Tropic Takes $20M, Looks to Partner
A strategic alliance with another vendor seems key to Tropic's survival. Once the toast of Ottawa's optical startups, the firm's had its share of post-boom setbacks. After scoring a big $67 million in two initial rounds by February 2001, it pulled into its shell for a few months, before announcing and demonstrating its product, the TRX-24000, at last year's Supercomm tradeshow (see Tropic Re-Emerges). Next came news of the company's seemingly unique Wavelength Tracker technology (see Tropic Touts Tracking Approach). Then, nothing again for awhile, until layoffs and a new strategy were revealed in December 2002 (see Mississippi Spurning and Tropic Refocuses, Lays Off).
Now, Tropic says it's got customer deployments but can't show any revenues. But a bigger vendor that has influence with the prospective customers Tropic's targeting might help, particularly in North America, where having a win is a necessary prerequisite for moving into other world markets, specifically in the important Asia/Pacific region.
"You've got to have a North American reference client first," says Rob Lane, Tropic's VP of marketing. Tropic already has an Asia/Pac partner (see Tropic Gets Asia-Pac Partner), but Lane says nothing can really go forward without that North American deal.
Others agree on the need for a helping hand. According to Brian Van Steen, principal analyst at PointEast Research LLC, going to market with a bigger player reassures big carriers they'll get the support they need, something they don't trust startups to give them.
It's a precedent set by a slew of agreements between large and small industry players -- of varying degrees of involvement -- over the past year, Van Steen points out. There's the reseller agreement between ADVA AG Optical Networking (Frankfurt: ADV), a potential Tropic rival, and Fujitsu Ltd. (KLS: FUJI.KL) (see ADVA Earns Reseller Returns); then there's the OEM agreement between Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) and White Rock Networks. In another arena, WaveSmith Networks Inc. has latched onto Ciena Corp. (Nasdaq: CIEN) for help in the multiservice switching market (see WaveSmith Gets $30M, Signs With Ciena).
Lane agrees with the approach and even hints that Tropic's already talking to a potential partner: "A startup selling to a Tier 1 carrier is unlikely right now," he says. "Of course I know who we're talking to, but I have nothing to announce." He says an alliance may be ready for unveiling "later this year," even if other customer announcements are made before that.
Who's on Tropic's list of potential partners? Lane won't say. Van Steen says a few possibilities can be eliminated: Ciena, Fujitsu, and Nortel Networks Corp. (NYSE/Toronto: NT) have strong offerings of their own in this area, he notes. That leaves Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Cisco Systems Inc. (Nasdaq: CSCO), and Lucent Technologies Inc. (NYSE: LU) as possibilities.
Beyond this, Van Steen isn't speculating. But scuttlebutt from at least two industry sources indicates Lucent may be having technical difficulties with its Metropolis EON product and may seek a partner to fulfill that need.
A Lucent spokeswoman says the company is unaware of any field issues with EON and could not comment on rumors, such as those of potential partnerships.
Whoever Tropic's partner turns out to be, it could boost the company's fortunes significantly, not just in terms of revenues but in product development, too. When Tropic refocused last December, it sidelined its efforts to attract customers based on its Ethernet transport capabilities. An alliance and sales could bring momentum back to that effort.
Leading the round announced today was Celtic House Venture Partners, whose other optical investments include ITF Optical Technologies Inc. (see ITF Pockets $25.3M) and SiberCore Technologies (see SiberCore Scores $12.9M). Other contributors to Tropic's new round include Goldman Sachs Private Equity Group, Kodiak Venture Partners, Crescendo Ventures, and Teachers' Merchant Bank, a multibillion-dollar equity group associated with Ontario Teachers' Pension Plan.
All the investors had participated in Tropic's earlier rounds, Lane says. Tropic managed to disengage itself from an early association with Enron (see Tropic Networks).
— Mary Jander, Senior Editor, Light Reading