OptiMight Reaches for New Funding

Here's a sign of the times: startups negotiating with creditors in order to secure their next rounds of financing.

That's the case with OptiMight Communications Inc., an equipment vendor led by Wu-Fu Chen, which said Wednesday that it is close to completing its third round of funding. But before it can get a check from investors, the company must strike a deal with its creditors so that it doesn't have to use up all of its current funds to repay debts.

OptiMight –- like other startups in search of funding -- is also putting a new spin on its marketing strategy, which is a necessity in this era of capital-spending cuts.

The creditors aren't taking the matter lightly. One of them, anonymously, provided Light Reading with a copy of a letter that OptiMight sent out on December 7. The letter called for a meeting of all creditors so that the company could begin restructuring its debts. It said that, though OptiMight was "experiencing cash flow difficulties," the company believes it has a "promising future."

"The reason we're restructuring our debt is because it was a condition put upon us for us to close our Series C round of funding," explains Karl Ma, OptiMight's director of product marketing. "It's not that we're out of money or anything like that."

OptiMight's last funding round, worth $32 million, was announced in May 2000. That round was led by WorldView Technology Partners and included investments from Hook Partners, Lucent Venture Partners Inc., Meritech Capital Partners, Thomas Weisel Partners, Venrock Associates, and Vertex Management Inc. To date, OptiMight has raised $37.5 million (see OptiMight Secures $32M 2nd Round ).

WorldCom Inc. (Nasdaq: WCOM) is known to be running trials with OptiMight's equipment. Optimight won't identify its other potential customers but says it's still targeting "big [carriers] with problematic fiber and big carriers with heavy traffic on key routes."

What has changed is how OptiMight is positioning itself to the outside world. The company wants desperately to shed the stigma that its products are only good for transporting signals across ultra-long-haul routes, a product category that is currently banished to the most frozen tundra of the telecom winter.

That won't be easy, since it was OptiMight itself that came out of the gate boasting that its OMC 1600 product could transmit signals up to 4,000 kilometers without needing signal regeneration or Raman amplification (see Wu-Fu Chen: In It for the Long Haul, OptiMight Reaches for Distance, and OptiMight Details Long-Haul Box).

"We shot ourselves in the foot," says Ma. "We entered the marketplace and we were caught up by the notion that ultra long haul was going to change the world.

"It turns out that our product has another value proposition. Our product uses the fewest components at the lowest cost at all distances -- anywhere from 400 kilometers to 1,600 kilometers."

If OptiMight gets funded, it will join PhotonEx Corp. in the realm of long haul -- sorry, transport -- companies that have successfully raised funds in a tough market (see Photonex Scores Huge 3rd Round). PhotonEx announced a $90 million funding round in October 2001, and Ma says OptiMight's third round "will be in that ballpark."

Even though it's going after the broader transport market, OptiMight is still competing against much larger companies at a time when spending is leveling off.

Optical transport revenues -- including metro and long-haul DWDM and Sonet/SDH gear -- fell from $4.8 billion in the first quarter of 2001 to $3.4 billion in the third quarter, according to Dell'Oro Group.

OptiMight acknowledged the changes in its addressable market last year, as it trimmed its ranks from a peak of 145 employees to about 120.

The company had hoped to have its product generally available by the end of 2001, but it's not ready yet. "There's going to be some slippage -- we're not sure how much -- but we're working hard night and day to get it done," says Ma.

— Phil Harvey, Senior Editor, Light Reading
Milano 12/4/2012 | 11:06:59 PM
re: OptiMight Reaches for New Funding Optimight formally exiting the ULH market is one more step toward the consolidation of that segment. Other than Corvis, Nortel and Lucent, I'm not expecting anyone else in that market by YE.

BTW, I thought the time was long gone when a company proposing a system with "the fewest components at the lowest cost" could lure VCs. Looks like it's the VC market that's in most need for a consolidation.

dtj4000 12/4/2012 | 11:06:58 PM
re: OptiMight Reaches for New Funding It's not a consolidation or exit from ULH - it's a diversification into more than one segment, supported via the product design. This pleases the VCs.

There's still hope for these guys, but only if they shift away from being technically minded to one of market savoy. This is what separates Ciena from Corvis.

For OptiMight, that will require a radical shift in the mind-set, or in the mind...set.
BB 12/4/2012 | 11:06:33 PM
re: OptiMight Reaches for New Funding I interviewed with these guys....and got a different story about the company from everyone....they didnt seem like they knew what the heck they was doing...
HarveyMudd 12/4/2012 | 11:06:21 PM
re: OptiMight Reaches for New Funding VCs would rather give a few more million dollars to a faultering start-up than cut their loses. When the VCs start to fund Optimight, they did not much idea about the technology and markets related to DWDMs.

VCs did not have a planned exit strategy, so if they do not fund Optimight, it would reflect very badly on tgheir judgement. It is is somewbody elses money, so the VCsc do not care. VCs do not have ther concept of phased funding as it places more responsibility on them. VCs would rather fund a company and let thgat company go out of business than accept any other kind of responsibility.

Optimight is in a very crowded space. Trial by Worldcom does not mean any thing as WorldCom, QWEST and Williams would try any thing under the sun.

Cloure of optical companies would continue to take place at even a faster spped than wqas originally thight.
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