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Yafo Scores $22 Million

Light Reading
OFC/NFOEC News Analysis
Light Reading
3/14/2002
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Yafo Networks, which is developing a solution to handle polarization mode dispersion (PMD) on ultra-high-speed networks, announced today that it has raised $22 million in a third round of funding (see Yafo Raises $22M).

In addition to keeping the company moving forward, the funding may also signify renewed interest in 40-Gbit/s technology -- which has been all but forgotten in the current telecommunications environment. Signs point to Yafo buckling down and raising more cash for what may be a long development cycle.

The company, which was formed in 1999, has not had a funding round since March 2000 (see Can Yafo Lift Speed Limits?). Last November, it cut its 100-person staff in half to conserve cash (see No Go for Yafo? ). Paul Finke, Yafo's president and CEO, says the company began looking for money in the summer of 2001, and he expects this new cash to last through 2003.

So far, only previous investors have contributed to this round, but the round is still technically open for outside investors, says Finke. U.S. Venture Partners led the round, while Boulder Ventures, Mellon Ventures, New Enterprise Associates (NEA), Wheatley Partners, and WorldCom Venture Fund also coughed up some change. In total, the company has raised $61 million to date.

Polarization mode dispersion, a type of degradation of the optical signal, is the problem Yafo is solving (see Chromatic Dispersion and Polarization Mode Dispersion (PMD)). It is a major issue at transmission speeds of 40 Gbit/s and can be a problem at 10 Gbit/s on certain types of fiber and in certain networks. While Yafo has also developed a solution for 10 Gbit/s, the company feels the sweet spot of the market is at 40 Gbit/s.

Yafo’s success is contingent on carriers upgrading their networks soon to 40 Gbit/s. Since the carrier bubble burst last spring, 40 Gbit/s has fallen dramatically out of fashion. As early as last summer, experts, including Yafo’s own founder and CTO, Henry Yaffe, conceded that the market would not develop as quickly as they had anticipated (see 40 Gbit/s Takes the Slow Lane).

Speculation over when the market will actually take off continues into 2002. Some experts, like Stephen Montgomery, president of ElectroniCast Corp., believe that carriers will begin deploying 40 Gbit/s this year. Others say it will be more like late 2003 into 2004, with a substantial market not shaping up until 2005 or 2006.

Many of the typical early technology adopters are in deep financial trouble and unlikely to spend much on transport this year. Qwest Communications International Inc. (NYSE: Q), Williams Communications Group (NYSE: WCG), WorldCom Inc. (Nasdaq: WCOM), and Sprint Corp. (NYSE: FON) are all saddled with tremendous debt. Williams is on the verge of bankruptcy.

Other companies developing PMD compensators include Phaethon Communications, General Photonics Corp., Corning Inc. (NYSE: GLW), and JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU).

Finke says Yafo only needs a couple of customers to get started. “Look at Ciena,” he says. “Sprint basically made them.”

A good point, but today even Ciena Corp. (Nasdaq: CIEN) is struggling to meet its revenue estimates each quarter as it deals with its customers' continued capital budget cuts.

PMD compensation is expected to be a hot topic at the Optical Fiber Communication Conference and Exhibit (OFC) in Anaheim next week, as new startups developing PMD compensators are expected to emerge. Larger companies like Alcatel SA (NYSE: ALA; Paris: CGEP:PA) are also expected to be discussing their plans for handling PMD at OFC.

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

For more information on OFC 2002, please visit: www.nottheofc.com

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optigirl
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optigirl,
User Rank: Light Beer
12/4/2012 | 10:47:41 PM
re: Yafo Scores $22 Million
Speculation over when the market will actually take off continues into 2002. Some experts, like Stephen Montgomery, president of ElectroniCast Corp., believe that carriers will begin deploying 40 Gbit/s this year. Others say it will be more like late 2003 into 2004, with a substantial market not shaping up until 2005 or 2006.

