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Optical/IP

Yipes Switches CEO Again

Yipes Enterprise Services Inc. (formerly known as Yipes!) is still going -- though not without some turbulence. Last week the Ethernet services quietly replaced former CEO Dennis Muse with a new CEO.

John Peters, former CEO of Yipes’s competitor Sigma Networks, is the new top chief executive. Muse joined Yipes in early 2002 as the chief operating officer. He replaced Jerry Parrick, founder of Yipes and chairman of its board, in March 2002 when the company filed for Chapter 11 bankruptcy protection (see Yipes Joins Chapter 11 Club).

Yipes's CEO choice may seem a bit unusual. Peters was CEO of Sigma Networks when it filed for bankruptcy back in 2002. But unlike Yipes, Sigma Networks never reemerged. The startup, which had raised $145 million and secured $290 million in loans from Cisco Systems Inc. (Nasdaq: CSCO) to build its network, eventually went out of business.

Prior to Sigma, Peters was a vice president at Internet service provider, Concentric Networks, which later became XO Communications Inc. (OTC: XOXO). Like Sigma and Yipes, XO Communications also filed for bankruptcy protection (see XO Finally Files for Bankruptcy). Most recently, Peters was CEO at Netli Inc., an SSL (Secure Sockets Layer) service provider. (As of this writing, Netli had not filed for bankruptcy.)

Yipes hadn't much comment on the change of CEOs, stating only that Muse’s departure was mutually agreed upon by Muse and the board of directors. But a source close to the company says that Yipes is not meeting its financial target of $1.5 million in revenue by the end of the year. Rumors are floating around that the company is looking for new investors, and Muse’s departure may have been a condition for receiving that new funding.

Yipes, which had raised over $291 million in three rounds of funding between 2001 and 2002, emerged from bankruptcy in the fall of 2002. The company’s original investors, including Norwest Venture Partners, New Enterprise Associates (NEA), Sprout Group, J.P. Morgan Chase & Co., Soros Private Equity Partners, Focus Capital, Glynn Ventures, and Quantum Capital, reinvested in the company, putting up $54 million (see Yipes Reborn – Amid Accusations). In September, the company announced that it had received an additional $9 million, bringing the total of series A funding to $63.5 million (see Yipes Rides Back With $63.5M).

While this may seem like a lot of money, the reality is that Yipes has been operating on a small budget since its emergence from bankruptcy. A large portion of the $63.5 million reinvested in the company was used to purchase the company's assets. The remaining cash has been used to fund expansion and operations over the last year and a half. Yipes would not disclose how much of that cash was used for the repurchase of assets, but a source close to the company estimates it was well over half.

It’s difficult to tell whether or not the business model that led the company to bankruptcy in the first place has been fixed. Deploying fiber requires huge amounts of capital. Since its emergence from bankruptcy, the company has continued to aggressively build the network. Muse told Light Reading during a September interview that the carrier had added 90 buildings to its accessibility roster over the last year, and now has 474 buildings connected to its service in New York, Philadelphia, Washington, Chicago, Dallas, Houston, Denver, Seattle, San Francisco, and San Diego.

Muse also told Light Reading that Yipes plans to more than double its U.S. presence (up to 24 cities), while including 16 to 18 international locations by the end of 2004.

Peters's first order of business could be to further slash Yipes spending. The company currently has about 135 employees, down from 375 at its height in 2001. Muse told Light Reading back in September that he thought this was an appropriate headcount going forward. A Yipes spokesperson had no comment regarding future layoffs at the company.

— Marguerite Reardon, Senior Editor, Light Reading

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