mean that someone
needs full-up gigantic systems today? No.
But they want to be able to add capacity over
several years incrementally without having to
worry about the systems getting full.

And how big is the market for "big routers"?
Big enough, but certainly not big enough for
all the companies building products for the
space. But thats as true for other spaces
like edge routers as well. At most, I can't
see more than one or two survivors in the
space in the long-run.

opto
opto
12/4/2012 | 10:52:59 PM
re: Chiaro Lands an $80 Million Round
This post implies you think there is some VC money without conditions like that. Hmmm. Let us all in on what VC operate like that!
raman
raman
12/4/2012 | 10:52:58 PM
re: Chiaro Lands an $80 Million Round
These so called '50M' or '80M' rounds are nothing
more than a series of potential payments if market
conditions warrant and the company hits milestones.The actual checks cut are much, much smaller.
-----------

This may be obvious to some but most people equate high #s like 80 or 100M to "startup is in great shape" which is very far from the truth in many cases!

So as far as I am concerned the post was pretty factual and useful.

buckwheat
buckwheat
12/4/2012 | 10:52:57 PM
re: Chiaro Lands an $80 Million Round
It's odd that the current article suggests a changing business plan. This article states,
"In its earlier days, when the company was closing $100 million rounds, it was reported that it was building an optical convergence switch that would compete with the likes of Native Networks Ltd. and Luxcore Networks Inc. "

Seventeen months ago, in the previous Chiaro (hyperlinked) article, the CEO (Lewis) stated,
?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...
?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.

From that quote it looks like Chiaro planned to build a "scaleable core IP router and not an optical convergence switch" from the get-go...

Maybe Mr Lewis actually said what he meant -- what a novel concept!


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