What's changed? Capital spending is up; larger companies are increasingly looking to startups to plug holes in their portfolios; and, most importantly, some key startups have proven that you still need new technology being developed by entrepreneurs in order to succeed.
This became evident in the research for Light Reading's new Top Ten Private Companies for 2005. Our last revision, in May 2004, represented a full house cleaning (see Light Reading's Top Ten Private Companies). At the time, it was clear that many startups had become deadwood on the list, victims of the bubble and the unsustainable business plans it created .
At the same time, the brutal adjustment period of 2001-2004 bred another sort of company: a survivor that could cut back its burn rate, develop successful technology, and land just enough customers to get to the next funding round.
Here in 2005, the industry has stabilized considerably, and many of the survivors have actually become of interest again – especially to larger potential acquirers who may have missed an emerging product category or are looking for a good place to expand sales. Case in point: P-Cube, which was acquired in 2004 by Cisco for a healthy $200 million (see Cisco Plucks P-Cube for $200M and P-Cube).
Battle-hardened and street smart, this new generation of startup has only one goal in mind: Find enough customers to become self-sufficient.
Reports from the field indicate that many startups are indeed building significant customer bases and revenues – and many are one big contract away from becoming profitable. In fact, research from our recent Leading Lights Awards program indicated that the startup market is healthier than it's been in about four years, and that many telecom startups will be approaching breakeven and possibly even profitability in 2005.
All in all, three folks left the 2004 list, for better or for worse. In addition to P-Cube being put in the "Liquidity Bin" for enjoying a successful exit, Wintegra Inc. and Infinera Inc. get a seat on the bench. Three new companies are being drafted: BigBand Networks Inc., Fortinet Inc., and Atrica Inc.
Incidentally, P-Cube's acquisition may have established the number 10 spot as the most coveted on the list – the last two companies to occupy that spot have been purchased (Telica was the other). You gamblers out there may want to be placing bets on NetScaler, which has taken over the number 10 spot, after being bumped down the list by the heftier BigBand and Fortinet.
Those companies bumped from the list weren’t booted because of any imminent sign of disaster. LR editors merely felt that there are other companies with more momentum and better revenue prospects in the near future.
For example, Infinera still appears to be plugging along, but without a blue-chip list of large customers, it looks as if that journey make take a lot longer (and some more VC funds) to succeed (see Infinera Goes Live). Wintegra’s market – network processor chips – may also take a while before it flies.
New entrant BigBand Networks, the cable video equipment maker, generated some mojo during the Leading Lights Awards, when it became clear that it's developing a leading product and customer base in the robust cable video space (see Leading Lights Awards Finalists and LR Reveals Leading Lights Winners). BigBand was named Top IPO Candidate at our 2004 Leading Lights Awards ceremoney.
Fortinet is focusing on the exploding market for security devices, integrating content layer and intrusion detection capabilities into a firewall appliance, and appears ripe for the picking. Atrica, which has been bumped off the list before, has made a reappearance after getting the hot hand with some top-tier carriers around the world. (See Atrica Dials Into FTTP , Deutsche Telekom Tackles Ethernet, Atrica's Back-to-School Special, Leading Lights Awards Finalists, LR Tags Top IPO Candidates, and LR Picks Private Marketing Finalists.)
List veterans Calix Networks Inc. and Movaz Networks Inc. are making good progress in building revenues and customer lists, according to our sources. From what we hear, both companies are booking revenues in the multiple tens of millions (of dollars, not rubles). After cutting back staff in the lean years, they may soon have enough customers to be self-sufficient.
All and all, it's a brighter picture for startups in 2005.
Click on the individual companies on the list for the full details:
Table 1: Top Ten Private Companies
|Position||Name||Last Position on List|
Table 2: Liquidity Bin
— The Staff, Light Reading