WaveSmith Gets $30M, Signs With Ciena

WaveSmith Networks Inc. has closed $30 million in funding, part of which comes from Ciena Corp. (Nasdaq: CIEN). Besides investing, Ciena will sell, market, and support WaveSmith's products. WaveSmith also will continue to sell gear on its own (see WaveSmith Scores $30M).

The news mimics the funding/distribution deal Ciena did with Équipe Communications Corp. in March 2002 (see Équipe Announces Third Round Funding, Partners with Ciena and Équipe Partners With Ciena, Scores $40M).

As with Équipe, Ciena's keeping mum on the amount of its stake in WaveSmith, saying only that it's "less than $10 million." What percentage of the startup's equity is now owned by Ciena is being kept confidential.

The round brings WaveSmith's total to $84.5 million, and execs say it will fully fund the company through 2004. Primary uses will be for ongoing operations and "selective hiring." Besides Ciena, Argonaut Private Equity Management LLC also is a new investor. Others, including Atlas Venture, Bessemer Venture Partners, and Fidelity Ventures, along with some private investors, also contributed to WaveSmith's first round.

The arrangement has potential impact in many directions: Indeed, it's a triple play of sorts. First, it extends a vital helping hand to WaveSmith, which, like Équipe or any startup in the present telecom market, needs the sponsorship of a powerful partner to succeed with incumbent carriers. For its part, Équipe can hope for a wider range of prospects, thanks to its partners. And Ciena gets to peddle a solution in multiservice switching, a market that by all accounts is a beacon of cheer in the telecom gloom (see Multiservice Switches).

Specifically, Ciena claims the deal will enable it to offer a well rounded solution tacked onto its own switches. Spokesman Glenn Jasper says Ciena can offer Équipe's 3200 core switch with its CoreDirector, for instance, and sell WaveSmith's Distributed Node (DN) in tandem with its own MetroDirector K2.

So what's not to like?

Well, there's the issue of integration. Not a problem, according to WaveSmith's CEO, Robert Dalias. "Équipe has always been a close neighbor. We've tested interoperability of our equipment. Large carriers like the solution and they're testing us together." Équipe could not be immediately reached for comment at press time, but a WaveSmith spokesman says it's familiar with the deal and has worked to create the interoperable trio.

Then there's the matter of the 800-pound multiservice gorilla, Alcatel SA (NYSE: ALA; Paris: CGEP:PA), which Dalias sees as WaveSmith's primary competitor. Still, with Ciena and Équipe in the portfolio, he's confident of winning despite Alcatel's installed base.

The key is the Ciena partnership, he says. "For the longest time, our biggest risk was the startup perception." Often, it was tough to get in to see senior people at some big prospective accounts. Now that's solved, says Dalias. Thanks to a partner with the right contacts, WaveSmith isn't dismissed as a rank beginner anymore.

Not that WaveSmith's done so badly for itself (see WaveSmith Networks). It claims to have five paying customers, three announced (see WaveSmith Wins Twice and WaveSmith Wins Customer). Still, the push into the coveted U.S. incumbent market has eluded it so far.

But another issue could lie with Ciena itself. Despite its claim that WaveSmith will sell well alongside the MetroDirector K2, some analysts have said it's a no-show in carrier networks (see Ciena's K2: What Problems?). If that's the case, it could conceivably affect Ciena's WaveSmith pitch.

Still, the possibilities the deal presents are compelling. One of these is the chance that if all goes well, Ciena might purchase WaveSmith and/or Équipe.

WaveSmith's Dalias doesn't encourage this line of thinking. "At this time, there is no commitment of any type," he says. While he acknowledges that a market upturn could change things, he thinks it will be a while before Ciena or any large company sees sufficient traction to risk an acquisition. "No one will be offering to buy us for quite awhile."

Meantime, the multiservice market's looking good, comparatively speaking. While WaveSmith and Équipe both started out pushing their platforms as Multiprotocol Label Switching (MPLS) migration boxes, it's looking as if there's a lot more life left in the legacy networks they also address (see MPLS vs ATM? Vendors Weigh In).

Dalias says vendors will need to make their solutions interoperable before MPLS takes off. "Someone has to win, someone has to decide they've lost, and someone has to play nice," he says.

In the meantime, he's focused on the business at hand. "Customers are telling us ATM, Frame Relay, circuit emulation... This market segment will grow."

— Mary Jander, Senior Editor, Light Reading
www.lightreading.com Movers and shakers from more than 100 companies – including Ciena Corp. – will be speaking at Lightspeed Europe. Check it out at Lightspeed Europe 02.

