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Startups Suffer Setbacks

Light Reading
News Analysis
Light Reading
9/20/2001

It's no news that optical startups face an uncertain financial future these days. But last week's terrorist attacks in the U.S. appear to have exacerbated market uncertainty, making it harder than ever for new companies to close much-needed funding. As a result, at least two well-known optical startups made major cuts this week.

Cinta Corp., which is developing an optical switch for long haul use, let go 17 of appromixately 130 employees. Mahi Networks Inc., which is developing a multiservice provisioning platform, laid off about a third of its workforce.

John Vaughn, president and CEO of Cinta says cuts were made across the board including marketing, manufacturing, adminstration and a few in engineering.

Last year, Cinta raised about $64 million from large investors, including ADC Telecommunications Inc. (Nasdaq: ADCT) , Corning Inc. (NYSE: GLW) , Battery Ventures , and Sequoia Capital (see Cinta Aims Big).

Back in July, Cinta announced it hired Bob Cantarutti, former vice president of optical access products at Nortel Networks Corp. (NYSE/Toronto: NT), as its vice president of sales (see Cinta Expands Sales Force). The addition of a sales team and the prospect of beta trials to begin this summer were clearly good signs.

But sources say that it has been difficult to raise a third round of funding -- not a big surprise, given current market conditions, particularly in the long-haul sector. Indeed, as carriers like Qwest Communications International Corp. (NYSE:Q) and WorldCom Inc. (Nasdaq: WCOM) announced reductions in capital spending budgets for 2002, incumbent suppliers like Ciena Corp. (Nasdaq: CIEN), Lucent Technologies Inc. (NYSE: LU), and Nortel Networks Corp. (NYSE/Toronto: NT) have all reported disappointing quarterly results. Not a promising trend for newcomers like Cinta.

“Long haul transport is a very difficult sell to investors today, given that competition from Ciena, Lucent, and Nortel is very robust,” says Scott Clavenna, director of research at Light Reading and president of PointEast Research LLC. “The outlook for carriers adding new vendors in 2002 is poor.”

But Cinta's CEO Vaughn is optimistic. "We are still in the process of looking for funding," he says. "It's a tough market. It might take a little longer, but we'll get there."

Then there is Mahi. The Sonoma Valley-based startup raised $64.4 million last September, drawing on big-name investors such as Goldman Sachs & Co. (NYSE: GS) and Sequoia Capital as well as carriers WorldCom, Time Warner Inc. (NYSE: TWX), and Williams Communications Group (NYSE: WCG) (see Mahi's Got a Big Fish to Fry).

After its funding round, the company supposedly had a valuation of $259 million. And just two months ago, rumors circulated that Mahi had closed a substantial third round of funding. Word also was that it had signed a $300 million contract with BellSouth Corp. (NYSE: BLS) (see Mahi Secrets Surface).

Now, former employees have reported to Light Reading that approximately 100 of the 325 employees working for the stealthy startup were laid off yesterday and that the optics development program was also eliminated.

The move seems to follow a trend. Lumentis AB , Network Photonics Inc. , and Maple Optical Systems -- companies involved in pursuits similar to Mahi's -- have all decided to scale back development of their optical divisions to conserve cash (see Maple Turns Over a New Leaf and Lumentis Faces Metro Challenge).

“They bit off more than they could chew in the product design and need to trim it back to preserve cash burn,” says Clavenna. “The optics part (tunable lasers, DWDM transport, OADM) was far too ambitious and required too many expensive engineers.“

Lessons learned, perhaps too late. Even prior to last week's terrible events, sources say Cinta and Mahi were suffering the brunt of the downturn. Some says Cinta's layoffs were planned for last week, but company officials decided to postpone the announcement when the tragedy struck.

Mahi and Cinta executives had not returned calls by press time.

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

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flanker
flanker
12/4/2012 | 7:49:51 PM
re: Startups Suffer Setbacks
The Cinta product is not just a switch. It incorporates DWDM transport and switch functions in a modular rack.
simails
simails
12/4/2012 | 7:49:49 PM
re: Startups Suffer Setbacks
I am amazed at the number of companies Mr. Chen
started. Looks like he is holding the bag.
Jey
Jey
12/4/2012 | 7:49:49 PM
re: Startups Suffer Setbacks
Wufu Chen can not rescue his optical companies.

Geyser Networks closed the door yesterday!!!

Cinta's product is extraordinary expensive. So far, Cinta has not got any customer (even lab trial). I talked with their market people before, indeed, this company has not true product yet. No matter how much funding pour into this company, no customer like to pay the cost!!! Cinta will certainly die soon. Did you remember Geyser also layoff 20% a few months ago? Cinta is playing as same game as Geyser.

After Cinta, Optimight is next turn. Optimight is doing long-haul WDM transport. If you see stock price for Corvis and Sycamore, you know Optimight has big problem to get funding again.

Jey
Jey
12/4/2012 | 7:49:48 PM
re: Startups Suffer Setbacks
However, most of VCs don't know he doesn't know optics. The VCs just followed him to invest many poor idea company, like Optimight's O-CDMA and Cinta's tunable laser systems (far from mature & too expensive).
realoptics
realoptics
12/4/2012 | 7:49:48 PM
re: Startups Suffer Setbacks
WuFu Chen himself does not know any shit about optics anyway(he is a very honest man and he admits that), so if he is blessing/blocking up anybody does not necessaryly mean either way for the company. We can't use him as a majic standard because he is like you and I, we all are only human. The earlier successful companies he had made are clearly due to both hard working and, quite important, some luck. We certainly all remember that back to 2 years ago, or even 1 year ago, anything, any shit sells.

Some Taiwaness investors, especially those technology ingorant but also unfortunate ones followed him like the god, pour money to whatever componies he decieded to invest, now I hope the lessons are learned.

simails
simails
12/4/2012 | 7:49:48 PM
re: Startups Suffer Setbacks
The way Mr. Chen started so many companies is
quite different and unique- he would start one
company serving as CEO and chairman in the initial
stage and then hop on next one and start it over
again and again. Most of the time, he started more than two companies at the same time. From each company he got major founder stock option but wander how much time he can spend on each one.
So with little time spent on each company, he
is sitting on big chunk of stake of the company.
This is a highly leverage way in terms of investment with putting too much in other than his fame.
slash2
slash2
12/4/2012 | 7:49:48 PM
re: Startups Suffer Setbacks
rumor has it that layoffs at Mahi are directly related to conditions set by investors for their 3rd round financing
hitecheer
hitecheer
12/4/2012 | 7:49:48 PM
re: Startups Suffer Setbacks
The big wave of decimation of startups will come sooner that everyone expected. These giant cash burners won't last until 2002 in this market.

Dill Weed
Dill Weed
12/4/2012 | 7:49:47 PM
re: Startups Suffer Setbacks
Are these Chris Rust (Sequoia) companies?
Jey
Jey
12/4/2012 | 7:49:47 PM
re: Startups Suffer Setbacks
>rumor has it that layoffs at Mahi are directly >related to conditions set by investors for their >3rd round financing


Make sense. But it's not good sign for a company, some of good engineers may leave too if they have chance, as they worry ..... I heard Mahi had big problem.
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