On Monday afternoon, terabit routing startup IronBridge Networks laid off roughly 165 employees, says Doug Antaya VP of marketing for IronBridge.

A skeleton crew of 20 people are still with the company and are working hard to find a last minute investor to keep the company afloat. While trouble has been brewing for at least a month, the decision to downsize was only made this past weekend, says Antaya.

“We’re surprised that it has come to this,” he says. “We felt that we would continue to have financing, because the product has been well received by the industry. But our investors decided that they could no longer afford to continue funding us while we tried to get our next round together. So they asked us to cut our operating expenses down to a minimum.”

When Light Reading first attempted to contact the company on Tuesday, no one answered the general phone line and the voice mail system was not accepting messages. Individual executives at the company also couldn’t be reached for comment, a situation that has frustrated even the company’s own outside public relations agency.

“I’ve been trying to find them, too, and haven’t heard back from anyone,” says Ed Marshall of Beaupre & Co. Public Relations Inc., the firm that is handling IronBridge’s PR. “I talked to Carl [Blume, director of product marketing] on Friday, and everything was fine.”

A dark cloud has loomed over the company for the last few weeks as it struggled to find investors for a $100 million round of equity funding. Light Reading reported in mid-December that Alcatel SA (NYSE: ALA: Paris: CGEP:PA), the company’s lead investor through its acquisition of Newbridge Networks, decided not to participate in IronBridge’s latest round (see Ironbridge: Showing Some Rust?). Then a new lead investor was found, but withdrew its offer a few weeks later. Finally, last week the company’s president and CEO Paul Lazay stepped down and was replaced by Steve Bielagus, the former senior vice president of engineering and operations (see IronBridge Over Troubled Water ).

Employees had been preparing for the worst and many had already left the company seeking opportunities with other startups in the area like Tenor Networks, Gotham Networks, Telica, and Ennovate Networks, says one source in the Boston area.

Antaya blames IronBridge’s troubles on a weak stock market. He claims that the venture capital firm that had agreed to lead its next round of funding pulled out of the investment when Avici Systems Inc.’s (Nasdaq: AVCI; Frankfurt: BVC7) stock price started to drop. Avici's market capitalization has plunged almost 80 percent from its high last summer.

“Basically, they compared us to Avici,” he says. “And they didn’t think we would be able to give them the kind of return they had come to expect. We really thought we’d find funding from other sources, but it’s been very tough.”-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com