Optovation Inc., an optical performance monitoring startup, is throwing in the towel. The company, which now employs only a small group, is selling off its assets, including its intellectual property.

The company’s CEO, Peter Evans, says the startup has already found two companies interested in buying some of its assets. He says one deal has been completed and the other is still being worked out.

“Let’s face the facts, the optical components business is challenging,” says Evans. “There are still a lot of companies out there, and VCs are looking for a return on their investments.”

While Evans wouldn’t name the companies interested in Optovation’s assets or discuss specifically how the intellectual property will be split up, Light Reading has heard rumors that edge routing startup Laurel Networks Inc. has already completed an $11 million purchase of some of Optovation’s assets.

Laurel officials declined to comment on this story.

At first glance, the two companies seem an unlikely match. Optovation’s main product is an optical performance-monitoring subsystem that measures the transmission of an optical signal and determines whether bits have been lost in an optical transmission, without converting the optical signal into an electrical one. The product is ideally suited for DWDM systems, which typically have monitoring systems that measure only power and signal strength.

So what would an IP routing vendor do with an optical performance monitor? Evans says that because the device can monitor basic power and wavelength characteristics along with the actual electrical signal, it can be used to monitor Layer 2 and Layer 3 traffic in addition to optical traffic.

“Anywhere you have light transmitted over great distances, there is opportunity for problems like dispersion to occur,” he says. “With this product you can correlate changes at the optical level with problems occurring at the packet level.”

Evans says that problems with Ethernet, Frame Relay, or IP traffic are often the result of disturbances happening at the physical or optical layer. Most monitoring tools available today can’t make that connection. This level of performance monitoring can be especially important for applications like 10-Gbit/s switching and routing.

This fits in nicely with Laurel’s 10-Gbit/s strategy. The company has already announced routing interfaces for 10-Gbit/s Ethernet and OC192 (see Laurel Targets 10-Gig at the Edge).

And there’s another important link between Laurel and Optovation. The two startups share a common venture investor, New Enterprise Associates (NEA). The firm holds seats on each company's board of directors. With its strong voting positions in both companies, it’s easy to see how such a deal could be pushed through.

Optovation, which has raised a total of $37.3 million in funding since 2000 when it was first formed, has a convoluted past (see Optovation Brings in $20M). Originally, the company was part of an optical systems startup called Roshnee, founded by Raj Singh (see Fiberlane Founder Finds Another Startup). Singh gained notoriety in the late 1990s when the company he helped found, Fiberlane, was split into two other startups: Cerent and Siara. These companies were then sold to Cisco Systems Inc. (Nasdaq: CSCO) and Redback Networks Inc. (Nasdaq: RBAK), respectively, for a combined total of about $11.3 billion.

In September 2000, Roshnee was broken up into two companies: Inara and Optovation (see Roshnee to Split in Two). A little over a year later, Inara was shut down. Since then Optovation has quietly been working in its Ottawa facility, developing optical monitoring and performance subsystems and wavelength conversion components. Evans, a former marketing executive at ONI Systems, came on board in July of last year (see Evans Takes Helm at Optovation).

— Marguerite Reardon, Senior Editor, Light Reading