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Optical/IP

Iris Group Attracts $60M

A unique team of startups, led by the founders of Monterey Networks, scored a combined $60 million initial round of funding today to attempt their interrelated entry into the optical networking market.

Under an organizational umbrella called the Iris Group, four separate companies are developing products centered around an undisclosed unifying technical architecture that the founders say will better link products from the metro, long-haul, and core networking markets.

Users hungry for a taste of the group's secret sauce, however, will have to wait until the middle of next year, since the companies don't plan to serve up any technical morsels until that time.

Michael Zadikian and Zareh Baghdasarian, founders of Monterey (which was sold to Cisco Systems Inc. [Nasdaq: CSCO] last year), are the leaders of the Iris Group, a concept that Zadikian said will borrow ideas from research labs and incubators, while trying to avoid the pitfalls of both models. The unique linked-heritage plan is centered around the still-unexplained network architecture, an all-optical, data-centric strategy that doesn't fit inside a single-company business plan, Zadikian said.

"We looked around for a business model that fits [the planned inter-connecting architecture], and we couldn't find one," said Zadikian, whose ideas first came to light earlier this year (see Optical Mania in Texas).

While the group's first official announcement today says its companies are planning products for the metro access, long-haul, and core optical networking markets, none are yet ready to delve into the messy specifics of why their boxes will be better, or when they might be available, or at what prices.

Yet the plan was strong enough to attract a total of almost $60 million in first-round funding, with the venerable Mayfield Fund leading a group of investors that includes Sevin Rosen Funds, Weiss Peck & Greer Venture Partners, and Hook Partners.

The lead horse in the Iris Group corral is called Iris Labs, which is based in Plano, Texas. While it won't focus on products, Iris Labs will serve as the central clearinghouse for the architectural technologies that link the group's products, Zadikian said, as well as the development point for a network-management strategy. Iris Labs, which received $7.5 million of the funding round, will also provide operational support for the other companies, much as an incubator provides legal and administrative help for its brood, Zadikian said.

The two main box-building companies in the group's herd are Metera Networks Inc. and Latus Lightworks Inc., both based in Richardson, Texas. Metera, which received $24 million of the funding, will focus on building access and metro-area optical systems that will be compatible with Sonet, according to the company's Website. Latus, which got $28.1 million, will focus on long-haul optical backbone systems.

The fourth member of the group is a company called Coree Networks Inc., based in Tinton Falls, oddly enough, N.J. Led by former Lucent Technologies Inc. (NYSE: LU) employee Dr. Hyeon Lee, Coree will focus on core optical networking systems and expects to close its own first round of funding before year's end.

Zadikian, who is CEO of Iris Labs as well as Latus, is actively searching for a replacement CEO for his Latus duties. Baghdasarian is president and CEO of Metera.

Though the companies will all support the planned unifying architecture, Zadikian said they are all separate corporate entities, tied together only by a common goal and some "intricate use of [fiscal] cross-incentives to allow them to coordinate efforts."

The reason for building some independence into the structure, Zadikian said, was to avoid the Titanic type of dotcom incubator interdependence, where one failure can sink a whole ship of companies.

"At the end of the day, you still have to have a hot box," said Zadikian, who claims the companies' product lines will work in standalone fashion, and may even expand to compete against each other. "The companies are not just piece-parts, dependent on the other companies." Zadikian said that Iris also plans to license its technologies to companies outside the group and will offer technologies to standards bodies for consideration.

Though Metera, with 75 employees, and Latus, with 50 employees, are already in motion, Zadikian acknowledged that attracting talent may be the toughest part of the Iris Group plan. Though the companies' geographical spread hits many of the optical-networking talent hotspots (Metera also has facilities in Ottawa), Zadikian says it's hard to pry engineers loose.

"Everyone [in the industry] already has a nice job, and they don't have to move," said Zadikian, who estimates he spends about half of his working time recruiting. "And their first question is always, 'How many options?' "

-- Paul Kapustka, Silicon Valley bureau chief, Light Reading http://www.lightreading.com

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