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Wu-Fu Chen Startups Hit the Skids

Light Reading
News Analysis
Light Reading
9/21/2001

Has Wu-Fu Chen, the man who once said "We make money the new-fashioned way -- we print it!", lost his touch?

At one time, the serial entrepreneur could do no wrong. His homeruns included: Cascade Communications (sold to Ascend for $2.6 billion), Arris Networks, (sold to Cascade for $145 million), Ardent Communications, (sold to Cisco Systems Inc. (Nasdaq: CSCO) for $232 million) and Shasta Networks, which went to Nortel Networks Corp. (NYSE/Toronto: NT), for $340 million.

Now, almost the reverse is happening. Many of Wu-Fu Chen ’s current crop of startups appear to be running into trouble.

Just yesterday, Geyser Networks Inc., which was developing a multiservice provisioning platform, closed the doors of its Sunnyvale, CA headquarters. On Wednesday, another Wu-Fu Chen startup, Cinta Networks Corp., which makes a combination optical switch and optical transport product, laid off employees (see Startups Suffer Setbacks). OptiMight Communications Inc., which is working on a long haul transport product that uses coarse WDM, also is expected to feel the fallout of the capital spending crunch.

Certainly, the biggest strike against Wu-Fu Chen recently is Geyser. The company raised $44.5 million in funding and had been valued at between $80 million and $100 million after its second round in August of last year (see Geyser Spouts Off ). According to a source at the company, product testing had already begun in at least one beta site with three more contracts signed for trials beginning in the next couple of months.

But the company was unable to secure a third round of funding, even after its valuation had been dropped down to $33 million.

”We couldn’t close the third round and we ran out of money. It’s that simple,” says a former Geyser employee, who wanted to remain anonymous. “This just shows you the sign of the times. Eighteen months or 12 months ago we would have been acquired for top dollar, and today, we go out business.”

All along, the company seemingly struggled to assemble the right management team. CEOs shuffled in and out of the line up, with Wu-Fu Chen stepping in during the second round of funding (see Former Geyser CEO Finds New Home). In the end, though, Geyser’s failure didn’t surprise others in the industry. “I had heard that Geyser always had a sub-par management team,” says one source who didn’t want his name used. “And there were always questions about whether the product actually worked. It was never one of Wu-Fu’s strongest plays.”

But Geyser isn’t the only Wu-Fu Chen startup that has been hit recently. Cinta laid off 17 of its 130 employees earlier this week. Not an earthshattering reduction, but certainly a sign of hard times. The company is currently looking to raise about $50 million in a third round of funding, says its CEO.

”I don’t think anyone in their right mind wouldn’t say this is a tough market right now,” says John Vaughn, president and CEO of Cinta. “But we are making good solid progress.”

Then there is Optimight, which is focused on long haul transport. The company, which has raised $37.5 million to date, and currently has 145 employees, is also looking for a third round of funding. Karl Ma, director of product marketing for Optimight says the OMX 1600 platform is already in lab trials and expects general availability by the end of the year. But industry watchers speculate that Optimight’s days are numbered given the slump in its target market.

Over a year ago, Wu fu Chen took center stage at the Opticon tradeshow in Burlingame, CA to tell attendees that long haul transport was the hottest technology around (see Wu-Fu Chen: In It for the Long Haul). What a difference a year makes.

As service providers like Qwest Communications International Corp. (NYSE: Q) and WorldCom Inc. (Nasdaq: WCOM) slash capital spending, every public company in the long haul market has felt the impact, reporting poor visibility and disappointing earnings. Ciena Corp. (Nasdaq: CIEN), Sycamore Networks Inc. (Nasdaq: SCMR) and Corvis Corp. (Nasdaq: CORV), all of whom had built up huge market capitalizations based on the promising long haul market a year ago, are all suffering with share prices falling dramatically. Nortel Networks Corp. (NYSE/Toronto: NT) and Lucent Technologies Inc. (NYSE: LU), the two largest players, are also struggling.

But Ma, of Optimight, says that the company is working to close two big deals that will almost guarantee a next round of funding. He won’t say what the deal is exactly, but he alluded to a customer contract, trial, or investment opportunity from two large inter-exchange carriers.

“We are waiting for a couple of triggers from customers that will make investment in Optimight very attractive,” he says.

What happens if these “triggers” fall through? “We go on with life and figure out how to negotiate the troubled waters. Markets are tough, but we are moving forward and we are carefully controlling our cash.”

Wu-Fu Chen has plenty of other startups in the pipeline (see his write-up in the most recent Light Reading Top 10 Movers and Shakers. Right now, most of them are at early stages of development. The only mature one that appears to be reasonably healthy is Zettacom Inc. (see ZettaCom Advances With ZEST (& ZEN).

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

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simails
simails
12/4/2012 | 7:49:32 PM
re: Wu-Fu Chen Startups Hit the Skids
"we are not making money. we are printing money"
I remember this is the phrase spitted out of
Wufu's mouth in one conference as reported by
Lightreading last year.
lambdaswitching
lambdaswitching
12/4/2012 | 7:49:31 PM
re: Wu-Fu Chen Startups Hit the Skids
A question of investment cycle time comes to mind after reading this article.

If Wu-Fu ChenGs current crop of companies does not pan out, i.e. the companies go bust due to the drought in spending, wrong product, poorly implemented product, you name the cause, how long before a new crop of startups emerge?

Where are the next generation of startup companies coming from, were or what is the Gǣnext greatGǥ engineering advancement and company that will bringing GǣItGǥ to market, which VCGs will fund them? Things may be pretty grim right now in the industry, but does anyone believe that things will always remain so?