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jgh 12/4/2012 | 9:30:40 PM
re: WaveSmith Gets $30M, Signs With Ciena This is agreat deal for Wavesmith especillay if the telecom market turns around in the next 18 months. I don't think they could have lasted thru 2003 without the funding and the reselling agreement with Ciena. They need some company to validate their product.
As far as Dalias' comment regarding an acquistion of Wavesmith by Ciena as not being discussed, I think he doth protest too much. 7 of the top 8 executives at Wavesmith worked for startups that were acquired by larger companies. Dalias worked for Castle Networks which was acquired by Siemens.
I am sure if Ciena finds their product complements their optical products and made a pitch to acquire Wavesmith, do you think Dalias would decline. I think not.
BlueWater66 12/4/2012 | 9:30:38 PM
re: WaveSmith Gets $30M, Signs With Ciena I'll also bet that Ciena included "right or first refusal" in their investment rights. They may have also put in some sort of valuation and buy-out time table "option". This would benefit them on the upside, but give them an "out" if they lose interest. Money is hard to come by. In this market, OEM's can certainly get language like that inserted into funding terms.
zhadum 12/4/2012 | 9:30:37 PM
re: WaveSmith Gets $30M, Signs With Ciena Before the usual cynicism and skepticism about this relationship starts appearing on this board, lets congratulate WaveSmith for striking a reality-based deal. Getting an OEM partner is the smartest thing a start-up can do in this environment. And given that the big guns are starving for new product offerings, this could be a stable win-win situation. Dont be surprised if we see more of these deals (One could even argue that the Sycamore-Siemens relationship started this thought process).
I'mRael 12/4/2012 | 9:30:37 PM
re: WaveSmith Gets $30M, Signs With Ciena
so..."Lucent"'s Caine and Abel are in one (bed?) house now --
or at least have the same sugar daddy.

that same article/quotes in 2k would be laughable, now it's laudable? go figure.
two years is a long time these days. peace in acton (mideast)?

will be interesting to see what (who) gets sacrificed.
zoinks! 12/4/2012 | 9:30:36 PM
re: WaveSmith Gets $30M, Signs With Ciena >I am sure if Ciena finds their product
>complements their optical products and made a
>pitch to acquire Wavesmith, do you think Dalias
>would decline. I think not.

I doubt that Dalias, or any C round startup CEO these days, has any say over whether the company is acquired or not. The VCs set the direction and make the decision.

whyiswhy 12/4/2012 | 9:30:29 PM
re: WaveSmith Gets $30M, Signs With Ciena This deal appears to be quasi-real, and much much better than the deal NT struck with BKHM...congrats to Wavesplitter mgmt (or VCs).

optigirl 12/4/2012 | 9:30:27 PM
re: WaveSmith Gets $30M, Signs With Ciena why are people saying that this is a great deal for Wavesmith when there is certainly nothing certain around Ciena's chances for success. Did Wavesmith choose the wrong partner maybe?????
whyiswhy 12/4/2012 | 9:30:26 PM
re: WaveSmith Gets $30M, Signs With Ciena I meant WaveSmith, not WaveSplitter...Freudian slipping all over the place...still, $30M for a collection of ASICs is a great deal compared to $110M for the entire optics group from NT...at least for WaveSmith that is. Ciena was clearly desperate.
generalcharlesdegaulle 12/4/2012 | 9:30:26 PM
re: WaveSmith Gets $30M, Signs With Ciena Boy..this is by FAR the most confusing switching
lineup i have seen..can anyone even say in 2
simple sentences how this portfolio is
complimentary and meant to work?...read the K2
and WaveSmith product descriptions..the overlap
is insane.....these multi-million pops are going
to have a HARD sell, imho...
lilgatsby 12/4/2012 | 9:30:24 PM
re: WaveSmith Gets $30M, Signs With Ciena Well, if Wavesmith is linking together next-gen to legacy as a gateway device, who better than aligning with the NG market leader in optical switching & transport?

Based on cash to debt/op-ex ratio and market share name better companies to pick from in this space. I guess they could have selected Movaz and glommed on to their single customer...or Nortel and hoped that the optical division isn't sold...or Lucent and hoped that the optical division isn't sold...or Marconi and hoped that they start selling anything in the US...or Corvis and they their 2 buying-3 retreating customers.

There is no sure-thing out there, optigirl. This move doesn't look bad IMHO...

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