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KP, Cisco Double Down on Cenix

Light Reading
News Analysis
Light Reading
10/26/2001

Like many venture firms this year, Kleiner Perkins Caufield & Byers (KP) startups have seen better days. But despite the slowdown and the fact that KP has pulled the plug on some of its investments, it's continuing to selectively back players in the optical field.

Earlier this week Cenix Inc., a designer and manufacturer of next-generation high-speed optoelectronic interfaces, announced it has raised $52 million through a combination of second-round equity and debt financing that included KP (see Cenix Secures $52M).

VCs familiar with the deal say the $52 million round was valued at around $130 million pre-money. Though that kind of valuation is certainly down from 2000 levels, several VC sources who looked at it said they still considered it lofty for a company that hasn't yet produced revenues. Other than saying it wasn't a "down-round" -- that is, valued lower than a previous round of investment -- Cenix officials declined to comment on valuation.

KP has also made an adjustment to its board leadership at Cenix. Vinod Khosla, a leading KP VC who sits on the boards of Redback Networks Inc. (Nasdaq: RBAK), Juniper Networks Inc. (Nasdaq: JNPR), and Qwest Communications International Corp. (NYSE: Q), was the original Kleiner Perkins partner to discover Cenix. But when he went on sabbatical in April, Khosla passed the baton and his board seat onto his colleague, Ted Schlein.

Cenix is working on developing OC192 (10 Gbit/s) interface cards, which provide a connection between fiber optic telecom lines and electronic switches and routers. The company's potentially hot technology is an automated manufacturing process to assemble these cards, a task that is still commonly done by hand. It also is shrinking the electrical and optical components down to the size of a credit card, allowing system developers the opportunity to build denser, more powerful products.

One factor that is sure to have influenced investors is the fact that the company had three products out within six months of being funded (see Cenix Unveils Subsystems).

Schlein says Cenix is gravitating toward the contract manufacturing model, in which it will improve production methods for system makers.

“I think that what they are doing hits on key trends that are even more prominent now,” says Schlein. “A lot of companies don’t want to foot the bill for the design and manufacturing. If we can execute, we’ll have the best expertise and system development on the market. We want to be the Flextronics for the optical world.”

The company draws heavily on expertise out of Lucent Technologies Inc. (NYSE: LU) and Agere Systems (NYSE: AGR), which has built one of the only automated manufacturing lines for optical components, called the Manufacturing Resource Center.

The company benefited greatly from the early brain drain at Lucent. Its entire management team, from CEO Melvyn Dixon to Nils Anders Olsson, COO and CTO of the company, were working for Lucent’s optoelectronics division (which later became Agere) before founding Cenix (see Cisco, Juniper, Lock Down Internet Router Market ). The company is also attracting big names from other major companies. Krish Prabhu, former COO of Alcatel SA (NYSE: ALA; Paris: CGEP:PA) and CEO of Alcatel Americas, joined the company’s board of directors back in August (see Alcatel Honcho Joins Cenix Board).

In fact, Cenix is not only closely related to Agere -- it's right down the street, in the Allentown, Pa., area.

First-round investors participated in the latest round, along with new investors, POSDATA Company, Ltd., AK Investments, LG Electronics Inc., Athena Venture Fund, Samwhan Corporation, S.P. Comtech Co. Ltd., Optical Capital Group, Corning Inc. (NYSE: GLW), and other strategic partners and individuals.

The company pulled together $34 million in equity financing and $18 million in debt financing from Western Technology Investment and Comdisco Ventures. In total, the company has raised $77 million. It had announced its original first round of funding in November of 2000 when Kleiner Perkins, along with Cisco Systems Inc. (Nasdaq: CSCO) and Dongah Elecomm, a Korean company, signed on as investors (see Cenix Backed by Cisco, Kleiner Perkins).

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

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HarveyMudd
HarveyMudd
12/4/2012 | 7:39:51 PM
re: KP, Cisco Double Down on Cenix
This product may look good at the surface but who will buy it and who will use it. It is not clear what technology the company wishes to replace. It is also not clear how do they wish to bring down the cost.

No Venture Captalist,including Kleiner Perkins can use their name to push a product.
flanker
flanker
12/4/2012 | 7:39:46 PM
re: KP, Cisco Double Down on Cenix
I second the motion. Just to get their sales to equal their most recent valuation of $130mln, they would have to sell 13,000 cards at $10k per card.

To generate a positive IRR, they would have to sell a hell of a lot more than that. Are they anticipating selling the company to CSCO for $500mln? Those days are over.

Investor
Investor
12/4/2012 | 7:39:43 PM
re: KP, Cisco Double Down on Cenix
The press release did not mention anything about KLeiner leading this round. LR, has this been confirmed with KP.
Scott Raynovich
Scott Raynovich
12/4/2012 | 7:39:42 PM
re: KP, Cisco Double Down on Cenix
They did not lead the round (and the story doesn't say they did). They do, however, hold a board seat.
HarveyMudd
HarveyMudd
12/4/2012 | 7:27:55 PM
re: KP, Cisco Double Down on Cenix
The equipment vendors and servicve providers should realize that no VC firm or the company's Board of Directors control the technology or the market.

One optical networking company by the IOLON is not doing very well. Who is going yo rescue this company?
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