Anyone care to make a prediction of when the cycle begins again?
lightbulb0
lightbulb0
12/4/2012 | 7:49:30 PM
re: Wu-Fu Chen Startups Hit the Skids
No surprise. Wu-Fu has a trai of small bubbles and expected investors to help him blow them even bigger. Markets are always there, but only those intend to build a solid technology company will win. Life is cruel, ha!
lostinlight
lostinlight
12/4/2012 | 7:49:30 PM
re: Wu-Fu Chen Startups Hit the Skids
It would be interesting to know if all those "next generation" boxes made to real deployment. If there are carrier/ISP/backbone members here can you give us some info?
Personally, my dialup internet and dsl arent
exactly next generation!

Thanks
cfaller
cfaller
12/4/2012 | 7:49:29 PM
re: Wu-Fu Chen Startups Hit the Skids
dtj4000, I wish there were more people on these boards that thought like you. Too many engineers on this board don't understand the concept of providing a service to end users (end users, you know, companies whose core business is NOT in telecom?). Building a really cool widget is necessary and good, but it's fundamentally different from providing a communications service.
dtj4000
dtj4000
12/4/2012 | 7:49:29 PM
re: Wu-Fu Chen Startups Hit the Skids
A "next cycle" is not an issue of next-generation boxes. In the communication sector, just because you build something, be it next generation or not, is not a driver of demand. ItGs an engineer's perception that you can build something great and all will come running, (sorry if IGm being too stereotypical, but many in the SV have yet to learn this).

For example, DSL does not drive demand for people to want to connect to the Internet. It's the content of the Internet that brings demand on, which then drives the need for better/faster access. In other words, business is almost always about providing solutions to already existing problems, (aka someoneGs pain). If someone doesnGt have a problem, you donGt have a product.

As for long haul, the demand as we saw it in the past was one of perception, not reality. We just assumed the continuance in growth rates against the inability of the carrierGs (IXC) infrastructure. The two soon did not match, and the LH crowd is now in the same position as OptiMight is - waiting for the next wave.

For those that survive the cold waters, the next swell will be promising.

So now that we know that demand is driven by pain, we just need to ask ourselves when people are going to start hurting for something. I.e., demand for bandwidth exceeds capacity. Costs to access bandwidth increases price, which in turn introduces competition or more competitive ways, (mid-term on Friday, pay attention). More competitive ways means those next generation boxes.

Metro, regional and long haul will spin up at different rates. Once proper business models are put in place (no more free access guys) there then becomes a real reason for packets and lightwaves to begin flowing. So the big question is not when, but what.

pablo
pablo
12/4/2012 | 7:49:29 PM
re: Wu-Fu Chen Startups Hit the Skids
Excellent message by dtj4000.

Way back in early '00, while working on Terabit routing stuff, I thought the whole Optical Internet picture lacked balance. Mind you, it was more of an intuitive feeling, I am not claiming I interpreted industry data more expertly than anyone else. My stock portfolio is a sad testament to that. :-)

I think the key for those of us who manage to stay afloat in these very stormy waters (and there's a luck factor to that, I can't guarantee I am in a safe haven), is to not forget what we are building is a service infrastructure. We are still way too much of a technocracy. We talk hardware and system architectures and abstract concepts until we're blue in the face. The truth is, we are finding out, that none of that matters. Hardware alone does not create profitable services for service providers.

I lookm back on the lessons of the voice infrastructure: while being in love with hardware defined the telecommunications industry (and electromechanical telephony switches were awesome hardware achievements), plain old POTS service was not exactly a gold mine for service providers. Odd how software controlled intelligent services digital switch architectures opened the doors to exploding profitability. The hardware itself was eclipsed by software capabilities.

Today's data networking infrastructure remains the equivalent of the electromechanical switch. It's tailored to do *one* thing well (best effort services), it can't support other stuff cost effectively. Our industry has to snap out of its love for hardware architectures and simply deliver on software-defined systems that are able to truly enable that much-hyped next generation infrastructure. Until we come closer to realizing that vision, our industry will not *deserve* to turn around and go into expansion mode again.

simails
simails
12/4/2012 | 7:49:28 PM
re: Wu-Fu Chen Startups Hit the Skids
agree. but the victims that hurt most are the
innocent people, who worked for the bubble company
and rely on each paycheck for living, and not
the demon that created the bubble since they are
rich. That is the way what happened at Geyser Networks.

Wu-fu just dumped those who worked for his company
and has faith in him. The Geyser layoff was sudden
and left employee no time to prepare.
pablo
pablo
12/4/2012 | 7:49:28 PM
re: Wu-Fu Chen Startups Hit the Skids
> the victims that hurt most are the
> innocent people, who worked for the bubble company

Disagree. Working for a start-up is risky, and should be a very careful professional decision. People forgot that basic fact during the bubble, and as such, they have to assume some reponsibility for their own decisions.

Sure the VCs were wrong. But no moral law forces them to spend all their remaining money to save people's jobs for a few additional months. The contract people go into with a VC is quite clear: make them money. It is their right to withdraw their support when that doesn't seem to be the case. In fact, to a certain degree it's their duty.
lightbulb0
lightbulb0
12/4/2012 | 7:49:27 PM
re: Wu-Fu Chen Startups Hit the Skids
The investors should ultimately be blamed. It is just absurd to see so many boxes of so many brands (100+) and they do almost the same thing. Interesting enough, everybody wanted to sell to Quest. I just cannot imagine Quest would have 100 different boxes to be managed. Ha!
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