IPOptical Races the Clock

IPOptical Inc., the core routing startup that took on Alcatel SA (NYSE: ALA; Paris: CGEP:PA) in court and settled with the French equipment giant back in December, is running out of time as it seeks its second round of funding (see Alcatel Settles Suit for a Chunk of Startup).

Sources close to the company say the company is close to running out of cash and is preparing to close its doors.

Sasmith Reddi, director of technical marketing for IPOptical, said today that those predictions are premature. He says the company expects to close a $20 million to $30 million round of funding sometime in the next two weeks.

“Shutting down might be the case later on,” he says. “But at this point we are looking at multiple investment opportunities. The current market conditions aren’t making it easy, though.”

The company got off to a rough start in the spring of 2000. In June, Alex Mondrus, IPOptical’s chairman and chief executive officer, was sued by Alcatel (see Alcatel Sues Former Employee and Alcatel's Former Employee Fights Back). Mondrus had been an engineer at Alcatel working on the 770 Routing Core Platform, its core routing project, before he started IPOptical. Alcatel accused him of stealing product plans and poaching key engineers from Alcatel to come work for him prior to the company’s launch. Despite the six-month legal battle, the company was able to raise $8 million in its first round of funding in October 2000 from Amp Capital Partners and Agilent Technologies Inc. (NYSE: A), based on a $30 million valuation.

Recently, the company, which says it is developing a scaleable routing system to rival those of other companies like Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) and Pluris Inc., seemed to be gaining momentum. The company named two prominent service provider executives to its board of directors: Kevin Boyne, former chief operating officer of UUNet, and Mike O’Dell, senior vice president and chief scientist of UUNet (see O'Dell Joins IPOptical Board). And it had ramped up its staff to about 90 employees.

But Reddi acknowledges that the company is halfway through its development stage and in desperate need of a cash infusion. When asked how much longer the company could survive on its current funds, Reddi said he couldn’t comment.

“It’s hard for everyone right now. VCs have to work out their own issues. We’re still looking for a lead investor. But we don’t expect we’ll have to lower our valuation.”

That may be the problem. VCs surveyed by Light Reading in the past month say that nearly every company seeking funding this year has been forced to take a "down round," in which their current round of investment comes in at a lower valuation than the last one. And entrepreneurs who fight this trend risk not getting any money at all.

As Reddi retains optimistic that the VCs will pull through with the cash, the company also has significant challenges in addition to funding, considering the current state of the core router market. Just look at Juniper Networks Inc. (Nasdaq: JNPR), considered a leader of the market along with Cisco Systems Inc. Juniper, which had been the darling of Wall Street for cracking into the core routing market and taking market share from Cisco, recently announced it will miss its sales targets for this quarter, and it has lowered its guidance for the next few quarters (see Core Slowdown Hits Juniper). This miss, along with disappointing results from Cisco, is a good indication that growth in the core routing market is slowing.

What’s more, building core routers is not easy by any stretch of the imagination. Many companies have tried and failed miserably. Nexabit, Ironbridge, and Netcore are the names of a few startups that attempted to build core terabit routers and that were either acquired (Nexabit by Lucent Technologies Inc.; Netcore by Tellabs Inc.) or shut down altogether (Ironbridge). Nortel Networks Corp. (NYSE/Toronto: NT) just announced this week that it's slashing development of its core router (see Nortel 'Rightsizes' Terabit Router).

- Marguerite Reardon, Senior Editor, Light Reading

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isis chicken 12/4/2012 | 8:09:06 PM
re: IPOptical Races the Clock >> UUNet DOES use Junipers.

please add to your statement "yet".

one thing : juniper anounced sales problems
other thing:UUnet wanted to buy iproute's router when they have juniper's

1+1 = ???
UUnet is not satisfied with juniper (like many more companies) and head towards kicking their ass out !!!
dpgreen 12/4/2012 | 8:09:05 PM
re: IPOptical Races the Clock Regarding Sparkle's comments...

The good thing about message boards is that they spark interesting discussions. The bad thing is that one can state whatever one wants without proof or identification. I guess it's the price of "free speach".

In the interest of disclosure, I work in Marketing at Ocular Networks.

Rather than making claims qualified by "rumor has it", or even "trust me, I know", here are a few facts that can be verified without taking my word for it:

Oculars product line as originally announced included the OSX-6000, OSX-1000, and MetroWatch management system. The only "new product" that has been announced since that time, the Wavelength Service Module, is an optical expansion shelf that works with the 6000 and 1000. This could hardly be called spinning a "second box" (actually it is a "third box"). This can all be easily validated by a quick trip to the web site.

Ocular stands out as one of the few companies that has been able to raise money in 2001. Ocular closed a round in January, which was at the height of the VC belt-tightening. In fact, unlike other companies that are laying off or even shutting down, Ocular is well funded and is actually hiring.

Why did investors consider Ocular to be different? Customer validation. Although nobody is immune to the slowdown, there are some areas where carriers will spend money to meet well known existing demands for service. Ocular has a play as a Titan replacement (T1/T3 grooming) as well as data switching/transport, which opens up a multi-billion dollar market not available to other products. Not a multi-billion dollar market in 2-3 years, but TODAY. Grooming for thousands of VT1.5s for 1/3 the cost and 1/20th the rack space and power is a lot stronger sell than "if you build it they will come". Advanced data (e.g. Ethernet, GigE) services on a platform that has already been cost justified by existing revenue makes it a double no-brainer.

The bottom line, however, is that nothing on these message boards matters, not what SPARKLE says and not what I say. The only thing that matters is what the investors and customers say with their checkbooks, and for that you have to look outside of these discussion groups.

In that light, is unlikely that I will respond here to any more unsubstantiated rumors. I have probably already given it more time than it deserves, and I have real work to do.
isis chicken 12/4/2012 | 8:09:03 PM
re: IPOptical Races the Clock >>> The bad thing is that one can state whatever one wants
>>> without proof or identification. I guess it's the price
>>> of "free speach".

I have some news for you:
the LR site authorities very very often deletes messages and users who doubt their objectivity and ask them too difficult questions such as:

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