----------------------------------------------

Let's see, the long haul carriers are falling down hard either cutting spending to the bone or going bust, there is certainly no one screaming for more bandwidth in the LH (Sorry Sparxe :-) ) and I don't know of anyone out there who can do 768 reliably.

Anyone out there ever seen one of Ecasts reports? Nothing but numbers built on wishful thinking and fluffy, uninformed assumptions at ridiculous prices. We canned our subscription 2 years ago.....

bigdaddy
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bigdaddy,
User Rank: Light Beer
12/4/2012 | 10:47:39 PM
re: Yafo Scores $22 Million
Not only Electronicast, but, KHR as well have figured out the art of Aft-Casting. Have you sen the reports for 2000 - 2001 did you know there was going to be a sharp decline in CAP Ex?? That's what I thought!!

What a tough business to be in. Some of the carriers just won't give them the time of day.

It's a job though, right?
alcaseltzer
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alcaseltzer,
User Rank: Light Beer
12/4/2012 | 10:47:39 PM
re: Yafo Scores $22 Million
so, was this a washout round as so many have been in the past few months?
alcaseltzer
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alcaseltzer,
User Rank: Light Beer
12/4/2012 | 10:47:38 PM
re: Yafo Scores $22 Million
How can it be a washout round if the only investors in this round are the investors in the previous round?


A washout round is a washout round - recapitalize from start; a new, lower valuation; re-assemble the pie and cut it up into different size slices; new money - no matter where the money comes from.



self
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self,
User Rank: Light Beer
12/4/2012 | 10:47:38 PM
re: Yafo Scores $22 Million
How can it be a washout round if the only investors in this round are the investors in the previous round?

__________________________________________

Speaking from experience, current investors can stick it to you just as badly as new investors.
optical_guy
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optical_guy,
User Rank: Light Beer
12/4/2012 | 10:47:38 PM
re: Yafo Scores $22 Million
How can it be a washout round if the only investors in this round are the investors in the previous round?

OG
skeptic
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skeptic,
User Rank: Light Beer
12/4/2012 | 10:47:38 PM
re: Yafo Scores $22 Million
How can it be a washout round if the only investors in this round are the investors in the previous round?
------------------
Because in every round the investors get more
stock based on the valuation and their new
investment.

Some washouts happen because an investor leaves
and the new investors brought in want more of
the company. Other times, the VCs leverage
their position either against either each other
or against the employees to get more of the
company for themselves.

The valuation is only one of the variables
they can manipulate though. Its possible
to raise the valuation of a round by giving
liquidation preferences out. And in many
cases, it would be better for the employees
to go through a washout than to have preferences
hiding in the deal. (assuming that the option
pool is rebalanced in the washout).


nobollox
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nobollox,
User Rank: Light Beer
12/4/2012 | 10:47:37 PM
re: Yafo Scores $22 Million
From what I hear, their product is good, just too early.

The only 40 gig investment activity is follow-ons. Can your 40 gig company buckle down on their burn rate to get through to 2004/5 is the question.

22M to get through 2003 =~$1M/month. Lets be honest about their investors. They know what they are doing.
alcaseltzer
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alcaseltzer,
User Rank: Light Beer
12/4/2012 | 10:47:37 PM
re: Yafo Scores $22 Million
So after $39M, nothing to show for it but a request for another $22M?
flanker
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flanker,
User Rank: Light Beer
12/4/2012 | 10:47:35 PM
re: Yafo Scores $22 Million
The only 40 gig investment activity is follow-ons. Can your 40 gig company buckle down on their burn rate to get through to 2004/5 is the question.

I agree. LR can call 40 industry analysts before they got a nice, optimistic quote, but the Wall Street reports I've been reading predict a continued implosion in spending. It's weird how they say vendor X might pull up in terms of revenues but at the same time industry capex is expected to be down 25% this year, and not necessarily recover until 2004.






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